Document ID: SEC-2010-0435-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-03-22T04:00Z

[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Notices]               
[Page 13629-13632]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr10-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61713; File No. SR-NASDAQ-2010-006)

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change To Modify the Press Release 
Requirements for Listed Companies

March 15, 2010.

I. Introduction

    On January 13, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify certain of Nasdaq's rules pertaining to 
its press release requirements for listed companies. The proposed rule 
change was published for comment in the Federal Register on February 8, 
2010.\3\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61461 (February 1, 
2010), 75 FR 6241 (``Notice'').
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II. Description of Proposed Rule Change

    Nasdaq is proposing to modify certain of its rules related to the 
issuer compliance process that currently require a company to disclose 
information in a press release or through the news media. Nasdaq notes 
that these rules were generally adopted to address inconsistent issuer 
disclosure practices and reflected the view that issuing a press 
release was the only way to assure wide dissemination of an important 
event. However, in 2002, the Commission adopted Regulation FD,\4\ and 
Nasdaq amended its rules to allow listed companies to provide 
disclosure of material news via any Regulation FD compliant means.\5\ 
Nasdaq asserts that there is now broad acceptance of Regulation FD 
compliant methods of disclosure, such as through the use of a Form 8-K. 
Additionally, Nasdaq argues that its requirements in some instances are 
duplicative of the Form 8-K requirements, and notes that Form 8-K 
disclosures are readily available to investors and the information 
contained in them is widely reported on by the news media. As such, 
Nasdaq is proposing to modify certain of its rules, as described below, 
to permit disclosure either through a press release or by filing a Form 
8-K where required by Commission rules.\6\
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    \4\ 17 CFR 243.100-103.
    \5\ See Securities Exchange Act Release No. 46901 (November 25, 
2002), 67 FR 72011 (December 3, 2002).
    \6\ The Commission notes that Nasdaq is not proposing any change 
to Rule 5840(j), regarding the voluntary delisting of a company, 
because the press release requirement in that rule is required by 
Exchange Act Rule 12d2-2(c); 17 CFR 240.12d2-2(c). Nasdaq is also 
maintaining the requirements in Rule 5635(c)(4) and IM-5365-1, which 
require that a company relying on the inducement exception to the 
requirement to obtain shareholder approval for equity compensation 
awards must ``disclose in a press release'' specific information 
about the equity award. Finally, as noted above, late filers will 
still be required to issue a press release. See Rule 5250(b)(2) and 
Rule 5810(b).
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    First, Nasdaq proposes to amend Rules 5250(b)(3), 5810(b), 5840(k) 
and IM-5810-1, which require disclosure of notifications from Nasdaq 
staff or an Adjudicatory Body \7\ regarding a company's compliance with 
the listing standards. Rules 5250(b)(3) and 5810(b) require a company 
to ``make a public announcement through the news media'' \8\ disclosing 
the receipt of a notice that the company does not meet a listing 
standard, that staff has determined to delist the company, or that the 
company has received a Public Reprimand Letter. IM-5810-1 provides the 
time frame for companies to make these disclosures and describes the 
consequences of failing to do so. Rule 5840(k) requires that a company 
that receives a Public Reprimand Letter from an Adjudicatory Body must 
make ``a public announcement through the news media'' disclosing 
receipt of that letter. Nasdaq proposes to modify these rules to allow 
the company, in each case, to make a public announcement by ``filing a 
Form 8-K, where required by SEC rules, or by issuing a press release.'' 
\9\ However, Nasdaq proposes that a company that is late in filing a 
required periodic report with the Commission would still be required to 
issue a press release announcing that it has received notice that it 
does not meet that requirement, and would not be permitted to fulfill 
this requirement by only filing a Form 8-K. Nasdaq also proposes to 
clarify in each of these rules that notification of these disclosures 
should be made to the Nasdaq MarketWatch Department through

[[Page 13630]]

