[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 67024-67030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23258]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90201; File No. SR-NASDAQ-2020-002]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order 
Approving a Proposed Rule Change To Amend the Procedures Governing the 
Introduction of Legal Arguments and Material Information by Companies 
in a Proceeding Before a Hearings Panel

October 15, 2020.

I. Introduction

    On July 2, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``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 amend the procedures governing proceedings 
before a Hearings Panel, including the introduction of legal arguments 
and material information by companies during such proceedings. The 
proposed rule change was published for comment in the Federal Register 
on July 20, 2020.\3\ On September 2, 2020, pursuant to Section 19(b)(2) 
of the Act,\4\ the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or

[[Page 67025]]

institute proceedings to determine whether to disapprove the proposed 
rule change.\5\ 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. 89309 (Jul. 14, 
2020), 85 FR 43900 (``Notice''). Comments on the proposed rule 
change can be found at: https://www.sec.gov/comments/sr-nasdaq-2020-002/srnasdaq2020002.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89745, 85 FR 55728 
(Sep. 9, 2020). The Commission designated October 18, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
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II. Description of the Proposal

    Under Nasdaq's current rules, a Company \6\ may, within seven 
calendar days of the date of a Staff Delisting Determination \7\ 
notification, Public Reprimand Letter,\8\ or written denial of a 
listing application, request a written or oral hearing before a 
Hearings Panel \9\ to review the Staff Delisting Determination, Public 
Reprimand Letter, or written denial of a listing application.\10\ The 
Hearings Department \11\ will schedule hearings to take place, to the 
extent practicable, within 45 days of the request for a hearing.\12\ 
The Hearings Department will send written acknowledgment of the 
Company's hearing request and inform the Company of the date, time, and 
location of the hearing, and deadlines for written submissions to the 
Hearings Panel.\13\ The Company will be provided at least ten calendar 
days' notice of the hearing unless the Company waives such notice.\14\
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    \6\ Nasdaq Rule 5005(a)(6) defines ``Company'' as the issuer of 
a security listed or applying to list on Nasdaq.
    \7\ Nasdaq Rule 5805(h) defines a ``Staff Delisting 
Determination'' as a written determination by the Listing 
Qualifications Department to delist a listed Company's securities 
for failure to meet a continued listing standard. Nasdaq Rule 
5805(f) defines the ``Listing Qualifications Department'' as the 
department of Nasdaq responsible for evaluating Company compliance 
with quantitative and qualitative listing standards and determining 
eligibility for initial and continued listing of a Company's 
securities.
    \8\ Nasdaq Rule 5805(j) defines a ``Public Reprimand Letter'' as 
a letter issued by Staff or a Decision of an Adjudicatory Body in 
cases where the Company has violated a Nasdaq corporate governance 
or notification listing standard (other than one required by Rule 
10A-3 of the Act) and Staff or the Adjudicatory Body determines that 
delisting is an inappropriate sanction. Rule 5805(g) defines 
``Staff'' as employees of the Listing Qualifications Department; 
Rule 5805(i) defines ``Decision'' as a written decision of an 
Adjudicatory Body; and Rule 5805(a) defines ``Adjudicatory Body'' as 
the Hearings Panel, the Listing Council, or the Nasdaq Board, or a 
member thereof.
    \9\ Nasdaq Rule 5805(d) defines ``Hearings Panel'' as an 
independent panel made up of at least two persons who are not 
employees or otherwise affiliated with Nasdaq or its affiliates, and 
who have been authorized by the Nasdaq Board of Directors.
    \10\ See Nasdaq Rule 5815(a)(1)(A). If a Company fails to 
request in writing a hearing within seven calendar days, it waives 
its right to request review of a Staff Delisting Determination, 
Public Reprimand Letter, or written denial of an initial listing 
application and the Hearings Department will take action to suspend 
trading of the securities and follow procedures to delist the 
securities. See Nasdaq Rule 5815(a)(2).
    \11\ Nasdaq Rule 5805(c) defines ``Hearings Department'' as the 
Hearings Department of the Nasdaq Office of General Counsel.
    \12\ See Nasdaq Rule 5815(a)(4).
    \13\ See id.
    \14\ See id.
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    Under the current hearings process, set forth in Nasdaq Rule 
5815(a)(5), the Company may, but is not required to, submit to the 
Hearings Department a written plan of compliance and request that the 
Hearings Panel grant an exception to the listing standards for a 
limited time period, as permitted by Nasdaq Rule 5815(c)(1)(A), or may 
set forth specific grounds for the Company's contention that the 
issuance of a Staff Delisting Determination, Public Reprimand Letter, 
