Document ID: SEC-2010-0779-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-05-26T04:00Z

[Federal Register: May 26, 2010 (Volume 75, Number 101)]
[Notices]               
[Page 29592-29594]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26my10-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62135; File No. SR-NASDAQ-2010-060]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Require Companies To Provide Notification to Nasdaq of Any 
Noncompliance With the Corporate Governance Requirements

May 19, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 14, 2010, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by Nasdaq. Nasdaq has designated the proposed rule 
change as effecting a change described under Rule 19b-4(f)(6) under the 
Act,\3\ which renders the proposal effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to require companies to provide notification to 
Nasdaq of any noncompliance with the corporate governance requirements. 
Nasdaq will implement the proposed rule change thirty days after the 
date of the filing. The text of the proposed rule change is below. 
Proposed new language is in italics; proposed deletions are in 
[brackets].\4\
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    \4\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com.
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* * * * *

5250. Obligations for Companies Listed on The Nasdaq Stock Market

    (a) Obligation to Provide Information to Nasdaq
    (1) Nasdaq may request any additional information or documentation, 
public or non-public, deemed necessary to make a determination 
regarding a Company's continued listing, including, but not limited to, 
any material provided to or received from the Commission or Other 
Regulatory Authority. A Company may be denied continued listing if it 
fails to provide such information within a reasonable period of time or 
if any communication to Nasdaq contains a material misrepresentation or 
omits material information necessary to make the communication to 
Nasdaq not misleading. The Company shall provide full and prompt 
responses to requests by Nasdaq or by FINRA acting on behalf of Nasdaq 
for information related to unusual market activity or to events that 
may have a material impact on trading of its securities in Nasdaq.
    [ (1)] (2) As set forth in Rule 5625, a Company must provide Nasdaq 
with prompt notification after an Executive Officer of the Company 
becomes aware of any [material] noncompliance by the Company with the 
requirements of the Rule 5600 Series.
    (b)-(f) No change.
* * * * *

5615. Exemptions from Certain Corporate Governance Requirements

    This rule provides the exemptions from the corporate governance 
rules afforded to certain types of Companies, and sets forth the phase-
in schedules for initial public offerings, Companies emerging from 
bankruptcy and Companies transferring from other markets. This rule 
also describes the applicability of the corporate governance rules to 
Controlled Companies and sets forth the phase-in schedule afforded to 
Companies ceasing to be Controlled Companies.

(a) Exemptions to the Corporate Governance Requirements

    (1) No change
    IM-5615-1. No change.
    (2) No change.
    IM-5615-2. No change.
    (3) Foreign Private Issuers
    (A) A Foreign Private Issuer may follow its home country practice 
in lieu of the requirements of the Rule 5600 Series, the requirement to 
distribute annual and interim reports set forth in Rule 5250(d), and 
the Direct Registration Program requirement set forth in Rules 5210(c) 
and 5255, provided, however, that such a Company shall: Comply with the 
Notification of [Material] Noncompliance requirement (Rule 5625), the 
Voting Rights requirement (Rule 5640), have an audit committee that 
satisfies Rule 5605(c)(3), and ensure that such audit committee's 
members meet the independence requirement in Rule 5605(c)(2)(A)(ii). 
Except as provided in this paragraph, a Foreign Private Issuer must 
comply with the requirements of the Rule 5000 Series.
    (B) No change
IM-5615-3. Foreign Private Issuers
    A Foreign Private Issuer (as defined in Rule 5005) listed on Nasdaq 
may follow the practice in such Company's home country (as defined in 
General Instruction F of Form 20-F) in lieu of the provisions of the 
Rule 5600 Series, Rule 5250(d), and Rules 5210(c) and 5255, subject to 
several important exceptions. First, such an issuer shall comply with 
Rule 5625 (Notification of [Material] Noncompliance). Second, such a 
Company shall have an audit committee that satisfies Rule 5605(c)(3). 
Third, members of such audit committee shall meet the criteria for 
independence referenced in Rule 5605(c)(2)(A)(ii) (the criteria set 
forth in Rule 10A-3(b)(1) under the Act, subject to the exemptions 
provided in Rule 10A-3(c) under the Act). Fourth, a Foreign Private 
Issuer must comply with Rules 5210(c) and 5255 (Direct Registration 
Program) unless prohibited from complying by a law or regulation in its 
home country. Finally, a Foreign Private Issuer that elects to follow 
home country practice in lieu of a requirement of Rules 5600, 5250(d), 
5210(c) or 5255 shall submit to Nasdaq a written statement from an 
independent counsel in such Company's home country