Nasdaq's electronic disclosure submission system at least ten minutes 
prior to the notification to the public.\10\
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    \7\ Rule 5805(a) defines an ``Adjudicatory Body'' as the 
Hearings Panel, the Nasdaq Listing and Hearing Review Council, or 
the Nasdaq Board, or a member thereof.
    \8\ Nasdaq interprets the requirement to disclose information 
through the news media to be satisfied by the issuance of a press 
release.
    \9\ The Commission notes that under Item 3.01 of Form 8-K, a 
company is required to file a Form 8-K when it receives notice from 
Nasdaq that the company does not satisfy a listing standard or when 
Nasdaq issues a Public Reprimand Letter to the company.
    \10\ The Commission notes that Nasdaq recently changed its rules 
to provide that if the public release of material information is 
made outside of Nasdaq market hours, companies must notify 
MarketWatch of the material information prior to 6:50 a.m. ET. See 
Securities Exchange Act Release No. 61521 (February 16, 2010), 75 FR 
8156 (February 23, 2010). The Exchange has represented that once 
this proposed rule change (SR-NASDAQ-2010-006) is approved by the 
Commission, it will file a separate filing pursuant to Section 19(b) 
of the Act to make corresponding changes to the rule provisions 
adopted in this filing to reflect the previously adopted changes.
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    Second, Nasdaq proposes to modify Rule 5635(f), which requires a 
company to ``make a public announcement through the news media'' when 
it receives an exception to the shareholder approval requirements 
because compliance would jeopardize the company's financial viability. 
Nasdaq proposes instead to allow companies to make this announcement 
``by filing a Form 8-K, where required by SEC rules, or by issuing a 
press release.'' Nasdaq is retaining its current requirement that 
companies that receive an exemption are also required to mail this 
notice to all shareholders at least ten days before issuing securities 
in reliance on the exception.
    Third, Nasdaq proposes to revise Rule 5225(a)(3), which requires a 
company to ``publicize through, at a minimum, a public announcement 
through the news media'' any change in the terms of a listed unit. 
Nasdaq proposes to modify this rule to allow the company to ``make a 
public announcement by filing a Form 8-K, where required by SEC rules, 
or by issuing a press release'' of any change in the terms of the unit.
    Nasdaq is also proposing to make a number of other modifications to 
its rules requiring public disclosure through press releases. In 
particular, Nasdaq proposes to amend Rule 5250(c)(2), which requires a 
company that is a foreign private issuer to disclose interim financial 
results ``in a press release and on a Form 6-K.'' Nasdaq proposes to 
eliminate the requirement that this information be published in a press 
release, while maintaining the requirement that it be on a Form 6-K. A 
foreign private issuer would still be free to disclose this information 
in a press release if it chooses.
    Nasdaq also proposes to eliminate the requirement contained in Rule 
5250(b)(2) that a company must issue a press release announcing the 
receipt of an audit opinion that expresses doubt about the ability of 
the company to continue as a going concern. Nasdaq argues that this 
requirement, which was adopted in 2003,\11\ is duplicative of 
disclosure already provided in the Company's annual filing with the 
Commission, which must be made available to all shareholders under 
Nasdaq rules, and which must be distributed to shareholders under the 
Commission's Proxy Rules. Nasdaq noted in its Notice, however, that if 
a company fails to include the audit opinion in its annual filing, 
Nasdaq would consider the filing deficient and would move to delist the 
company on that basis.
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    \11\ See Securities Exchange Act Release No. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003).
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    In addition, Nasdaq proposes to revise Rules 5810(b) and 5840(k), 