or denial of a listing application was in error, and may also submit 
public documents or other written material in support of its position, 
including any information not available at the time of the staff 
determination. The Hearings Panel will review the written record before 
the hearing.\15\ Pursuant to Nasdaq Rule 5815(a)(6), at an oral 
hearing, the Company may make such presentation as it deems 
appropriate, including the appearance by its officers, directors, 
accountants, counsel, investment bankers, or other persons, and the 
Hearings Panel may question any representative appearing at the 
hearing.\16\ A Company may waive its right to an oral hearing and seek 
a decision by the Hearings Panel based solely on its written 
submissions.\17\
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    \15\ See Nasdaq Rule 5815(a)(5).
    \16\ Hearings are generally scheduled to last one hour, but the 
Hearings Panel may extend the time. The Hearings Department will 
arrange for and keep on file a transcript of oral hearings. See 
Nasdaq Rule 5815(a)(6).
    \17\ See Notice, supra note 3, 85 FR at 43901.
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    The Exchange now proposes to revise Nasdaq Rules 5815(a)(5) and (6) 
to amend the procedures governing the introduction of legal arguments 
and material information by Companies in a written or oral hearing 
before a Hearings Panel as well as require Companies to provide a 
written submission in such proceedings. The Exchange is also proposing 
some other changes to the Hearings Panel proceedings as discussed in 
more detail below. The Exchange stated that the proposed amendments are 
designed to improve the efficient and effective functioning of the 
hearings process in connection with the Company's appeal of a Staff 
Delisting Determination, Public Reprimand Letter, or denial of a 
listing application.\18\
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    \18\ See id.
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    Specifically, the Exchange is proposing to amend Nasdaq Rule 
5815(a)(5) to require a Company to provide a written submission to the 
Hearings Department, to which Staff may respond in writing, stating 
with specificity the grounds on which the Company is seeking review of 
the Staff Delisting Determination notification, Public Reprimand 
Letter, or written denial of a listing application (``Written 
Submission'').\19\ The Company would be required to include in the 
Written Submission all legal arguments on which it intends to rely.\20\ 
In addition, the Exchange proposes to specify that the Company may 
supplement the Written Submission by providing a written update to the 
Hearings Department (``Written Update'') no later than two business 
days in advance of the hearing. The Written Update may not include any 
legal argument not raised by the Company with specificity in the 
Written Submission.\21\
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    \19\ The Hearings Department generally calendars a hearing 
within 45 days of the request for a hearing and will establish 
deadlines for written submissions to the Hearings Panel. See Nasdaq 
Rule 5815(a)(4). As determined by the Hearings Department, both oral 
and written hearing matters are generally considered on Thursdays, 
and the Company's written submission is typically due on the third 
Friday before the hearing. The Hearings Department will generally 
establish the Thursday before the hearing as the deadline for Nasdaq 
Staff to respond in writing. See Notice, supra note 3, 85 FR at 
43901, n.6.
    \20\ The proposal would amend the current rule to allow the 
Company's Written Submission, as appropriate, to include a written 
plan of compliance and request that the Hearings Panel grant an 
exception to the listing standards for a limited time period, as 
permitted by Nasdaq Rule 5815(c)(1)(A), or may set forth specific 
grounds for the Company's contention that the issuance of a Staff 
Delisting Determination, Public Reprimand Letter, or denial of a 
listing application was in error, and may also submit public 
documents or other written material in support of its position, 
including any information not available at the time of the staff 
determination. See proposed Nasdaq Rule 5815(a)(5).
    \21\ See proposed Nasdaq Rule 5815(a)(5). The Hearings Panel 
will determine that a company has raised a legal argument with 
specificity if the legal argument includes sufficient detail to be 
useful in the Hearings Panel's review of the record before the 
hearing. See Notice, supra note 3, 85 FR at 43901.
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    The Exchange is proposing to amend Nasdaq Rule 5815(a)(6) to 
provide that during an oral hearing, a Company would be prohibited from 
introducing any legal argument not raised by the Company with 
specificity in the Written Submission. The Exchange also proposes to 
amend Nasdaq Rule 5815(a)(6) to provide that during an oral hearing, a 
Company would be prohibited from introducing any material information 
that was not raised by the Company with specificity in the Written 
Submission or Written Update, unless such information was solicited

[[Page 67026]]

