[Federal Register Volume 85, Number 110 (Monday, June 8, 2020)]
[Notices]
[Pages 35134-35138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12271]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88987; File No. SR-NASDAQ-2020-028]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend IM-5101-1 (Use of
Discretionary Authority) To Deny Listing or Continued Listing or To
Apply Additional and More Stringent Criteria to an Applicant or Listed
Company Based on Considerations Related to the Company's Auditor or
When a Company's Business Is Principally Administered in a Jurisdiction
That Is a Restrictive Market
June 2, 2020.
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 19, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to apply additional and more stringent
criteria to an applicant or listed company based on the qualifications
of the company's auditor.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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. The Exchange 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's listing requirements include transparent criteria and
corporate governance requirements. These requirements are designed to
protect investors and the public interest; to ensure that a company
seeking to list on Nasdaq is prepared for the rigors of operating as a
public company; to provide transparent disclosure to investors in
accordance with the SEC's and Nasdaq's reporting requirements; and to
ensure sufficient investor interest to support liquid trading. Those
criteria are set forth in the Nasdaq Rule 5000 Series.
In addition to the criteria set forth in the Rule 5000 Series, Rule
5101 describes Nasdaq's broad discretionary authority over the initial
and continued listing of securities on Nasdaq in order to maintain the
quality of and public confidence in its market, to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and to protect investors and the public interest.
Nasdaq may use such discretion to deny initial listing, apply
additional or more stringent criteria for the initial or continued
listing of particular securities, or suspend or delist particular
securities based on any event, condition, or circumstance that exists
or occurs that makes initial or continued listing of the securities on
Nasdaq inadvisable or unwarranted in the opinion of Nasdaq, even though
the securities meet all enumerated criteria for initial or continued
listing on Nasdaq.\3\
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\3\ See Rule 5101.
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Nasdaq rules \4\ and federal securities laws \5\ require a
company's financial statements included in its initial registration
statement or annual report to be audited by an independent public
accountant that is registered with the Public Company Accounting
Oversight Board (``PCAOB''). Company management is responsible for
preparing the company's financial statements and for establishing and
maintaining disclosure controls and procedures and internal control
over financial reporting. The company's auditor, based on its
independent audit of the evidence supporting the amounts and
disclosures in the financial statements, expresses an opinion on
whether the financial statements present fairly, in all material
respects, the company's financial position, results of operations and
cash flows. ``To form an appropriate basis for expressing an opinion on
the financial statements, the auditor must plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement due to error or fraud.'' \6\
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\4\ See Rule 5210(b) (``Each Company applying for initial
listing must be audited by an independent public accountant that is
registered as a public accounting firm with the Public Company
Accounting Oversight Board, as provided for in Section 102 of the
Sarbanes-Oxley Act of 2002 [15 U.S.C. 7212].'') and Rule 5250(c)(3)
(``Each listed Company shall be audited by an independent public
accountant that is registered as a public accounting firm with the
Public Company Accounting Oversight Board, as provided for in
Section 102 of the Sarbanes-Oxley Act of 2002 [15 U.S.C. 7212].'').
\5\ See Section 4100--Qualifications of Accountants, SEC
Financial Reporting Manual (June 30, 2009), available at https://www.sec.gov/corpfin/cf-manual/topic-4/.
\6\ See PCAOB Auditing Standard 1101.03--Audit Risk, available
at https://pcaobus.org/Standards/Auditing/Pages/AS1101.aspx.
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The auditor, in turn, is normally subject to inspection by the
PCAOB, which assesses compliance with PCAOB and SEC rules and
professional standards in connection with the auditor's performance of
audits. According to the PCAOB,
PCAOB inspections may result in the identification of
deficiencies in one or more of an audit firm's audits of issuers
and/or in its quality control procedures which, in turn, can result
in an audit firm carrying out additional procedures that should have
been performed already at the time of the audit. Those procedures
have sometimes led to the audited public company having to revise
and refile its financial statements or its assessment of the
effectiveness of its internal control over financial reporting. In
addition, through the quality control remediation portion of the
inspection process, inspected
[[Page 35135]]
firms identify and implement practices and procedures to improve
future audit quality.\7\
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\7\ See Public Company Accounting Oversight Board, Public
Companies that are Audit Clients of PCAOB-Registered Firms from Non-
U.S. Jurisdictions where the PCAOB is Denied Access to Conduct
Inspections (April 1, 2020), available at https://pcaobus.org/International/Inspections/Pages/IssuerClientsWithoutAccess.aspx.