which require companies to notify multiple Nasdaq departments before 
they issue certain disclosures.\12\ Nasdaq proposes to modify these 
rules to require companies to provide these disclosures to the 
MarketWatch Department using the electronic disclosure submission 
system accessible at http://www.nasdaq.net.\13\ Nasdaq noted that 
MarketWatch will notify other Nasdaq departments when necessary.\14\
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    \12\ Under these rules, a company must notify the MarketWatch, 
Listing Qualifications, and Hearings Departments.
    \13\ Companies are already required to use the electronic 
disclosure submission service to notify MarketWatch prior to the 
distribution of material news. See Rule 5250(b)(1) and IM-5250-1. 
See also Exchange Act Release No. 55856 (June 4, 2007), 72 FR 32383 
(June 12, 2007).
    \14\ Nasdaq also proposes to: (i) Add a title to Rule 5250(b)(1) 
to clarify the text; and (ii) use capitalization for a defined term 
in Rule 5615. The Commission notes that these are non-substantive 
changes.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b)(5) of the Act,\15\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.\16\
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    \15\ 15 U.S.C. 78f(b)(5).
    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission notes that full and fair disclosure of information 
by issuers of securities to the public is of critical importance to 
financial markets and the investing public. As such, the Commission 
believes that exchange compliance standards requiring a company to 
disclose information should be designed to provide broad public access 
to such information. As discussed below, the Commission believes that 
Nasdaq's proposal to modify certain of its rules pertaining to its 
press release requirements for listed companies will eliminate 
duplicative requirements from Nasdaq's disclosure rules in certain 
situations where a company is already required by Commission rules to 
file a Form 8-K, while still ensuring that issuers disseminate material 
information to the public in a broad and inclusive manner.
    In 2000, the Commission adopted Regulation FD to curtail the 
selective disclosure of material non-public information by issuers to 
analysts and institutional investors.\17\ Regulation FD provides that 
public disclosure by issuers can be made by filing a Form 8-K with the 
Commission or through another method (or combination of methods) of 
disclosure that is reasonably designed to provide broad, non-
exclusionary distribution of information to the public.\18\ The 
Commission is cognizant, in reviewing Nasdaq's proposal, that in 
approving Regulation FD, the Commission specifically noted that it was 
not intended to alter or supplement self-regulatory organization rules 
that typically require companies to issue a press release to announce 
material developments.\19\ Despite this, the Commission believes that, 
in many instances, the filing of a Form 8-K provides an effective, 
broad, and non-exclusionary means of distributing material disclosures. 
The Commission notes that the information required to be reported on a 
Form 8-K is material information that could impact an investor's 
decision to buy, sell or hold a security. For this reason, the Form 8-K 
is made easily obtainable by investors on the Commission's EDGAR Web 
site, as well as many major financial web sites, and the information it 
provides is also commonly reported by the news media. The Commission 
also believes that the public has become more familiar with the Form 8-
K method of dissemination since the original adoption of Regulation FD.
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    \17\ See Securities Exchange Act Release No. 43154 (August 15, 
2000), 65 FR 51716 (August 24, 2000) (``Regulation FD Adopting 
Release'').
    \18\ See Regulation FD, 17 CFR 243.100-103.
    \19\ See Regulation FD Adopting Release, supra note 17 at n.70.
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    The Commission notes that since investors have broad access to the

