[Federal Register Volume 89, Number 104 (Wednesday, May 29, 2024)]
[Notices]
[Pages 46528-46533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-11700]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100208; File No. SR-NASDAQ-2024-019]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Proposed Rule Change to Rules 5605, 5615 and 5810 
To Clarify and Modify Phase-In Schedules for Certain Corporate 
Governance Requirements and Clarify Applicability of Certain Cure 
Periods

May 22, 2024
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on May 8, 2024, 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, II, and III 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 change Rules 5605, 5615 and 5810 to 
clarify and modify phase-in schedules for certain corporate governance 
requirements and clarify applicability of certain cure periods.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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 is proposing to clarify and modify the phase-in schedules to 
the independent director and committee requirement for certain 
companies. Nasdaq is also proposing to clarify the applicability of 
certain cure periods.
Initial Public Offerings
    Nasdaq is proposing to clarify and modify the phase-in schedules to 
the independent director and committee requirements for IPOs. 
Specifically, Rule 5615(b)(1) currently references that a company 
listing in connection with an IPO is permitted to phase in its 
independent audit committee requirements in accordance with SEC Rule 
10A-3(b)(1)(iv)(A) under the Act but does not restate the provisions of 
this rule. Nasdaq proposes to amend Rule 5615(b)(1) by specifically 
restating the phase-in provisions in the text of the rule and state 
that a company shall be permitted to phase in its compliance with the 
audit committee requirements set forth in Rule 5605(c)(2) as follows: 
(1) one member must satisfy the requirements by the date the company's 
securities first trade on Nasdaq (the ``Listing Date''); (2) a majority 
of members must satisfy the requirements within 90 days of the 
effective date of its registration statement; and (3) all members must 
satisfy the requirements within one year of the effective date of its 
registration statement.\3\
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    \3\ See 17 CFR 240.10A-3(b)(1)(iv)(A).
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    Rule 5605(c)(2)(A) requires a company to have a minimum of three 
members on the audit committee. As a result, companies listed in 
connection with an IPO which are not required to have a fully 
independent audit committee until one year from the Listing Date may 
appoint non-independent directors to the audit committee in order to 
satisfy the three-person minimum requirement. Nasdaq proposes to amend 
Rule 5615(b)(1) to provide that companies listing in conjunction with 
an IPO may also phase in compliance with the three-person minimum on 
the following schedule: at least one member by the Listing Date, at 
least two members within 90 days of the Listing Date and at least three 
members within one year of the Listing Date. This proposal is 
consistent with the approach of the NYSE.\4\ Nasdaq notes that in the 
NYSE Approval Order the Commission indicated that ``permitting a 
company to have only one member on its audit committee by the listing 
date, at least two members within ninety days of the listing date, and 
three members within a year of the listing date, affords a reasonable 
accommodation for [affected] companies.'' \5\
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    \4\ See Section 303A.00 Introduction; of the NYSE Listed Company 
Manual. See also Securities Exchange Act Release No. 61067 (November 
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89) (the ``NYSE Approval Order'').
    \5\ The NYSE Approval Order at 63811.
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    Rule 5615(b)(1) currently allows companies listing in connection 
with an IPO to phase in the requirements for their independent 
nominations and compensation committees but requires one member to 
satisfy the requirements at the time of listing. Some companies 
expressed a concern that this requirement interferes with a common 
practice to hold a meeting of a board of directors in order to appoint 
additional independent directors shortly after the Listing Date, but 
prior to the date IPO closes.\6\ To accommodate this practice, Nasdaq 
proposes to amend Rule 5615(b)(1) to allow the companies to comply with 
the requirement to have one independent director on the compensation 
and nominations committees by appointing an independent director to 
such a committee no later than the earlier of the date of the initial 
public offering closes or five business days from the Listing Date. 
This proposal is consistent with the approach of the NYSE.\7\
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    \6\ See e.g. NYSE IPO Guide, page 41 at https://www.nyse.com/publicdocs/nyse/listing/nyse_ipo_guide.pdf#process-timeline (``After 
building a book of demand, the lead bookrunners will agree on the 
offering price with the company and shareholders, execute the 
underwriting agreement and allocate the IPO to investors. The 
following day, the company begins publicly trading on the NYSE or 
another exchange, rings the opening bell and hosts other key 
marketing events associated with being a public company. Two 
business days later, the IPO closes, at which point stock is 
delivered to investors against payment of the offering price, and 
various legal opinions are delivered by counsel.'')