Nasdaq and investors rely on the work of auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements. Nasdaq and investors
further rely on the PCAOB's critical role in overseeing the quality of
the auditor's work. The Chairman and the Chief Accountant of the
Commission, along with the Chairman of the PCAOB, have raised concerns
that national barriers on access to information can impede effective
regulatory oversight of U.S.-listed companies with operations in
certain countries, including the PCAOB's inability to inspect the audit
work and practices of auditors in those countries.\8\ In particular,
the PCAOB is currently prevented from inspecting the audit work and
practices of PCAOB-registered auditors in Belgium, France, China and
Hong Kong (to the extent their audit clients have operations in
mainland China).\9\
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\8\ See SEC Chairman Jay Clayton, SEC Chief Accountant Wes
Bricker and PCAOB Chairman William D. Duhnke III, Statement on the
Vital Role of Audit Quality and Regulatory Access to Audit and Other
Information Internationally--Discussion of Current Information
Access Challenges with Respect to U.S.-listed Companies with
Significant Operations in China (December 7, 2018), available at
https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other (``Some of these
laws, for example, act to prohibit foreign-domiciled registrants in
certain jurisdictions from responding directly to SEC requests for
information and documents or doing so, in whole or in part, only
after protracted delays in obtaining authorization. Other laws can
prevent the SEC from being able to conduct any type of examination,
either onsite or by correspondence . . . Positions taken by some
foreign authorities currently prevent or significantly impair the
PCAOB's ability to inspect non-U.S. audit firms in certain
countries, even though these firms are registered with the
PCAOB.''). On April 21, 2020, these concerns were reiterated by the
Chairman and the Chief Accountant of the Commission, along with the
Chairman of the PCAOB and the Directors of the SEC Divisions of
Corporation Finance and Investment Management. See SEC Chairman Jay
Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant
Sagar Teotia, SEC Division of Corporation Finance Director William
Hinman, SEC Division of Investment Management Director Dalia Blass,
Emerging Market Investments Entail Significant Disclosure, Financial
Reporting and Other Risks; Remedies are Limited (April 21, 2020),
available at https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting.
\9\ See supra \\ad.sec.gov\users\mr\SchandlerS\NASDAQ 2020-028
(auditors)\supra note 7. The PCAOB notes that ``[t]he position taken
by authorities in mainland China may in some circumstances cause a
registered firm located in another jurisdiction to attempt to resist
PCAOB inspection of public company audit work that the firm has
performed relating to the company's operations in mainland China.
Only in mainland China and Hong Kong, however, is the position of
the Chinese authorities effectively an obstacle to inspection of
all, or nearly all, registered firms in the jurisdiction.'' In
addition, the PCAOB's cooperative arrangement with the French audit
authority expired in December 2019, preventing inspections of
registered firms in France until a new arrangement is concluded.
According to the PCAOB, it expects to enter into bilateral
cooperative arrangements soon that will permit the PCAOB to commence
inspections in Belgium and resume inspections in France.
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Nasdaq shares these concerns and believes that accurate financial
statement disclosure is critical for investors to make informed
investment decisions. Nasdaq is concerned that constraints on the
PCAOB's ability to inspect auditor work in countries with national
barriers on access to information weaken assurances that the
disclosures and financial information of companies with operations in
such countries are not misleading.
Currently, Nasdaq may rely upon its broad authority provided under
Rule 5101 to deny initial or continued listing or to apply additional
and more stringent criteria when the auditor of an applicant or a
Nasdaq-listed company: (1) Has not been subject to an inspection by the
PCAOB (either historically or because it is newly formed and as
therefore not yet undergone a PCAOB inspection), (2) is an auditor that
the PCAOB cannot inspect, or (3) otherwise does not demonstrate
sufficient resources, geographic reach or experience as it relates to
the company's audit, including in circumstances where a PCAOB
inspection has uncovered significant deficiencies in the auditors'
conduct in other audits or in its system of quality controls.
