[Federal Register Volume 87, Number 56 (Wednesday, March 23, 2022)]
[Notices]
[Pages 16518-16521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06091]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94450; File No. SR-NASDAQ-2021-099]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving Proposed Rule Change To Amend Nasdaq Rule 5815(d)(4)
Regarding the Use of a Hearings Panel Monitor Following a Compliance
Determination by a Nasdaq Listings Qualification Hearings Panel
March 17, 2022.
I. Introduction
On December 10, 2021, 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 Nasdaq Rule 5815(d)(4) regarding the use
of a Hearings Panel Monitor following a compliance determination by a
Nasdaq Listings Qualification Hearings Panel. The proposed rule change
was published for comment in the Federal Register on December 21,
2021.\3\ On February 3, 2022, the Commission extended the time period
within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\4\ The Commission
received no comments on the proposed rule change. This order approves
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 93789 (December 15,
2021), 86 FR 72293 (``Notice'').
\4\ See Securities Exchange Act Release No. 94145, 87 FR 7521
(February 9, 2022) (extending the time period to March 21, 2022).
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II. Description of the Proposal
The Nasdaq Rule 5300, 5400, and 5500 series set forth the initial
listing requirements for a Company \5\ seeking to list, as well as
continued listing requirements that apply to a Company once listed on,
the Nasdaq Global Select Market, Nasdaq Global Market and Nasdaq
Capital Market, respectively. The Nasdaq Rule 5800 series contains the
rules and procedures applicable to a Company that does not meet the
listing standards outlined in the Nasdaq Rule 5000 series and thus is
``deficient'' with respect to a listing standard.\6\ In this
circumstance, staff from the Listings Qualifications Department \7\
(``Staff'') will issue a notification informing the Company of the
deficiency. According to Nasdaq, where allowed by Nasdaq's rules,
Staff's notification may provide for a cure or compliance period or
allow the company to submit a plan of compliance for Staff to
review.\8\ Companies that do not regain compliance within any time
frame permitted by Staff under a plan of compliance,\9\ that do not
regain compliance within the specified cure or compliance period,\10\
or that has a deficiency type that unless appealed subjects the Company
to immediate suspension and delisting \11\ will be issued a Staff
Delisting Determination \12\ and may request that a Hearings Panel \13\
(``Hearings Panel'') review such determination. If it deems
appropriate, the Hearings Panel may grant an exception (``exception'')
to the continued listing standard with respect to the deficiency.\14\
However, where a
[[Page 16519]]
Company has previously been deficient with a listing standard but has
regained compliance pursuant to an exception granted by the Hearings
Panel, under certain circumstances, Nasdaq states that its rules do not
allow a Company the opportunity to submit a plan to regain compliance
or provide for a cure or compliance period in the event that the
Company incurs another deficiency within one year of the prior
deficiency. In these circumstances, Nasdaq Rules 5815(d)(4)(A) or (B)
would apply.\15\
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\5\ The term ``Company'' means the issuer of a security listed
or applying to list on Nasdaq. See Nasdaq Rule 5005(a)(6).
\6\ For purposes of this filing, Nasdaq's rules identify
deficiencies for which an already listed Company may submit a plan
of compliance (Nasdaq Rule 5815(c)(2)); and deficiencies for which
the Nasdaq Rules provide a specified cure or compliance period
(Nasdaq Rule 5815(c)(3)). While the Rule 5800 rule series also
addresses denials of listing for not meeting listing standards, the
rule proposal considered herein concerns Companies that are already
listed and fail to meet the continued listing standards.
\7\ The term ``Staff'' refers to the employees of the Listing
Qualifications Department. See Nasdaq Rule 5805(g). The ``Listing
Qualifications Department'' is the department of Nasdaq responsible
for Company compliance with quantitative and qualitative listing
standards and determining eligibility for initial and continued
listing of a Company's securities. See Nasdaq Rule 5805(f).
\8\ See Notice, supra note 3, at 72293.
\9\ See Rule 5810(c)(2)(E).
\10\ See Rule 5810(c)(3).
\11\ See Rule 5810(c)(1).
\12\ A ``Staff Delisting Determination'' or ``Delisting
Determination'' is a written determination by the Listing
Qualifications Department to delist a listed Company's securities
for failure to meet a continued listing standard. See Nasdaq Rule
5805(h).
\13\ The ``Hearings Panel'' is 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. See Nasdaq Rule 5805(d).
\14\ Pursuant to Nasdaq Rule 5815(c)(1)(A), when the Hearings
Panel review is of a deficiency related to continued listing
standards, the Hearings Panel may, where it deems appropriate grant
an exception to the continued listing standards for a period not to
exceed 180 days from the date of the Staff Delisting Determination
with respect to the deficiency for which the exception is granted.