    \7\ See Section 303A.00 Introduction; of the NYSE Listed Company 
Manual. See also Securities Exchange Act Release No. 61067 (November 
25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-
89).

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[[Page 46529]]

    Nasdaq is also proposing to correct a misleading rule reference in 
Rule 5615(b)(1), which allows a Company not to adopt a nominations 
committee but instead rely upon a majority of the Independent Directors 
to discharge responsibilities under Rule 5605(b). The responsibilities 
of the nominations committee are found in Rule 5605(e), not Rule 
5605(b). Accordingly, new Rule 5615(b)(1)(C) allows a majority of the 
Independent Directors to discharge responsibilities of the nominations 
committee under Rule 5605(e).
    Nasdaq is also proposing to eliminate the reference to Rule 5625 in 
Rule 5615(b)(1) which states that: ``For purposes of . . . Rule 5625, a 
Company shall be considered to be listing in conjunction with an 
initial public offering only if it meets the conditions in Rule 10A-
3(b)(1)(iv)(A) under the Act, namely, that the Company was not, 
immediately prior to the effective date of a registration statement, 
required to file reports with the Commission pursuant to Section 13(a) 
or 15(d) of the Act.'' By its terms, Rule 5625 (Notification of 
Noncompliance) applies to any company listed on Nasdaq, including in 
conjunction with an IPO, and requires that a ``Company must provide 
Nasdaq with prompt notification after an Executive Officer of the 
Company becomes aware of any noncompliance by the Company with the 
requirements of this Rule 5600 Series.'' This notification of 
noncompliance requirement of Rule 5625 is not affected or modified in 
any way by the aforementioned reference in Rule 5615(b) because Rule 
5625 applies to a Nasdaq-listed company regardless of whether it was 
listed ``in conjunction with an initial public offering'' or not. 
Moreover, Rule 5615(b)(1) does not provide an exemption from Rule 5625 
for any company. Accordingly, Nasdaq proposes to eliminate the 
references to Rule 5625 in Rule 5615(b)(1) to simplify the rules to 
eliminate potential confusion without any substantive impact.
Companies Emerging From Bankruptcy
    Rule 5615(b)(2) allows a company that is emerging from bankruptcy 
to phase in independent nominations and compensation committees and 
majority independent boards requirements. Nasdaq proposes to amend Rule 
5615(b)(2) to codify its current position that a company emerging from 
bankruptcy must comply with the audit committee composition 
requirements set forth in Rule 5605(c)(2) \8\ by the Listing Date 
unless an exemption is available pursuant to Rule 10A-3. Nasdaq also 
proposes to make additional clarifications to improve the readability 
of the rule without changing its substance, including to provide that 
the applicable phase-in periods will be computed beginning on the 
Listing Date.
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    \8\ Rule 5605(c)(2) requires a company to have, an audit 
committee of at least three members, which must meet certain 
independence, professional competence and other requirements as 
specified in the rule.
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Companies Transferring From National Securities Exchanges
    Rule 5615(b)(3) provides that companies transferring from other 
markets with a substantially similar requirement shall be afforded the 
balance of any grace period afforded by the other market. Rule 
5615(b)(3) further provides that companies transferring from other 
listed markets that do not have a substantially similar requirement 
shall be afforded one year from the date of listing on Nasdaq.
    Nasdaq proposes to clarify that the phase-in period currently 
contained in Rule 5615(b)(3) is applicable only to companies that 
transfer securities registered pursuant to Section 12(b) of the Act \9\ 
from another national securities exchange to Nasdaq and to specify 
requirements applicable to a company listing securities registered 
pursuant to Section 12(g) of the Act,\10\ as described below.
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    \9\ 15 U.S.C. 78l(b).
    \10\ 15 U.S.C. 78l(g).
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Companies Listing Securities Previously Registered Under Section 12(g)
    Nasdaq proposes to modify Rule 5615(b)(3) to provide that a company 
with securities registered pursuant to Section 12(g) of the Act \11\ 
that lists those securities on Nasdaq must satisfy the audit committee 
requirements set forth in the Rule 5605(c) except for the requirement 
to have at least three members on the audit committee, as described 
below, by the Listing Date, unless an exemption is available pursuant 
to Rule 10A-3 under the Act.
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    \11\ 15 U.S.C. 78l(g).