Nasdaq believes that codifying the nature and scope of its existing
discretion when assessing the qualifications of a company's auditor
will increase transparency to investors, companies and market
participants. Accordingly, in order to preserve and strengthen the
quality of and public confidence in the Nasdaq market, and in order to
enhance investor confidence, Nasdaq proposes to amend IM-5101-1 to add
a new subparagraph (b) that sets forth factors Nasdaq may consider in
applying additional and more stringent criteria to an applicant or
listed company based on the qualifications of the company's auditor.
Such factors include:
(1) Whether the auditor has been subject to a PCAOB inspection,
such as where the auditor is newly formed and has therefore not yet
undergone a PCAOB inspection or where the auditor, or an accounting
firm engaged to assist with the audit, is located in a jurisdiction
that limits the PCAOB's ability to inspect the auditor;
(2) if the company's auditor has been inspected by the PCAOB,
whether the results of that inspection indicate that the auditor has
failed to respond to any requests by the PCAOB or that the inspection
has uncovered significant deficiencies in the auditors' conduct in
other audits or in its system of quality controls;
(3) whether the auditor can demonstrate that it has adequate
personnel in the offices participating in the audit with expertise in
applying U.S. GAAP, GAAS or IFRS, as applicable, in the company's
industry;
(4) whether the auditor's training program for personnel
participating in the company's audit is adequate;
(5) for non-U.S. auditors, whether the auditor is part of a global
network or other affiliation of individual auditors where the auditors
draw on globally common technologies, tools, methodologies, training
and quality assurance monitoring; and
(6) whether the auditor can demonstrate to Nasdaq sufficient
resources, geographic reach or experience as it relates to the
company's audit.
Nasdaq will consider these factors holistically and may be
satisfied with an auditor's qualifications notwithstanding the fact
that the auditor raises concerns with respect to some of the factors
set forth above. For example, Nasdaq may be satisfied that an auditor
that is not subject to PCAOB inspection has mitigated the risk that it
may have significant undetected deficiencies in its system of quality
controls by being a part of a global network where the auditors draw on
globally common technologies, tools, methodologies, training and
quality assurance monitoring.
The proposed rule will include examples of additional and more
stringent criteria that Nasdaq may apply to an applicant or a Nasdaq-
listed company to obtain comfort that the company satisfies the
financial listing requirements and is suitable for listing. These could
include, as explained in greater detail below, requiring: (i) Higher
equity, assets, earnings or liquidity measures than otherwise required
under the Rule 5000 Series; (ii) that any offering be underwritten on a
firm commitment basis, which typically involves more due diligence by
the broker-dealer than would be done in connection with a best-efforts
offering; or (iii) companies to impose lock-up restrictions on officers
and directors to
[[Page 35136]]
allow market mechanisms to determine an appropriate price for the
company before such insiders can sell shares.
Nasdaq and investors rely on the company's auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements and do not, for example,
overstate the company's equity, assets or revenues. Where Nasdaq is
concerned that the company's auditor does not satisfy the criteria
proposed in IM-5101-1(b), Nasdaq may still obtain comfort that the
company truly satisfies the financial listing criteria by imposing a
higher standard. Nasdaq may also have concerns that a company listing
on Nasdaq through an initial public offering, business combination,
direct listing or issuing securities previously trading over the
counter (``OTC'') may not develop sufficient public float, investor
base, and trading interest to provide the depth and liquidity necessary
to promote fair and orderly trading, resulting in a security that is
illiquid. In such cases, Nasdaq may impose additional liquidity
measures on the company, such as requiring a higher public float
percentage, market value of unrestricted publicly held shares or
average OTC trading volume. Nasdaq may also obtain additional comfort
regarding the quality of the company's financial statements by
requiring the offering to be underwritten, which helps to ensure that
third parties other than the auditor are conducting significant due
diligence on the company, its registration statement and its financial
statements.
In certain instances, Nasdaq believes it may be appropriate to
prevent the company's insiders from selling their shares if material
misstatements are detected by the company's auditors and have not been
disclosed to investors. Therefore, Nasdaq may also impose lock-up
restrictions on officers and directors to allow market mechanisms to
determine an appropriate price for the company before such insiders can
sell shares. Nasdaq may impose each of these requirements separately or
in combination. In some cases, Nasdaq may determine that listing is not
appropriate and deny initial or continued listing to a company.