See Nasdaq Rule 5815(c)(1)(A).
\15\ See Notice, supra note 3, at 72293.
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According to the Exchange, both Nasdaq Rules 5815(d)(4)(A) and (B)
set forth the process by which Staff will issue a Staff Delisting
Determination for a Company that fails to maintain compliance with one
or more listing standards within one year of having regained compliance
pursuant to an exception granted by a Hearings Panel.\16\ Currently,
Nasdaq Rule 5815(d)(4)(A), entitled ``Hearings Panel Monitor,''
provides, in part, that a Hearings Panel has discretion to monitor a
Company (i.e., subject the Company to a ``Hearings Panel Monitor'') for
a period of up to one year after the date the Company regains
compliance with a listing standard if it concludes that there is a
likelihood that such Company will fail to maintain compliance with one
or more listing standards during that period (including requirements
with which the Company was not previously deficient). During this one-
year period in which the Company is under a Hearings Panel Monitor,
Staff will monitor the Company to confirm compliance with all listing
standards. If Staff identifies a deficiency with any listing standard
for a Company being monitored under Nasdaq Rule 5815(d)(4)(A), Nasdaq
states that Staff may not provide the Company with a cure or compliance
period, nor the opportunity to submit a plan to regain compliance with
the deficiency; instead, Staff will issue a Staff Delisting
Determination for the Company.
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\16\ See Notice, supra note 3, at 72293.
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Nasdaq Rule 5815(d)(4)(B) currently states ``[i]f a Hearings Panel
has not opted to monitor a Company that has regained compliance with
the listing standards requiring the Company to maintain certain levels
of stockholders' equity, to timely file periodic reports, or with the
bid price requirement where the Company was ineligible for a compliance
period under Rule 5810(c)(3)(A)(iii) or (iv) and within one-year of the
date the Company regained compliance with such listing standard, the
Listing Qualifications Department finds the Company again out of
compliance with the requirement that was the subject of the exception,
then, notwithstanding Rule 5810(c)(2), the Listing Qualifications
Department will not allow the Company to provide it with a plan of
compliance or grant additional time for the Company to regain
compliance. Rather, the Listing Qualifications Department will promptly
issue a Staff Delisting Determination, and the Company may request
review by a Hearings Panel. The Hearings Panel will consider the
Company's compliance history when rendering its Decision.'' \17\
According to the Exchange, while entitled ``No Hearings Panel
Monitor'', paragraph (B) of Nasdaq Rule 5815(d)(4) amounts to what is
in effect a mandatory Hearings Panel Monitor.\18\
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\17\ Nasdaq states that this provision limits the grounds for an
immediate Delisting Determination to a recurrence of the initial
deficiency in the three enumerated areas in the rule that gave rise
to the previous hearing before the Hearings Panel. See Notice, supra
note 3, at 72293-4.
\18\ See Id. at 72294. The Exchange added that it is not aware
of the reason for the original language in Nasdaq Rule 5815(d)(4)(B)
stating the rule would not call for a Panel Monitor. Id. at n. 6.
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The Exchange has proposed to clarify Nasdaq Rule 5815(d)(4) in
several ways. First, the Exchange proposes to clarify that the use of a
Hearings Panel Monitor is discretionary if a Company qualifies for
monitoring under Nasdaq Rule 5815(d)(4)(A), but the use of a Hearings
Panel Monitor is mandatory if a Company qualifies for monitoring under
Nasdaq Rule 5815(d)(4)(B). Specifically, the Exchange proposes to
modify Nasdaq Rule 5815(d)(4)(A) by adding the word ``Discretionary''
to the heading of Nasdaq Rule 5815(d)(4)(A) to make clear that the
Hearings Panel Monitor under that provision is discretionary, and to
retitle Nasdaq Rule 5815(d)(4)(B) to ``Mandatory Hearings Panel'' to
make clear that a Hearings Panel Monitor under that provision is
mandatory. In addition, the Exchange proposes to further modify Nasdaq
Rule 5815(d)(4)(B) to make explicit the mandatory nature of appointing
a Hearings Panel Monitor by stating in the rule that after having been
granted an exception to the requirement to maintain certain levels of
stockholders' equity, to timely file periodic reports, or with the bid
price requirement where the Company was ineligible for a compliance
period under Nasdaq Rule 5810(c)(3)(A)(iii) or (iv), a ``Hearings Panel
will impose a Hearings Panel Monitor for a period of one year from the
date the company regains compliance'' with those three specific listing
requirements in Rule 5815(d)(4)(B).