by the Hearings Panel or the Company shows either that the material 
information did not exist at the time the Company was permitted to 
submit a Written Update \22\ or that exceptional or unusual 
circumstances exist that warrant consideration of the newly raised 
material information. The proposal provides that exceptional or unusual 
circumstances would include, but are not necessarily limited to, 
material information that was not earlier discoverable by the Company 
despite all reasonable measures having been taken.\23\ If the Hearings 
Panel determines either that the Company has shown that the material 
information did not exist at the time the Company was permitted to 
submit a Written Update or that the Company has shown exceptional or 
unusual circumstances exist that warrant consideration of the newly 
raised material information, then the Company would be permitted to 
introduce such information at the oral hearing.\24\ Nasdaq Staff would 
have up to three business days, or such shorter time as the Hearings 
Panel requests, following the oral hearing to respond in writing to the 
Company's newly raised material information, and the Company would be 
permitted to respond to the Staff's submission only upon request by the 
Hearings Panel.\25\
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    \22\ The Exchange provides the following example. Where a key 
component of a Company's compliance plan is a merger, and the 
Company obtains a fully executed version of the merger agreement the 
day before the hearing, the executed merger agreement would 
constitute information that did not exist at the time the Company 
was permitted to submit a Written Update. However, the fact that the 
Company was pursuing a merger, the potential merger parties, and the 
material terms of the contemplated merger should have been 
previously disclosed by the Company, as some or all of such 
information likely existed at the time the Company was permitted to 
submit a Written Update. See Notice, supra note 3, 85 FR at 43902.
    \23\ See proposed Nasdaq Rule 5815(a)(6).
    \24\ See id.
    \25\ See id.
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    The Exchange stated that Companies that have requested a written or 
oral hearing before a Hearings Panel to review a Staff Delisting 
Determination, Public Reprimand Letter, or written denial of a listing 
application prior to the date of Commission approval of the proposed 
rule change will be subject to the rule text in Nasdaq Rule 5815(a)(5) 
and (6) that was effective prior to the date of such Commission 
approval.\26\
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    \26\ See Notice, supra note 3, 85 FR at 43902, n.11.
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III. Discussion and Commission Findings

    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.\27\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\28\ 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. In addition, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(7) of the Act,\29\ which 
requires, among other things, that the rules of a national securities 
exchange provide a fair procedure for the prohibition or limitation by 
the exchange of any person with respect to access to services offered 
by the exchange.
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    \27\ 15 U.S.C. 78f(b). In approving this proposed rule change 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ 15 U.S.C. 78f(b)(7).
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    Nasdaq proposes to amend the procedures that govern a written or 
oral hearing before a Hearings Panel to review a Staff Delisting 
Determination, Public Reprimand Letter, or written denial of a listing 
application. Specifically, where a company has requested either a 
written or an oral hearing, Nasdaq proposes to require the company to 
provide a Written Submission in advance of the hearing, in which the 
company must state in writing with specificity the grounds upon which 
it is seeking review and all legal arguments on which it intends to 
rely. In addition, Nasdaq proposes to clarify that Nasdaq Staff may 
respond in writing to a company's Written Submission. Nasdaq also 
proposes that a company may supplement its Written Submission by 
providing a Written Update to the Hearings Department no later than two 
business days in advance of the hearing, thereby briefing the Hearings 
Panel on any new material information that has transpired since its 
Written Submission. Nasdaq proposes to allow a company only to 
introduce legal arguments in the Written Submission, and to not allow a 
company to introduce any legal arguments in the Written Update or 
during the oral hearing that were not raised with specificity in the 
Written Submission. Finally, Nasdaq proposes to set forth limited 
circumstances in which the Hearings Panel will permit a company to 
introduce material information at the oral hearing.\30\ The Exchange 
stated that the proposed amendments will enhance the hearings process 
by providing the Hearings Panel with the most developed record in as 
timely a manner as possible.\31\
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    \30\ See supra notes 22-24 and accompanying text.
    \31\ See Notice, supra note 3, 85 FR at 43902.
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    As the Commission has previously noted, the development and 
enforcement of meaningful listing standards \32\ for an exchange is of 
substantial importance to financial markets and the investing public. 
Among other things, listing standards provide the means for an exchange 
to screen issuers that seek to become listed, and to provide listed 
status only to those that are bona fide companies that have or will 
have sufficient public float, investor base, and trading interest 
likely to generate depth and liquidity sufficient to promote fair and 
orderly markets.\33\ Meaningful listing standards also are important 
given investor expectations regarding the nature of securities that 
have achieved an exchange listing, and the role of an exchange in 
overseeing its market and assuring compliance with its listing 
standards.\34\ Therefore it is important for exchanges to prevent 
companies that are deficient in their listing standards or that do not 
meet initial listing standards

[[Page 67027]]