[[Page 13631]]

information provided by the Form 8-K, in certain instances where a 
company is required to file a Form 8-K pursuant to Commission rules as 
well as issue a press release under Nasdaq rules, the information 
provided may overlap, resulting in duplicate disclosures of the same 
information. Although the Commission would prefer to ensure that 
investors have as many channels as possible to receive material 
disclosures, in these particular situations, the Commission recognizes 
that requiring both a Form 8-K and a press release may be unnecessary 
and may place an additional burden on issuers while providing no 
additional significant benefit to investors. The Commission notes, 
however, that while it believes that it is appropriate to eliminate the 
requirement to make these duplicate disclosures, in certain situations 
it continues to believe that there are benefits to the market and 
investors to issuing a press release when disclosing material 
information that issuers should consider.\20\ Thus, a company would, of 
course, be permitted to issue a press release in addition to their 
filing of a required Form 8-K.
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    \20\ See Regulation FD Adopting Release, supra note 17.
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    The Commission also notes that, in those cases where a Form 8-K is 
not required to be filed under Commission rules, under its proposal, 
Nasdaq rules will still require an issuer to make public disclosures 
through a press release. We believe these requirements adequately 
balance the situation where investors, the public and the press have an 
expectation to find information about a company in a Form 8-K, since 
the information is required to be filed with the Commission in that 
format, with the need to provide adequate disclosure to the public 
through a press release on other matters as required under Nasdaq 
rules.\21\ For the aforementioned reasons, the Commission believes that 
Nasdaq's proposal to modify certain of its rules to permit disclosure 
either through a press release or by filing a Form 8-K where required 
by Commission rules is reasonable and consistent with the Act.
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    \21\ The Commission would generally be concerned if, on matters 
not required under Commission rules to be filed on Form 8-K, Nasdaq 
rules required such matters to be disclosed in that format because 
such Form 8-K filings would become a requirement through Nasdaq 
rules, even though the requirement had not been adopted by the 
Commission.
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    In particular, the Commission believes that Nasdaq's proposed 
changes to Rules 5250(b)(3), 5810(b), 5840(k) and IM-5810-1--requiring 
disclosure of notifications regarding a company's compliance with 
listing standards--to allow the company, in each case, to make a public 
announcement by ``filing a Form 8-K, where required by SEC rules, or by 
issuing a press release,'' are examples where the filing of a single 
Form 8-K is an appropriate alternative to requiring both a Form 8-K and 
a press release. The Commission notes that Item 3.01 of Form 8-K would 
require a company to file a Form 8-K when it receives notice that the 
company does not satisfy a listing standard or when Nasdaq issues a 
Public Reprimand Letter to the company. The Commission believes that 
the Form 8-K, in these instances, addresses the Commission's material 
disclosure concerns for investors, as investors could easily obtain the 
information in the Form 8-K and the information may likely result in 
media coverage. In addition, the Commission notes that Nasdaq is not 
proposing that this change will be applicable to its late filer rules 
and instead will continue to require that a company that is late in 
filing a required periodic report with the Commission must issue a 
press release, even though they are also required to file a Form 8-K, 
which is consistent with the Commission's current treatment of late 
filers.\22\
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    \22\ See NYSE Rule 802.01E.
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    Similarly, the Commission believes that Nasdaq's proposal to permit 
either the filing of a Form 8-K where required by SEC rules or the 
issuance of a press release when a company receives an exception to the 
shareholder approval requirements because compliance would jeopardize 
the company's financial viability is appropriate and consistent with 
the Act. The Commission notes that, in addition to the Form 8-K or a 
press release, Nasdaq will continue to require that notice be provided 
to shareholders by mail at least ten days before issuing securities in 
reliance on this exception.
    Finally, the Commission believes that Nasdaq's proposal to allow 
the filing of a Form 8-K where required by Commission rules in lieu of 
issuing a press release where there is any change in the terms of a 
unit is another instance where the duplicate disclosure is unnecessary 
and an extra burden on listed companies. As such, the Commission 
believes that this proposed rule change is appropriate and consistent 
with the Act.
    As noted above, Nasdaq also proposes several other changes to its 
rules pertaining to its press release requirements for listed 
companies. First, Nasdaq proposes to modify Rule 5250(c)(2) to require 
a company that is a foreign private issuer to disclose interim 
financial results on a Form 6-K, instead of both a Form 6-K and a press 
release as required under current Nasdaq rules. The Commission believes 
that this change also adequately addresses the Commission's investor 
protection concerns regarding broad availability of disclosure of 
material information and is consistent with the Act. The Commission 
notes that pursuant to Regulation FD, foreign companies are permitted 
to meet the requirements of Regulation FD by making filings on Form 6-
K, rather than on a Form 8-K. Like the Form 8-K, the Form 6-K provides 
material disclosures and, similarly, is widely available and utilized 
by investors, as it is also accessible on the Commission's EDGAR Web 
site and its contents may be widely reported in the news media. While 
foreign companies will now be required to only file a Form 6-K to meet 
Nasdaq's disclosure requirement for interim reports, Nasdaq notes in 
its filing that foreign issuers would still be free to disclose this 
information in a press release, in addition to the filing of a Form 6-
K, if it chooses.
    In addition, Nasdaq proposes to eliminate the requirement from Rule 
5250(b)(2), that a company must issue a press release announcing the 
receipt of an audit opinion expressing doubt about the ability of the 
company to continue as a going concern. The Commission notes that the 
audit opinion is required to be provided in a company's annual filing 
with the Commission, which must also be distributed to shareholders 
under the Commission's Proxy Rules,\23\ and must be made available to 
all shareholders under the Nasdaq rules. Although the Commission 
understands that a negative audit opinion constitutes important 
material information that could impact an investor's decision to buy, 
sell or hold a security, the Commission, after careful consideration, 
also believes that publication of this opinion in the annual filing, 
which the Commission already requires to be distributed to all 
shareholders, should provide broad notice to investors. Additionally, 
if a company fails to include the audit opinion in its annual filing, 
the Commission notes that Nasdaq would consider the filing deficient 
and would move to delist the company on that basis, recognizing the 
importance of the audit opinion disclosure to investors.\24\ 
Accordingly,