The Exchange proposes to further clarify Nasdaq Rules 5815(d)(4)(A)
and (B) by amending those rules to clearly state that under both
paragraphs (A) and (B) of the rule, if a Company falls out of
compliance with the listing standard deficiency that was the subject of
the exception granted by the Listing Qualifications Department during
the one-year monitoring period, the Company will not be afforded an
applicable cure or compliance period pursuant to Nasdaq Rule
5810(c)(3), nor as currently provided by the rule be permitted to
provide the Listing Qualifications Department with a plan of compliance
under Nasdaq Rule 5810(c)(2). The Exchange represented that while the
original language in both Nasdaq Rule 5815(d)(4)(A) and (B) included
language regarding Staff's inability to afford a Company under a
Hearings Panel Monitor a cure or compliance period, the current rules
do not specifically include a reference to Nasdaq Rule 5810(c)(3)
itself.\19\ The Exchange believes that adding a specific reference to
Nasdaq Rule 5810(c)(3) will remove any potential confusion regarding
this point.\20\
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\19\ See Notice, supra note 3, at 72294.
\20\ Id. The rule provisions stating that the Listing
Qualification Department cannot grant additional time for the
Company to regain compliance will remain in Rule 5815(d)(A) and (B).
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The Exchange also proposes to add a new paragraph (C) to Nasdaq
Rule 5815(d)(4), which will set out the procedures for a Hearings Panel
Monitor that is appointed under either paragraphs (A) or (B) of Nasdaq
Rule 5815(d)(4), in the event the Company receives a Staff Delisting
Determination during the one-year monitoring period. Pursuant to
proposed Nasdaq Rule 5815(d)(4)(C), if a Company receives a Staff
Delisting Determination during the one-year period under paragraph
(d)(4)(A) or (B) of Nasdaq Rule 5815(d)(4), the Company may request
review by a Hearings Panel. Unless subparagraph (C) indicates
otherwise, the hearing will be conducted in accordance with the
procedures outlined in Nasdaq Rule 5815. Upon a request for a hearing
by the Company, the Hearings Department will promptly schedule a new
hearing with the initial Hearings Panel or a newly convened Hearings
Panel if the initial Hearings Panel is unavailable. The hearing may be
oral or written, at the Company's election and the Hearings Panel will
consider the Company's compliance
[[Page 16520]]
history when rendering its decision. If the Company does not request
review of the Staff Delisting Determination, then proposed Nasdaq Rule
5815(d)(4)(C) provides that the Company's securities will be suspended.
The Exchange stated that as revised, Nasdaq Rule 5815(d)(4)(C) also
will correct the erroneous inclusion of language in the current rule
which could allow the Hearings Department to promptly schedule a
hearing without first receiving a request for appeal from the
Company.\21\
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\21\ Id. The Exchange also represents that historically the
Hearings Department has not immediately scheduled a new hearing for
a Company under a Panel Monitor that has received a Delisting
Determination from Staff. According to the Exchange, a new hearing
would not be scheduled until the Company in question had requested
an appeal from the Delisting Determination. The Exchange states that
the proposed rule change will simply codify the existing practice of
the Hearings Department. Id. at n. 7. In addition, the Exchange
described other existing inconsistencies between paragraphs (A) and
(B) of Rule 5815(d)(4), but states that each of the provisions will
apply to both 5815(c)(4)(A) and (B) through the implementation of
proposed Rule 5815(d)(4)(C). See Id. at n. 8.
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III. Discussion and Commission Findings
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.\22\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\23\ 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 foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, 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, and are not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. In addition, the Commission finds that the proposed rule
change is consistent with Section 6(b)(7) of the Act, 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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\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78f(b)(5).
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The Exchange proposes to clarify when a Hearings Panel Monitor is
discretionary or mandatory under paragraphs (A) and (B) of Nasdaq Rule
5815(d)(4) by adding the specific terms ``Discretionary'' and
``Mandatory'' to the title of Nasdaq Rule 5815(d)(4)(A) and (B),
respectively. The Commission notes that Nasdaq Rule 5815(d)(4)(B) is
currently titled ``No Hearings Panel Monitor''; despite this current
title, and the current rule language, the Exchange represented that
``the rule itself actually outlines a process of a mandatory Hearings
Panel Monitor.'' \24\ In this regard, the Commission believes that the
proposed rule change will provide necessary clarity to the rule by
correcting the inaccurate title to the rule, given that Nasdaq has
stated that in effect paragraph (B) sets forth a mandatory Hearings
Panel Monitor process. The Exchange has also proposed to make clear
when a Hearings Panel will be mandatory by stating explicitly in Nasdaq
Rule 5815(d)(4)(B)--but not in Nasdaq Rule 5815(d)(4)(A), which is a
discretionary process--that a Hearings Panel will impose a Hearings
Panel Monitor for a period of one year from the date the Company
regains compliance with the listing standards relating to maintaining
certain levels of stockholders' equity, to timely file periodic
reports, or with the bid price requirement where the Company was
ineligible for a compliance period under Nasdaq Rule 5810(c)(3)(A)(iii)
or (iv), following an exception that was granted by a Hearings Panel.