from remaining or becoming listed on an exchange.
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    \32\ The Commission notes that this is referring to both initial 
and continued listing standards.
    \33\ In addition, once a security has been approved for initial 
listing, maintenance criteria allow an exchange to monitor the 
status and trading characteristics of that issue to ensure that it 
continues to meet the exchange's standards for market depth and 
liquidity so that fair and orderly markets can be maintained. See, 
e.g., Securities Exchange Act Release Nos. 82627 (Feb. 2, 2018), 3 
FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-2017-30); 81856 (Oct. 
11, 2017), 82 FR 48296, 48298 (Oct. 17, 2017) (SR-NYSE-2017-31); 
81079 (July 5, 2017), 82 FR 32022, 32023 (July 11, 2017) (SR-NYSE-
2017-11). The Commission has stated that adequate listing standards, 
by promoting fair and orderly markets, are consistent with Section 
6(b)(5) of the Act, in that they are, among other things, designed 
to prevent fraudulent and manipulative acts and practices, promote 
just and equitable principles of trade, and protect investors and 
the public interest. See, e.g., Securities Exchange Act Release Nos. 
82627 (Feb. 2, 2018), 3 FR 5650, 5653, n.53 (Feb. 8, 2018) (SR-NYSE-
2017-30); 87648 (Dec. 3, 2019), 84 FR 67308, 67314, n.42 (Dec. 9, 
2019) (SR-NASDAQ-2019-059); 88716 (Apr. 21, 2020), 85 FR 23393, 
23395, n.22 (Apr. 27, 2020) (SR-NASDAQ-2020-001).
    \34\ See, e.g., Securities Exchange Act Release Nos. 65708 (Nov. 
8, 2011), 76 FR 70799 (Nov. 15, 2011) (SR-NASDAQ-2011-073) (order 
approving a proposal to adopt additional listing requirements for 
companies applying to list after consummation of a ``reverse 
merger'' with a shell company), and 57785 (May 6, 2008), 73 FR 27597 
(May 13, 2008) (SR-NYSE-2018-17) (order approving a proposal to 
adopt new initial and continued listing standards to list securities 
of special purpose acquisition companies).
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    The Commission believes that the proposed revisions to the hearings 
process are appropriate and consistent with Section 6(b)(5) of the Act 
in that the proposed rules are designed to protect investors and the 
public interest. The Commission further believes the proposed rule 
change is consistent with Section 6(b)(7) of the Act in that it 
provides a fair procedure for the prohibition or limitation by the 
Exchange of any person with respect to access to services offered. The 
Commission believes that the proposed procedures will require companies 
that have received a Staff Delisting Determination, Public Reprimand 
Letter, or have been denied initial listing to provide all relevant 
legal arguments and material information to the Hearings Panel in a 
timely manner within reasonable deadlines, so that the Hearings Panel 
may make an informed decision regarding the company's initial or 
continued listing on the Exchange. The proposed procedures should 
prevent companies that have received a Staff Delisting Determination, 
Public Reprimand Letter, or have been denied initial listing from 
withholding material information or legal arguments in an effort to 
extend the time before the Hearings Panel makes a decision or otherwise 
unduly lengthen the hearings process. The Commission notes that this is 
particularly important given that under Nasdaq rules a timely request 
for a hearing will ordinarily stay the suspension and delisting action 
until the issuance of a written panel decision. Therefore, as discussed 
in more detail below, most companies will have their stock continue to 
trade during the appeal of a Staff Delisting Determination or Public 
Reprimand Letter.\35\ The Commission believes that the proposed 
procedures are reasonable and appropriate to allow companies to present 
all relevant legal arguments and material information before the 
Hearings Panel, and for Nasdaq Staff to have a reasonable opportunity 
to respond in advance of the hearing. The Commission further believes 
that the proposed procedures are also reasonable to allow the Hearings 
Panel time and opportunity to review all relevant material information 
and legal arguments and should strengthen the integrity, efficiency, 
and transparency of the hearings process while also providing for a 
fair procedure for companies to present their case before the Hearings 
Panel.\36\
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    \35\ See infra notes 65-67 and accompanying text.
    \36\ See below at notes 43-60 and accompanying text for 
discussion of comments received.
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    The Commission believes the proposed amendments governing the 
submission of a Written Submission and Written Update are appropriate 
and consistent with the Act. The Exchange has stated that Nasdaq Staff 
has observed instances where, in advance of a hearing, companies 
provide little information about their plan to achieve or regain 
