Document ID: SEC-2009-0261-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2009-02-26T05:00Z

[Federal Register: February 26, 2009 (Volume 74, Number 37)]
[Notices]               
[Page 8831-8833]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26fe09-86]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59424; File No. SR-NASDAQ-2009-009]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify Nasdaq's Definition of ``Controlled Company''

February 19, 2009.
    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 February 10, 2009, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to clarify its definition of a ``controlled 
company.'' Nasdaq will implement the proposed rule upon approval [sic]. 
The text of the proposed rule change is below. Proposed new language is 
in italics.\4\
---------------------------------------------------------------------------

    \4\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com.
---------------------------------------------------------------------------

* * * * *
    4350. Qualitative Listing Requirements for Nasdaq Issuers Except 
for Limited Partnerships.
    (a)-(b) No change.
    (c) Independent Directors
    (1)-(4) No change.
    (5) A Controlled Company is exempt from the requirements of this 
Rule 4350(c), except for the requirements of subsection (c)(2) which 
pertain to executive sessions of independent directors. A Controlled 
Company is a company of which more than 50% of the voting power for the 
election of directors is held by an individual, a group or another 
company. A Controlled Company relying upon this exemption must disclose 
in its annual meeting proxy statement (or, if the issuer does

[[Page 8832]]

not file a proxy, in its Form 10-K or 20-F) that it is a Controlled 
Company and the basis for that determination.
    (d)-(n) No change.
* * * * *

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
    The purpose of this rule filing is to clarify the definition of a 
``controlled company.'' \5\ Nasdaq currently allows a ``controlled 
company'' to exempt itself from the requirements to have a majority of 
independent directors on its board and to have independent compensation 
and nomination committees.\6\ Under Nasdaq's rules, a ``controlled 
company'' is a company of which more than 50% of the voting power is 
held by an individual, group, or another company, and, in order for a 
group to exist, the shareholders comprising the group must have 
publicly filed a notice that they are acting as a group (e.g., a 
Schedule 13D).\7\
---------------------------------------------------------------------------

    \5\ Nasdaq previously proposed this change in SR-NASDAQ-2008-
005, which was withdrawn as of the date of this current filing.
    \6\ Nasdaq Rule 4350(c)(5).
    \7\ Nasdaq Rule 4350(c)(5) and Nasdaq IM-4350-7.
---------------------------------------------------------------------------

    Under Nasdaq's current practice, in order for a company to be 
deemed a controlled company, more than 50% of the voting power for the 
election of directors must be held by an individual, group or another 
company. Nasdaq proposes to amend its definition of ``controlled 
company'' to provide transparency to this interpretation and to provide 
clarity to companies and investors about the availability of the 
``controlled company'' exception. In applying the rule in this manner, 
Nasdaq intends to limit the controlled company exception to companies 
with shareholders who truly control that company and its board 
composition. For example, the controlled company exception would not 
apply where a shareholder agreement exists relating only to the 
disposition of assets.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general and with Section 
6(b)(5) of the Act,\9\ in particular. Section 6(b)(5) requires, among 
other things, that Nasdaq's rules 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. The proposed change is 
consistent with these requirements in that it will prevent issuers from 
relying on the exception when they are not truly a ``controlled 
company.'' The proposed rule change also will provide a standard that 
is clear, straightforward and uniform for issuers to understand and 
apply.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    Because the foregoing rule does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, if consistent with the protection of 
investors and the public interest, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to 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. The Commission notes that Nasdaq has satisfied the five-
day pre-filing notice requirement.
---------------------------------------------------------------------------

    Normally, a proposed rule change filed under 19b-4(f)(6) may not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \12\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq requests that the Commission 
waive the 30-day waiting period.\13\
---------------------------------------------------------------------------

    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    Nasdaq believes that the proposed rule change does not 
significantly affect the protection of investors or the public interest 
because it provides transparency to Nasdaq's existing interpretation of 
this Rule. Nasdaq requests the waiver so that companies that file their 
annual reports and proxy statements with the Commission during that 
period will have the benefit of this clarification. In that regard, 
Nasdaq notes that, depending on their filing deadline under the 
Commission's rules, companies with fiscal year ends between September 
30, 2008 and December 31, 2008, either just filed, or are about to 
file, their annual reports with the Commission and generally file their 
proxy statements shortly thereafter.
    The Commission believes that waiver of the operative date delay is 
appropriate, particularly because companies whose fiscal year recently 
ended just filed, or are about to file, their annual reports with the 
Commission, and proxy statements shortly thereafter, would have clarity 
regarding the controlled company provision. Therefore, the Commission 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest and designates the 
proposed rule change to be operative upon filing.\14\
---------------------------------------------------------------------------

    \14\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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,

[[Page 8833]]

including whether the proposed rule change, as amended, 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-2009-009 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2009-009. 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 inspection 
and copying in the Commission's Public Reference Room 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 Nasdaq. 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-2009-009 and 
should be submitted on or before March 19, 2009.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-4062 Filed 2-25-09; 8:45 am]

BILLING CODE 8011-01-P