The risks to U.S. investors are heightened when a company's
business is principally administered in a jurisdiction that has secrecy
laws, blocking statutes, national security laws or other laws or
regulations restricting access to information by regulators of U.S.-
listed companies in such jurisdiction, which raise concerns about the
accuracy of disclosures, accountability, and access to information.\10\
Nasdaq also proposes to amend IM-5101-1 to add a new subparagraph (c)
to clarify that Nasdaq may also use its discretionary authority to
impose additional or more stringent criteria, including the criteria
set forth in IM-5101-1(b), in other circumstances, including when a
company's business is principally administered in a jurisdiction that
Nasdaq determines to have secrecy laws, blocking statutes, national
security laws or other laws or regulations restricting access to
information by regulators of U.S.-listed companies in such jurisdiction
(a ``Restrictive Market''). In determining whether a company's business
is principally administered in a Restrictive Market, Nasdaq may
consider the geographic locations of the company's: (a) Principal
business segments, operations or assets; (b) board and shareholders'
meetings; (c) headquarters or principal executive offices; (d) senior
management and employees; and (e) books and records.\11\ Nasdaq will
consider these factors holistically, recognizing that a company's
headquarters may not be the office from which it conducts its principal
business activities. For example, a company's headquarters could be
located in Country A, while the majority of its senior management,
employees, assets, operations and books and records are located in
Country B, which is a Restrictive Market. In this case, Nasdaq would
consider the company's business to be principally administered in
Country B, which is a Restrictive Market, and Nasdaq would use its
discretionary authority to apply additional or more stringent criteria
to the company.
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\10\ See supra note 3.
\11\ This threshold would capture both foreign private issuers
based in Restrictive Markets and companies based in the U.S. or
another jurisdiction that principally administer their businesses in
Restrictive Markets. The factors that Nasdaq would consider when
determining whether a business is principally administered in a
Restrictive Market is supported by SEC guidance regarding foreign
private issuer status, which suggests that a foreign company may
consider certain factors including the locations of: the company's
principal business segments or operations; its board and
shareholders' meetings; its headquarters; and its most influential
key executives (potentially a subset of all executives). See
Division of Corporation Finance of the SEC, Accessing the U.S.
Capital Markets--A Brief Overview for Foreign Private Issuers
(February 13, 2013), available at https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml#IIA2c.
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Lastly, Nasdaq proposes to identify certain paragraphs within IM-
5101-1 as subparagraphs (a), (d) and (e), add headings to the
subparagraphs, and to relocate text describing Nasdaq's review process
to paragraph (e), in order to enhance readability of the rule. Nasdaq
also proposes to revise ``listing qualifications panel'' to ``Hearings
Panel (as defined in Rule 5805(d))'' for consistency within Nasdaq's
rulebook.
In the event that Nasdaq relies on such discretionary authority and
determines to deny the initial or continued listing of a company, it
would issue a denial or delisting letter to the company that will
inform the company of the factual basis for the Nasdaq's determination
and its right for review of the decision pursuant to the Rule 5800
Series.\12\
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\12\ See Rule 5815, which sets forth the review of staff
determinations by a Hearings Panel, including the procedures for
requesting and preparing for a hearing and the scope of the Hearing
Panel's discretion.
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The Exchange believes that the proposed rule change will enhance
transparency regarding how Nasdaq may exercise its existing discretion
when considering the qualifications of the company's auditor and the
jurisdiction where the company principally administers its business in
determining whether to grant initial or continued listing of a company.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\13\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\14\ in particular, in that it is 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. Further,
the Exchange believes that this proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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Nasdaq and investors rely on the work of auditors to provide
reasonable assurances that the financial statements provided by a
company are free of material misstatements. The PCAOB states that
``[r]easonable assurance is obtained by reducing audit risk to an
appropriately low level through applying due professional care,
including obtaining sufficient appropriate audit evidence.'' \15\
Nasdaq believes that the PCAOB's inability to inspect the audit work
and practices of auditors in certain countries weakens the assurance
that the auditor obtained sufficient appropriate audit evidence to
express its opinion on a company's
[[Page 35137]]
financial statements, and decreases confidence that the auditor
complied with PCAOB and SEC rules and professional standards in
connection with the auditor's performance of audits. The proposed rule
would provide transparency to cases where Nasdaq may impose additional
and more stringent criteria on a company based on the qualifications of
its auditor in order to help provide greater assurances that the
company's financial statements are free of material misstatements due
to fraud or error, thereby preventing fraudulent and manipulative acts
and protecting investors and the public interest.