compliance or regarding their appeal of a Public Reprimand Letter or 
denial of an initial listing application, and instead present such 
information for the first time during the hearing.\37\ Under current 
rules, as noted above, companies are not required to make a written 
submission upon an appeal to the Hearings Panel, but rather companies 
have the option to submit a written submission. The new procedures will 
require all companies to submit a Written Submission upon an appeal to 
the Hearings Panel. The Exchange has stated in support of the new 
requirements that when companies belatedly provide information to the 
Hearings Panel, it does not provide the Hearings Panel with adequate 
time to consider the information or to adequately prepare or formulate 
questions in advance of the hearing.\38\ The Exchange stated that in 
such circumstances, the Hearings Panel may need more time or 
information to fully consider the matter following the hearing, and 
that a company that withholds information is effectively rewarded by 
extending the time it remains listed pending a Hearings Panel 
decision.\39\ The Exchange also stated that the Written Update will 
provide the company an additional opportunity to update any new 
material information since the submission of its Written Submission as 
well as provide an opportunity to reply to any Nasdaq written Staff 
response.\40\ The Commission believes that requiring a company to 
provide a Written Submission early on in the hearings process and 
allowing a company to supplement this information up to two business 
days prior to the hearing should enable the Hearings Panel to prepare 
for the hearing with the most up-to-date information regarding the 
company and its ability to achieve or maintain compliance with listing 
standards when appealing a Staff Delisting Determination, Public 
Reprimand Letter, or a denial of initial listing.
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    \37\ See Notice, supra note 3, 85 FR at 43902.
    \38\ See id.
    \39\ See Notice, supra note 3, 85 FR at 43903. Pursuant to 
Nasdaq Rule 5815(a)(1)(B), a timely request for a hearing generally 
stays the suspension and delisting action pending the issuance of a 
written panel decision.
    \40\ The Commission notes that the information the company may 
provide in the Written Update may not include any legal argument not 
raised by the company with specificity in the Written Submission but 
is otherwise not limited. The proposed language will specifically 
state that the Nasdaq Staff may respond in writing to the Written 
Submission. Nasdaq stated this is a clarification of current 
procedures. See Notice, supra note 3, 85 FR at 43901.
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    In addition, the Commission believes that the proposed restrictions 
on a company's ability to present material information during the oral 
hearing are appropriate and consistent with the Act. As discussed 
above, such restrictions should improve the Hearings Panel's access to 
relevant information in a timely manner and allow the Hearings Panel to 
prepare for the hearings process in order to make an informed decision. 
Under the proposal, a company would be permitted to introduce new 
material information that is solicited by the Hearings Panel to ensure 
the Hearings Panel is not unnecessarily restricted and that the company 
can appropriately respond to any such inquiry by the Hearings Panel at 
the oral hearing. Further, a company would be permitted to introduce 
new material information if the company shows that such information did 
not exist at the time the company was permitted to submit a Written 
Update or that exceptional or unusual circumstances exist that warrant 
consideration of the new material information. Such exceptions are fair 
to allow a company to raise new information if the Hearings Panel finds 
that the company has shown that it was truly unable to present such 
information prior to the oral hearing or exceptional circumstances 
existed. The Commission also has previously found a similar provision 
of a national securities exchange that limited a company's ability to 
introduce new material information that was not identified in its 
initial request for review of a delisting as consistent with Sections 
6(b)(5) and 6(b)(7) of the Act, stating, among other things, that the 
new procedures may contribute to a more efficient appeals process and 
reduce unnecessary delays.\41\
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    \41\ See Securities Exchange Act Release No. 47161 (Jan. 10, 
2003), 68 FR 2603, 2604 (Jan. 17, 2003) (SR-NYSE-2001-46) (approving 
proposed rule change to modify, among other things, the exchange's 
procedures for issuer appeals of delisting determinations) (``NYSE 
2003 Order'').
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    Further, the Commission believes that the proposed requirement for 
a company to present all legal arguments on which it intends to rely in 
its Written Submission, and the related restrictions