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    Nasdaq proposes to modify Rule 5615(b)(3) to also provide that a 
company with securities registered pursuant to Section 12(g) of the Act 
that lists those securities on Nasdaq will be provided a similar phase-
in period as available to companies listing in connection with an IPO, 
other than the audit committee requirements. Like a company conducting 
an IPO, these companies would not have been subject to another 
exchange's corporate governance standards at the time of their listing. 
Therefore, Nasdaq proposes to allow these companies a similar phase-in 
period as currently provided to an IPO, other than the audit committee 
requirements, and require, on the nominations and compensation 
committee, one independent director upon listing, a majority of 
independent directors within 90 days of Listing Date, and a fully 
independent committee within one year of Listing Date.\12\ The company 
also would have twelve months from its Listing Date to comply with the 
majority independent board requirement set forth in Rule 5605(b).
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    \12\ The independent directors serving on the compensation 
committee would also be required to satisfy the requirements of Rule 
10C-1 under the Act.
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    Under the revised rule, for a company with securities registered 
pursuant to Section 12(g) of the Act that lists those securities on 
Nasdaq, only directors who are independent, as defined in Rule 
5605(a)(2), and meet the criteria for independence set forth in Rule 
10A-3(b)(1) under the Act would be permitted on the audit committee 
during the transition period (unless an exemption is available under 
Rule 10A-3 under the Act).\13\ However, a phase-in period would be 
permitted with respect to the committee size requirement: at least one 
independent director member is required as of the date of listing, two 
independent director members within ninety days of the Listing Date, 
and three independent director members within one year of the Listing 
Date.\14\ These changes adopt the same phase-in schedule for these 
companies as is in place for a similar company listing on the New York 
Stock Exchange (``NYSE'').\15\ The revised rule would also specify that 
a company's compensation committee must have at least one member at the 
time of listing

[[Page 46530]]

and at least two members within one year of listing.\16\
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    \13\ Each member of the audit committee must also: (1) not have 
participated in the preparation of the financial statements of the 
company or any current subsidiary of the company at any time during 
the past three years; and (2) be able to read and understand 
fundamental financial statements, including a company's balance 
sheet, income statement, and cash flow statement. See Rule 
5605(c)(2)(A).
    \14\ During the phase-in period a company must comply with the 
requirement in Rule 5605(c)(2)(A) that every listed company's audit 
committee--without distinction as to the committee's size--have at 
least one member who has past employment experience in finance or 
accounting, requisite professional certification in accounting, or 
any other comparable experience or background which results in the 
individual's financial sophistication.
    \15\ See Section 303A.00 of the NYSE Listed Company Manual. See 
also Securities Exchange Act Release No. 61067 (November 25, 2009), 
74 FR 63808 (December 4, 2009) (approving SR-NYSE-2009-89).
    \16\ See Securities Exchange Act Release No. 68013 (October 9, 
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act 
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22, 
2013) (approving SR-NASDAQ-2012-109).
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Companies Listing in Connection With a Carve-Out or Spin-Off 
Transaction
    Nasdaq proposes to provide that a company listing in connection 
with a carve-out or spin-off transaction will have a similar phase-in 
period as currently available to companies listing in connection with 
an IPO. Like a company conducting an IPO, these companies would not 
have been subject to another exchange's corporate governance standards 
at the time of their listing. Therefore, Nasdaq proposes to adopt Rule 
5615(b)(4) \17\ specifying the phase-in provisions and stating that a 
company shall be permitted to phase in its compliance with the audit 
committee requirements set forth in Rule 5605(c)(2) as follows: (1) one 
member must satisfy the requirements by the Listing Date; (2) a 
majority of members must satisfy the requirements within 90 days of the 
effective date of its registration statement; and (3) all members must 
satisfy the requirements within one year of the effective date of its 
registration statement.
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    \17\ Nasdaq proposes to renumber current Rule 5615(b)(4) 
regarding phase-in schedule for a company ceasing to be a Smaller 
Reporting Company to Rule 5615(b)(5).
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    Nasdaq also proposes to allow these companies a similar phase-in 
period as an IPO and require that a company listing in connection with 
a carve-out or spin-off transaction shall have twelve months from its 
Listing Date to comply with the majority independent board requirement 
set forth in Rule 5605(b), and, on the nominations and compensation 
committee, one independent director by the date the transaction closes, 
a majority of independent directors within 90 days of the Listing Date, 
and a fully independent committee within one year of the Listing 
Date.\18\ Nasdaq also proposes to provide that, regarding the 
requirement to have at least two members on the compensation committee, 
a company's compensation committee must have at least one member by the 
date the transaction closes and at least two members within one year of 
the Listing Date.\19\
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    \18\ The independent directors serving on the compensation 
committee would also be required to satisfy the requirements of SEC 
Rule 10C-1 under the Act.