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\15\ See supra note 6.
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The proposed rule change would also protect investors and the
public interest by providing Nasdaq and investors with greater
assurances that the company indeed satisfies Nasdaq's financial listing
requirements set forth in the Rule 5000 Series. Nasdaq believes that
without reasonable assurances that a company's financial statements and
related disclosures are free from material misstatements, there is a
risk that a company that would otherwise not have qualified to list on
Nasdaq may satisfy Nasdaq's listing standards by presenting financial
statements that contain undetected material misstatements. In the
Matter of the Tassaway, Inc., the Commission observed that
Though exclusion from the system may hurt existing investors,
primary emphasis must be placed on the interests of prospective
future investors. The latter group is entitled to assume that the
securities in the system meet the system's standards. Hence the
presence in NASDAQ of non-complying securities could have a serious
deceptive effect.\16\
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\16\ See In the Matter of Tassaway, Inc., Securities Exchange
Act Release No. 11291, 1975 WL 160383; 45 SEC. 706 (March 13, 1975).
The proposed rule change would provide greater assurances to
investors that a company truly meets Nasdaq's financial listing
requirement by clarifying that Nasdaq may use its existing discretion
to apply additional and more stringent criteria, such as requiring: (i)
Higher equity, assets, earnings or liquidity measures than otherwise
required under the Rule 5000 Series; (ii) that any offering be
underwritten on a firm commitment basis, which typically involves more
due diligence by the broker-dealer than would be done in connection
with a best-efforts offering; or (iii) companies to impose lock-up
restrictions on officers and directors to allow market mechanisms to
determine an appropriate price for the company before such insiders can
sell shares. In some cases, Nasdaq may determine that listing is not
appropriate and deny initial or continued listing to a company. Nasdaq
believes that providing specific examples of such additional and more
stringent criteria will alert companies seeking to list on Nasdaq, as
well as currently listed companies, that the company may be subject to
additional criteria as a condition for initial and continued listing on
Nasdaq and will provide transparency to investors, companies and market
participants, thereby protecting investors and the public interest.
Nasdaq believes that its proposal to add a new subparagraph (c) to
clarify that Nasdaq may also use its discretionary authority to impose
additional or more stringent criteria, including the criteria set forth
in IM-5101-1(b), in other circumstances, including when a company's
business is principally administered in a Restrictive Market, will help
ensure that Nasdaq has access to the information needed to carry out
its regulatory duties, thereby preventing fraudulent and manipulative
acts and protecting investors and the public interest.
The Exchange believes that the proposed rules clarify Nasdaq's
discretionary authority under Rule 5101 ``to apply additional or more
stringent criteria for the initial or continued listing of particular
securities, or suspend or delist particular securities based on any
event, condition, or circumstance that exists or occurs that makes
initial or continued listing of the securities on Nasdaq inadvisable or
unwarranted in the opinion of Nasdaq, even though the securities meet
all enumerated criteria for initial or continued listing on Nasdaq.''
\17\ Nasdaq has maintained its broad discretionary authority for 26
years. On June 3, 1994, the Commission approved a proposal from
National Association of Securities Dealers, Inc. (``NASD'') to amend
Schedule D to the NASD By-Laws to clarify the NASD's discretionary
authority to exclude an issuer from Nasdaq or require additional or
more stringent criteria for inclusion in Nasdaq for issuers that are
managed, controlled or influenced by persons with a history of
significant securities or commodities violations.\18\ In approving the
proposal, the Commission stated that ``[a]lthough the Commission is of
the view that the NASD's current rules authorize it to exclude an
issuer, the proposal would clarify that authority. The Commission
believes that this rule change provides greater protection to both
existing and prospective investors. This rule change provides investors
greater assurance that the risk associated with investing in Nasdaq is
market risk rather than the risk that the promoter or other persons
exercising substantial influence over the issuer is acting in an
illegal manner.'' \19\ Similarly, the Exchange believes that the
current proposal would clarify Nasdaq's existing authority and would
help reduce the risk for existing and prospective investors that the
financial statements of a Nasdaq-listed company may contain material
misstatements that were not discovered due to a lack of robust
oversight of the company's auditor.