The Commission believes that these changes to Nasdaq Rule 5815(d)(4)(A)
and (B) will help remove impediments to and perfect the mechanism of a
free and open market and a national market system and protect investors
and the public interest by removing any confusion or ambiguity about
when a Hearings Panel Monitor will be discretionary or mandatory.
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\24\ See Notice, supra note 3, at 72294.
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The Exchange also proposes to clarify that if a Company falls out
of compliance with the listing standard deficiency that was the subject
of the exception granted by the Listing Qualifications Department
during the one-year monitoring period under either Nasdaq Rule
5815(d)(4)(A) or (B), the Company will not be afforded an applicable
cure or compliance period pursuant to Nasdaq Rule 5810(c)(3). The
current rule language states that the Company will not be permitted to
provide the Listing Qualifications Department with a plan of compliance
notwithstanding Nasdaq Rule 5810(c)(2) and that the Company cannot be
granted any additional time to regain compliance. While the current
rule does prohibit any extension of time, the Exchange stated that
specifically referencing Rule 5810(c)(3) will avoid any potential
confusion.\25\ The Commission believes that the proposed change should
help to avoid any potential confusion by making clear that a Company
cannot receive any extension of time, including by being afforded an
applicable cure or compliance period pursuant to Nasdaq Rule
5810(c)(3), and as the rule currently states, by submitting a plan of
compliance under Nasdaq 5810(c)(2). Additionally, because the current
text of the rules prohibit any additional time to regain compliance,
the Commission believes that adding an explicit reference to Nasdaq
Rule 5810(c)(3) in Nasdaq Rule 5815(d)(4)(A) and (B) is consistent with
the Act because it will clarify and provide transparency on the
specific provisions in Rule 5810 that are not available to a Company
when a deficiency occurs during the one year monitoring period.
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\25\ Id.
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Finally, the Exchange proposed to create a new paragraph (C) to
Nasdaq Rule 5815(d)(4) which will outline how a Company may seek an
appeal of a Staff Delisting Determination. Pursuant to the Rule, if a
Company receives a Staff Delisting Determination during a one-year
Hearings Panel Monitor under Nasdaq Rule 5815 (d)(4)(A) or (B), the
Company may request review by a Hearings Panel. The Hearings Department
will schedule a hearing with the original Hearings Panel or a new
Hearings Panel if the original Hearings Panel is unavailable, the
hearing may be written or oral, and the Hearings Panel will consider
the Company's compliance history when rendering its decision. Nasdaq
Rule 5815(d)(4)(C) also provides that unless specifically addressed in
the Rule, the procedures for requesting and preparing for a review by a
Hearings Panel will continue to be governed by Nasdaq Rule 5815. The
Commission believes that it is consistent with the Act to combine the
procedures that a Company must follow to request a hearing after
receiving a Staff Delisting Determination into one paragraph of Nasdaq
Rule 5815(d)(4). Currently, the procedures for requesting a hearing
following a Staff Delisting Determination are set forth in either or
both paragraphs (A) and (B) of Rule 5815(d)(4). While both paragraphs
address such hearings, the differences in the description of and
procedures for
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requesting and conducting such hearings between paragraphs (A) and (B)
could lead to confusion. Therefore, the Commission believes that
providing the same procedures for requesting and conducting a hearing
under Rules 5815(d)(4)(A) and (B) and consolidating these procedures
into proposed paragraph (C) provides transparency and clarity to such
hearings, and thus may help ensure that the Exchange's rules do not
permit unfair discrimination between issuers, and provides a fair
procedure for review of a Staff Delisting Determination, consistent
with the Act.
As the Commission has previously noted, the development and
enforcement of meaningful listing standards \26\ 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.\27\ 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.\28\ Therefore it is important for exchanges to prevent
companies that are deficient in their listing standards or that do not
meet initial listing standards from remaining or becoming listed on an
exchange. Clarifying the rules and procedures for appeal where a listed
Company has recurrent deficiencies so is under a Hearings Panel Monitor
and cannot avail itself of additional time to demonstrate compliance,
should further investor protection under Section 6(b)(5) of the Act by
helping to eliminate potential confusion about the application of Rule
5815(d)(4), while at the same time ensuring such Companies have a fair
procedure for review consistent with Section 6(b)(7) of the Act.
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\26\ The Commission notes that this is referring to both initial
and continued listing standards.
\27\ 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).
\28\ 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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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-NASDAQ-2021-099) be, and
hereby is, approved.
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\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06091 Filed 3-22-22; 8:45 am]
BILLING CODE 8011-01-P