[[Page 29593]]

certifying that the Company's practices are not prohibited by the home 
country's laws and, in the case of a Company prohibited from complying 
with Rules 5210(c) and 5255, certifying that a law or regulation in the 
home country prohibits such compliance. In the case of new listings, 
this certification is required at the time of listing. For existing 
Companies, the certification is required at the time the Company seeks 
to adopt its first noncompliant practice. In the interest of 
transparency, the rule requires a Foreign Private Issuer to make 
appropriate disclosures in the Company's annual filings with the 
Commission (typically Form 20-F or 40-F), and at the time of the 
Company's original listing in the United States, if that listing is on 
Nasdaq, in its registration statement (typically Form F-1, 20-F, or 40-
F); alternatively, a Company that is not required to file an annual 
report on Form 20-F may provide these disclosures in English on its 
website in addition to, or instead of, providing these disclosures on 
its registration statement or annual report. The Company shall disclose 
each requirement that it does not follow and include a brief statement 
of the home country practice the Company follows in lieu of these 
corporate governance requirement(s). If the disclosure is only 
available on the website, the annual report and registration statement 
should so state and provide the web address at which the information 
may be obtained. Companies that must file annual reports on Form 20-F 
are encouraged to provide these disclosures on their Web sites, in 
addition to the required Form 20-F disclosures, to provide maximum 
transparency about their practices.
    (4) Limited Partnerships
    (A)-(I) No change.
    (J) Notification of [Material] Noncompliance.
    Each Company that is a limited partnership must provide Nasdaq with 
prompt notification after an Executive Officer of the Company, or a 
person performing an equivalent role, becomes aware of any [material] 
noncompliance by the Company with the requirements of this Rule 5600 
Series.
    (5) No change.
    IM-5615-4. No change.
    (b)-(c) No change.
    IM-5615-5. No change.
* * * * *

5625. Notification of [Material] Noncompliance

    A Company must provide Nasdaq with prompt notification after an 
Executive Officer of the Company becomes aware of any [material] 
noncompliance by the Company with the requirements of this Rule 5600 
Series.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq rules require that a listed company notify Nasdaq when an 
executive officer of the company becomes aware of any material 
noncompliance with Nasdaq's corporate governance requirements contained 
in the Rule 5600 Series.\5\ Nasdaq has consistently interpreted this 
requirement such that any noncompliance with these rules would be 
considered material and now proposes to modify the rule to make this 
clear by requiring notification of any noncompliance. When Nasdaq 
receives notice of noncompliance, it will review the matter in 
accordance with the Rule 5800 Series, which provides the procedures 
applicable when a company fails to meet a listing standard, and provide 
appropriate notice on www.nasdaq.com.\6\
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    \5\ Rule 5615(a)(4)(J) imposes this requirement on limited 
partnerships and Rule 5625 imposes this requirement on all other 
listed entities.
    \6\ Nasdaq also monitors public filings made by listed companies 
and will review any noncompliance it discovers in the same manner.
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    Nasdaq also proposes to make conforming changes to Rule 5615(a)(3) 
and IM-5615-3, which, among other things, require a foreign private 
issuer to provide notice of noncompliance, and to Rule 5250, which 
cross references the requirement to provide notice of noncompliance.
2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\7\ in general and with Section 
6(b)(5) of the Act,\8\ in particular, which requires that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest. The 
proposed rule change is consistent with these requirements in that it 
will assure that Nasdaq receives notice of any noncompliance with the 
corporate governance requirements, thereby helping to protect investors 
and the public interest.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act and paragraph (f)(6) of Rule 19b-4 
thereunder, in that the proposed rule change: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days after the date of the 
filing, or such shorter time as the Commission may designate if 
consistent with the protection of investors and the public interest; 
provided the self-regulatory organization has given the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.\9\
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    \9\ The Commission notes that Nasdaq has satisfied the pre-
filing requirement.
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    The proposed rule change will clarify the notice required from 
listed companies regarding noncompliance

[[Page 29594]]

with the corporate governance requirements, consistent with Nasdaq's 
historical interpretation of that requirement, and is closely modeled 
after similar rules of another national securities exchange.\10\ 
Therefore Nasdaq believes it does not significantly affect the 
protection of investors or the public interest or raise any novel or 
significant regulatory issues.
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    \10\ Section 303A.12(b) of the NYSE Listed Company Manual 
requires a listed company's CEO to ``promptly notify the NYSE in 
writing after any executive officer of the listed company becomes 
aware of any non-compliance with any applicable provisions of this 
Section 303A.''
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml ); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-060 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-060. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2010-060 and should be submitted on or before June 16, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-12551 Filed 5-25-10; 8:45 am]
BILLING CODE 8010-01-P