[[Page 67028]]

on presenting any legal arguments later in the Written Update or oral 
hearings process, are also appropriate and consistent with the Act. The 
Exchange has stated that where companies belatedly provide legal 
arguments to the Hearings Panel, Nasdaq Staff may be unable to fully 
develop legal arguments or advise the Hearings Panel effectively 
regarding a company's request for relief. As a result, the Hearings 
Panel may not have all the relevant information before it and may not 
be able to properly adjudicate the issue during the hearing.\42\ 
Requiring a company to raise legal arguments in the Written Submission 
should allow Nasdaq Staff the opportunity to provide a thorough 
response to the legal argument and provide the Hearings Panel the 
benefit of Nasdaq Staff's views and perspective, thus improving the 
integrity and transparency of the hearings process while at the same 
time providing a fair procedure for the company to set forth its legal 
arguments in the hearings process.
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    \42\ See Notice, supra note 3, 85 FR at 43903.
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    One commenter opposed Nasdaq's proposed revisions to the hearings 
process, stating its belief that the proposal is highly prejudicial to 
issuers and will impede the Hearings Panel's ability to make fully 
informed listing decisions.\43\ This commenter stated that issuers are 
often still in the process of assembling their legal team for the 
hearing in the days leading up to the deadline for making the 
prehearing submission, which ``limits the issuer's ability to provide 
any and all comprehensive legal arguments or other detailed information 
regarding its compliance plan.'' \44\ The commenter stated that 
requiring ``the issuer to submit the totality of its compliance plan 
and any legal arguments in connection therewith several weeks ahead of 
the hearing would place the issuer at a significant disadvantage before 
the Panel'' and that the proposal ``fails to take into consideration 
the fact that companies that are subject to delisting . . . are 
typically dealing with a very fluid set of circumstances in their 
efforts to regain compliance with the applicable listing criteria; 
circumstances that are rapidly evolving, sometimes right up to the time 
of the hearing.'' \45\ The commenter stated that the Nasdaq's current 
procedures, which require the hearing to be held within 45 days of the 
hearing request and do not require the Hearings Panel to issue its 
decision within any particular time period following the hearing,\46\ 
allow for sufficient time for the Hearings Panel to seek a response 
from Nasdaq Staff on any new information provided at the hearing.\47\ 
The commenter stated that it is ``not uncommon for the Panel to afford 
the Staff an opportunity to make a responsive submission post-hearing 
and then to give the company the opportunity to respond to such post-
hearing submission'' and that ``[s]uch an exchange can easily be 
completed within two weeks, allowing the Panel to make a decision 
within 30 days.'' \48\ The commenter argued that the current hearings 
process has served Nasdaq, investors, and issuers well for many years 
and provides the Hearings Panel with the necessary tools to ensure that 
Nasdaq Staff has an adequate opportunity to respond to an issuer's 
compliance plan and any legal arguments in connection therewith without 
arbitrarily limiting the issuer's ability to present information it 
deems relevant to the Hearings Panel's decision.\49\
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    \43\ See Letter from David A. Donohoe, Jr., Donohoe Advisory 
Associates LLC, to Secretary, Commission, dated August 10, 2020 
(``Donohoe Letter''), at 3.
    \44\ Id. at 2.
    \45\ Id.
    \46\ The commenter noted, however, that Nasdaq advises all 
issuers in advance of the hearing that it is their intention to 
issue the panel decision within 30 calendar days of the hearing 
date. See id. at 3.
    \47\ See id.
    \48\ Id.
    \49\ See id.
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    In response to this commenter, Nasdaq stated that, rather than 
impeding the Hearings Panel's ability to make fully informed listing 
decisions, the proposal will ``increase the information available to 
the Hearings Panel in advance of a hearing, which will allow the 
Panelists adequate time to review the information and ask questions of 
the company during the hearing and, thereby, make a fully informed 
decision.'' \50\ Nasdaq stated that the proposal does not in any way 
limit the nature and amount of information, whether legal arguments or 
factual statements, that a company may submit to the Hearings Panel for 
consideration, but rather requires a company to submit the relevant 
legal arguments and material information by a reasonable deadline and 
prevents the belated submission of such information.\51\ In addition, 
Nasdaq stated that the proposed rules will provide a company with ample 
opportunity to present the material information necessary to allow for 
a full and complete consideration of the issues by the Hearings 
Panel.\52\
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    \50\ Letter from Arnold Golub, Vice President and Deputy General 
Counsel, Nasdaq, to Secretary, Commission, dated September 1, 2020 
(``Response Letter''), at 1.
    \51\ See id. at 2.
    \52\ See id. at 3. Nasdaq stated, for example, that the proposal 
allows a company appealing a staff determination to submit 
additional information two business days prior to the hearing. 
Nasdaq also stated that the proposal permits the company an 
opportunity to present new material information under certain 
conditions at the oral hearing as discussed above. See Response 
Letter, at 2. See also supra notes 21-24 and accompanying text.
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    Nasdaq further stated that, as recognized by the opposing 
commenter,\53\ most hearings relate to deficiencies where the company 
receives a cure period or is allowed to submit to Nasdaq Staff a plan 
to regain compliance before receiving a delisting letter.\54\ 
Therefore, the company should be on notice long before the hearings 
process of both the nature of the deficiency and the timing of when the 
company will receive a delisting, and the company should have adequate 
time before receiving a delisting letter to assemble its legal team, 
consider its legal arguments, and develop its plan to regain 
compliance.\55\ Nasdaq stated that, as noted by the commenter,\56\ in 
most

[[Page 67029]]