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\17\ See supra note 3.
\18\ Securities Exchange Act Release No. 34151 (June 3, 1994),
59 FR 29843 (June 9, 1994) (SR-NASD-94-19) (available at https://www.govinfo.gov/content/pkg/FR-1994-06-09/html/94-14031.htm). This
was the predecessor to current Nasdaq Rule 5101.
\19\ Id.
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The proposed rule changes would apply to all companies listed and
seeking to list on Nasdaq. However, Nasdaq may only apply additional
and more stringent criteria when an applicant or a Nasdaq-listed
company is unable to demonstrate to Nasdaq, through the enumerated
factors, that its auditor has sufficient PCAOB inspection history,
quality controls, resources, geographic reach and experience to
adequately perform the company's audit. Nasdaq may also only apply its
discretionary authority when a company's business is principally
administered in a Restrictive Market.
Notwithstanding the forgoing, the Exchange believes that the
proposal does not unfairly discriminate among companies because Nasdaq
and the SEC have identified additional concerns around companies with
auditors that do not have sufficient PCAOB inspection history, quality
controls, resources, geographic reach and experience to adequately
perform the company's audit and companies whose business is principally
administered in a Restrictive Market. In light of these concerns, the
proposed rule change will increase assurances that companies listed on
Nasdaq satisfy Nasdaq's financial listing requirements and are suitable
for listing on a U.S. securities exchange, and that Nasdaq has access
to the information required to perform its regulatory duties, which
will prevent fraudulent and manipulative acts and practices, promote
just and equitable principles of trade and protect investors and the
public interest.
Under the proposed changes, the Exchange will use its discretion in
determining to apply additional and
[[Page 35138]]
more stringent criteria. The Exchange believes that this is not unfair
discrimination among companies because applying additional and more
stringent criteria may not be appropriate in all circumstances, for
example if the company's auditor is able to demonstrate that it has
sufficient PCAOB inspection history, quality controls, resources,
geographic reach and experience to adequately perform the company's
audit. Similarly, it may not be appropriate for Nasdaq to apply its
discretionary authority in all cases where a company's business is
principally administered in a Restrictive Market. For example, a
company may be headquartered in Country A, which is a Restrictive
Market, but have the majority of its employees, operations, senior
management, assets and books and records in Country B, which is not a
Restrictive Market. In such cases, Nasdaq would consider the company's
business to be principally administered in Country B and Nasdaq would
not use its discretionary authority to apply additional or more
stringent criteria.
Nasdaq believes that the proposed changes recognize that one size
does not fit all companies and clarify the scope of the Exchange's
existing discretion to apply additional and more stringent criteria,
including potentially prohibiting a company's listing, based on the
qualifications of its auditor or the jurisdiction where the company
principally administers its business, thereby protecting investors and
the public interest.
Lastly, Nasdaq believes its proposal to identify certain paragraphs
within IM-5101-1 as subparagraphs (a), (d) and (e), add headings to the
subparagraphs, and to relocate text describing Nasdaq's review process
to paragraph (e), will enhance readability of the rule. Similarly,
Nasdaq believes its proposal to and revise ``listing qualifications
panel'' to ``Hearings Panel (as defined in Rule 5805(d))'' will enhance
consistency within Nasdaq's rulebook. Nasdaq believes both proposals
will promote investor protection and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Nasdaq is adopting this
proposed rule change to enhance investor protection, which is a central
purpose of the Act. Any impact on competition, either among listed
companies or between exchanges, is incidental to that purpose.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
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 email to [email protected]. Please include
File Number SR-NASDAQ-2020-028 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2020-028. This
file number should be included on the subject line if email 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 website (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 website 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 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-028 and should be submitted
on or before June 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12271 Filed 6-5-20; 8:45 am]
BILLING CODE 8011-01-P