[[Page 13632]]

the Commission believes that this change will eliminate unnecessary 
duplicate disclosures, while continuing to provide investors with 
sufficient notice of such material information.
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    \23\ 17 CFR 240.14a-1. See Item 13 of Schedule 14A, 17 CFR 
240.14a-101.
    \24\ Nasdaq is also proposing to make a conforming change to 
Rule 5615(a)(3) to eliminate the reference to the going concern 
requirement because it will no longer apply. In addition, Nasdaq is 
proposing to remove the reference in Rule 5615(a)(3) to the 
requirement for a foreign private issuer to enter into a listing 
agreement because there is no need to single out this requirement 
from all the others of the requirements of the Rule 5000 Series to 
which a foreign private issuer is subject.
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    Finally, Nasdaq proposes to eliminate the requirements in Rule 
5810(b) and 5840(k) that companies must notify multiple Nasdaq 
departments before issuing certain disclosures. The Commission is 
satisfied that Nasdaq's proposed changes will continue to provide for 
adequate notification to the MarketWatch Department, as well as other 
departments,\25\ since Nasdaq has represented that the MarketWatch 
Department will notify other Nasdaq departments of the disclosures when 
necessary.\26\ As such, the Commission believes that Nasdaq's 
notification procedures will be streamlined, eliminating unnecessary 
duplicative notification requirements for listed companies, while still 
ensuring that the necessary departments will be notified by the 
MarketWatch Department if necessary for regulatory or other reasons.
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    \25\ Companies are already required to use the electronic 
disclosure submission service to notify MarketWatch prior to the 
distribution of material news. See Rule 5250(b)(1) and IM-5250-1. 
See also Securities Exchange Act Release No. 55856 (June 4, 2007), 
72 FR 32383 (June 12, 2007) (approving SR-NASDAQ-2007-029).
    \26\ Nasdaq is also proposing: (i) To add a title to Rule 
5250(b)(1) to clarify the text; and (ii) to use capitalization for a 
defined term in Rule 5615. These are non-substantive changes.
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    For the reasons noted above, the Commission believes that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\27\ 
and will, among other things, protect investors and the public interest 
by assuring that the investing public has broad and easy access to full 
disclosure of corporate matters. As discussed above, the Commission 
believes that the changes proposed by Nasdaq will continue to require 
issuers to disseminate necessary information to the public in a broad 
and inclusive manner, while at the same time minimizing duplicative 
disclosures.
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    \27\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NASDAQ-2010-006) be, and it 
hereby is, approved.
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    \28\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6182 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P