cases, the Hearings Panel does not render a decision regarding the 
legal merits of Nasdaq Staff's determination in the matter. Given that 
most matters do not require the Hearings Panel to consider legal 
arguments put forth by the company, Nasdaq stated that it is more 
important that such arguments be raised early in the process to allow 
Nasdaq Staff adequate time to consider the claims raised and respond in 
advance of the hearing.\57\ Nasdaq stated that requiring the Hearings 
Panel to solicit subsequent submissions, as proposed by the 
commenter,\58\ would only serve to delay the adjudication of the 
matter, potentially to the detriment of prospective future 
investors.\59\ One commenter also expressed unqualified support for the 
Nasdaq proposal and Nasdaq's efforts to improve the effectiveness of 
Hearings Panel proceedings.\60\
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    \53\ See Donohoe Leter, at 2 (stating that ``market-based 
deficiencies (e.g., bid price, market value of listed securities, 
and market value of publicly held shares) and stockholders' equity 
deficiencies . . . represent the lion's share of compliance issues 
resulting in hearings.'').
    \54\ Nasdaq stated that from January 1, 2020 through August 31, 
2020, 28 of the 45 hearings held, or 62%, related only to bid price, 
market value of listed securities, market value of publicly held 
shares, and stockholders' equity deficiencies. See Response Letter, 
at 2, n.4. Deficiencies relating to all such listing standards allow 
a company to submit a plan of compliance. See Nasdaq Rule 5810(c)(2) 
and (c)(3) (setting forth deficiencies for which a company may 
submit a plan of compliance). Generally, deficiencies relating to 
bid price, market value of listed securities, and market value of 
publicly held shares allow for a cure period of 180 days. See Nasdaq 
Rule 5810(c)(3). In addition, under certain circumstances, companies 
that fail to meet the continued listing requirement for minimum bid 
price may be allowed a cure period of 360 days. See Nasdaq Rule 
5810(c)(3)(A).
    \55\ See Response Letter, at 2-3. Pursuant to Nasdaq Rules, 
there are only a limited set of deficiencies for which Nasdaq's 
initial notice to the company is a delisting determination and the 
company's securities are immediately subject to suspension and 
delisting, including where a company fails to timely solicit proxies 
and where, under its discretionary authority in the Nasdaq Rule 5100 
Series, Nasdaq Staff has determined that a company's continued 
listing raises a public interest concern. See Nasdaq Rule 
5810(c)(1); Response Letter, at 2, n.6. Moreover, Nasdaq stated that 
it would be concerned if a company ignored its prior communications 
with Staff about the deficiency and only began to act upon receiving 
the delisting letter, as suggested by the commenter. See Response 
Letter, at 2-3.
    \56\ See Donohoe Letter, at 2 (stating that ``in the majority of 
cases, the Panel is not rendering a determination as to whether the 
Staff erred in its determination to delist an issuer, but rather is 
seeking to determine whether, at the time of the Panel's decision, 
the issuer has adequately addressed the Staff's concerns and 
presented a definitive plan to regain compliance within a reasonable 
period of time and, certainly within the discretionary period 
available to the Panel under the Nasdaq Listing Rules.'').
    \57\ See Response Letter, at 3.
    \58\ See supra note 48 and accompanying text.
    \59\ See Response Letter, at 3.
    \60\ See Letter from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors, to Secretary, Commission, dated 
August 4, 2020 (``CII Letter'').
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    As discussed above, the Commission believes, as noted by Nasdaq, 
that the proposed procedures will require companies to submit relevant 
legal arguments and material information by a reasonable deadline and 
prevent the belated submission of such information.\61\ The proposal 
permits the addition of any new information up to two business days 
prior to the hearing to be submitted in the Written Update, except for 
any legal argument not raised by the Company with specificity in the 
Written Submission. Thus, the company should be able to provide any new 
information that has evolved since the submission of the Written 
Submission, including updates on its compliance plan, in its Written 
Update. Further, the Hearings Panel can allow the admission of 
additional material information at an oral hearing if certain 
conditions are met.\62\ The Commission notes that the New York Stock 
Exchange (``NYSE'') provides for similar procedures regarding the 
submission of information where an issuer requests a review of a 
delisting determination by the Committee of the Board of Directors of 
the NYSE and the Commission found such procedures to be consistent with 
both Section 6(b)(5) and 6(b)(7) under the Exchange Act.\63\ The 
Commission further notes that the requirement for all legal arguments 
upon which the company will rely to be presented in the company's 
opening submission is not novel and is analogous to provisions in the 
Commission's Rules of Practice and Federal Rules of Appellate 
Procedure, routinely enforced by the Commission and the federal courts 
of appeals.\64\
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    \61\ The Commission notes that the one commenter agreed with 
Nasdaq that ``when companies belatedly provide information to the 
Hearings Panel . . . it does not provide the Hearings Panel with 
adequate time to prepare for and consider the information in advance 
of the hearing'' and that ``where companies belatedly provide legal 
arguments to the Hearings Panel, Nasdaq staff is unable to 
adequately brief the Hearings Panel concerning its response to the 
legal argument and, as a result, the Hearings Panel does not have 
adequate time to prepare for and consider the legal argument in 
advance of the hearing and thus cannot properly adjudicate the 
issue.'' See CII Letter.
    \62\ Indeed, in its filing, Nasdaq stated that it has observed 
that companies primarily seek to introduce material information, 
such as a new equity offering or merger, as opposed to legal 
arguments at the hearing. See Notice, supra note 3, 85 FR at 43902, 
n.9.
    \63\ See Section 804.00 of the NYSE Listed Company Manual (``The 
Committee's review and final decision will be based on oral argument 
(if any) and the written briefs and accompanying materials submitted 
by the parties. The company will not be permitted to argue grounds 
for reversing the staff's decision that are not identified in its 
request for review, however, the company may ask the Committee for 
leave to adduce additional evidence or raise arguments not 
identified in its request for review, if it can demonstrate that the 
proposed additional evidence or new arguments are material to its 
request for review and that there was reasonable ground for not 
adducing such evidence or identifying such issues earlier. This 
section will not, however, (i) authorize a company to seek to file a 
reply brief in support of its request for review or (ii) be deemed 
to limit the staff's response to a request for review to the issues 
raised in the request for review. Upon review of a properly 
supported request, the Committee may in its sole discretion permit 
new arguments or additional evidence to be raised before the 
Committee.''). See also supra note 41 and accompanying text.
    \64\ See 17 CFR 201.420(c) (stating, in reference to Commission 
review of a determination by a self-regulatory organization, that 
``[a]ny exception to a determination not supported in an opening 
brief . . . may, at the discretion of the Commission, be deemed to 
have been waived by the applicant''). See also 17 CFR 201.222(a) 
(providing that a hearing officer may require a party, in its 
prehearing submission, to include ``[a]n outline or narrative 
summary of its case or defense'' and ``[t]he legal theories upon 
which it will rely''); Island Creek Coal Co. v. Wilkerson, 910 F.3d 
254, 256 (6th Cir. 2018) (``Time, time, and time again, we have 
reminded litigants that we will treat an `argument' as `forfeited 
when it was not raised in the opening brief.' . . . . The obligation 
to identify the issues on appeal in the opening brief applies to 
arguments premised on the loftiest charter of government as well as 
the most down to earth ordinance.''); United States v. Van Smith, 
530 F.3d 967, 973 (D.C. Cir. 2008) (``We require petitioners and 
appellants to raise all of their arguments in the opening brief, and 
have repeatedly held that an argument first made in a reply brief 
ordinarily comes too late for our consideration.''); Barna v. Bd. Of 
Sch. Dirs. of the Panther Valley Sch. Dist., 877 F.3d 136, 145-46 
(3d Cir. 2017) (``We have long recognized, consistent with Federal 
Rule of Appellate Procedure 28(a) . . . that an appellant's opening 
brief must set forth and address each argument the appellant wishes 
to pursue in an appeal.'' . . . . and the court will not ``reach 
arguments raised for the first time in a reply brief or at oral 
argument.'').
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    Finally, the Commission notes that when a company requests a 
Hearings Panel review, the suspension and delisting of the company's 
securities is generally stayed pending the issuance of the Hearing 
Panel's decision.\65\ The Commission believes that where a company has 
received a delisting determination, it is important to have an 
efficient, fair, and effective process for reviewing such 
determination, given that the company's shares will likely continue to 
trade during the duration of the Hearings Panel's review.\66\ If such 
company is not in compliance with listing standards and will not be 
able to regain compliance in accordance with Nasdaq rules, the 
continued trading of such securities could be misleading to investors. 
Allowing a company that will not be able to demonstrate compliance with 
the Exchange's listing standards to delay providing material 
information and legal arguments and thereby extend the delisting review 
process and thus the trading of the security on the Exchange during the 
pendency of the Hearings Panel's review would raise issues under the 
Exchange Act, including investor protection concerns.\67\
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    \65\ See Nasdaq Rule 5815(a)(1)(B). There are some exceptions to 
this rule for companies subject to late filing delinquencies, 
companies involved in a change of control as described in Nasdaq 
Rule 5110(a), or companies involved in a bankruptcy or liquidation 
as described in Nasdaq Rule 5110(b). See Nasdaq Rule 
5815(a)(1)(B)(i) and (ii).
    \66\ See NYSE 2003 Order, supra note 41, 68 FR at 2604 (stating 
that ensuring appeals are considered in a timely manner and resolved 
promptly is particularly important because the NYSE may permit an 
issuer to continue to trade during the appeal process).
    \67\ See In re Tassaway, Securities Exchange Act Release No. 
11291, 45 S.E.C. 706, 709, 1975 SEC LEXIS 2057, at *6 (Mar. 13, 
1975) (``[P]rimary emphasis must be placed on the interests of 
prospective future investors . . . [who are] entitled to assume that 
the securities in [Nasdaq] meet [Nasdaq's] standards. Hence the 
presence in [Nasdaq] of non-complying securities could have a 
serious deceptive effect.''). See also In re Biorelease Corporation, 
Securities Exchange Act Release No. 35575, 1995 SEC LEXIS 818, at 
*13 (Apr. 6, 1995) (``[T]hough exclusion from the system may hurt 
existing investors, primary emphasis must be placed on the interests 
of prospective future investors. Prospective investors are entitled 
to assume that the securities listed [on Nasdaq] meet the system's 
listing standards.'').
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    Based on the above, the Commission believes the proposed procedures 
provide companies with ample opportunity for a fair procedure and 
efficient process for reviewing appeals before the Hearings Panel. The 
Commission therefore believes that Nasdaq's proposal is consistent with 
Section 6(b)(7) of the Act in setting forth a fair procedure for the 
Hearings Panel's review of a Staff Delisting Determination, Public 
Reprimand

[[Page 67030]]

Letter, or denial of a listing application. The Commission also 
believes that Nasdaq's proposal will further the purposes of Section 
6(b)(5) of the Act by, among other things, protecting investors and the 
public interest by setting forth reasonable deadlines and a fair and 
efficient process for the Hearings Panel to review a delisting 
determination and make an informed determination regarding whether a 
company should remain listed on the Exchange. Where the Hearings Panel 
ultimately determines that the continued listing of a company on Nasdaq 
is not appropriate, the proposal would help to prevent such a company 
from unnecessarily delaying the review process and thereby extending 
the time period that the company's securities are traded on Nasdaq, 
while at the same time ensuring that companies have a fair procedure 
and reasonable process to provide relevant information to the Hearings 
Panel in a timely manner. The Commission believes the proposal furthers 
these goals consistent with Sections 6(b)(5) and 6(b)(7) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\68\ that the proposed rule change (SR-NASDAQ-2020-002), be, and it 
hereby is, approved.
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    \68\ 15 U.S.C. 78s(b)(2).
    \69\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\69\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23258 Filed 10-20-20; 8:45 am]
BILLING CODE 8011-01-P