    \19\ See Securities Exchange Act Release No. 68013 (October 9, 
2012), 77 FR 62563 (October 15, 2012) (Notice of Filing for SR-
NASDAQ-2012-109) at footnote 67. See also Securities Exchange Act 
Release No. 34-68640 (January 11, 2013), 78 FR 4554 (January 22, 
2013) (approving SR-NASDAQ-2012-109).
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    Nasdaq's current policy is to treat companies listing in connection 
with a carve-out or spin-off transaction as IPOs for purposes of phase-
in periods. Thus, Nasdaq allows such companies to phase in the 
requirements for their independent nominations and compensation 
committees but require one member to satisfy the requirements at the 
time of listing. Some companies expressed a concern that this 
requirement interferes with a common practice to hold a meeting of a 
board of directors in order to appoint additional independent directors 
shortly after the Listing Date, but prior to the date a carve-out or 
spin-off transaction closes. To accommodate this practice, Nasdaq 
proposes to allow the companies to comply with the requirement to have 
one independent director on the compensation and nominations committees 
by appointing an independent director to such a committee no later than 
the date such carve-out or spin-off transaction closes. This proposal 
is consistent with the approach of the NYSE.\20\
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    \20\ See Section 303A.00 Introduction; of the NYSE Listed 
Company Manual. See also Securities Exchange Act Release No. 61067 
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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    Rule 5605(c)(2)(A) requires a company to have a minimum of three 
members on the audit committee. As a result, companies listed in 
connection with a carve-out or spin-off transaction which are not 
required to have a fully independent audit committee until one year 
from the Listing Date may appoint non-independent directors to the 
audit committee in order to satisfy the three-person minimum 
requirement. Nasdaq proposes to provide that companies listing in 
connection with a carve-out or spin-off transaction may also phase in 
compliance with the three-person minimum on the following schedule: at 
least one member by the Listing Date, at least two members within 90 
days of the Listing Date and at least three members within one year of 
the Listing Date.\21\ This proposal is consistent with the approach of 
the NYSE.\22\
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    \21\ See footnote 15 above.
    \22\ See Section 303A.00 Introduction; of the NYSE Listed 
Company Manual. See also Securities Exchange Act Release No. 61067 
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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Companies Ceasing To Be a Smaller Reporting Company
    Nasdaq proposes to amend the title of Rule 5615(b)(4), renumber it 
to Rule 5615(b)(5) and add an introductory sentence to improve the 
readability of the rule without changing its substance.
Companies Ceasing To Qualify as a Foreign Private Issuer
    Pursuant to Rule 5615(a)(3), a Foreign Private Issuer, as defined 
under SEC Rule 3b-4 under the Exchange Act of 1934 (the ``Act''), may 
follow its home country practice in lieu of the requirements of the 
Rule 5600 Series, provided, however, that such a Company is required to 
comply with the Notification of Noncompliance requirement (Rule 5625), 
the Voting Rights requirement (Rule 5640), the Diverse Board 
Representation Rule (Rule 5605(f)), the Board Diversity Disclosure Rule 
(Rule 5606), have an audit committee that satisfies Rule 5605(c)(3), 
and ensure that such audit committee's members meet the independence 
requirement in Rule 5605(c)(2)(A)(ii).
    A Foreign Private Issuer that ceases to qualify as such under SEC 
rules becomes subject to all relevant corporate governance requirements 
of Rule 5605. Depending on the type of issuer, these may include the 
requirement to have independent nominations and compensation committees 
and a majority of independent directors. In addition, the company's 
directors may be required to meet the definition of independence under 
Rule 5605(a). Pursuant to Rule 3b-4 under the Act, a company must test 
its status as a Foreign Private Issuer on an annual basis at the end of 
its most recently completed second fiscal quarter (for purposes of this 
subsection, the ``Foreign Private Issuer Determination Date''). Nasdaq 
proposes to modify its rules to take into consideration Rule 3b-4 under 
the Act. Under this rule, a company's determination that it fails to 
qualify as a Foreign Private Issuer governs its eligibility to use the 
forms and rules designated for Foreign Private Issuers beginning on the 
first day of the fiscal year following the determination date, 
effectively providing the company with a six-month grace period. 
Similarly, Nasdaq proposes to require a company that ceases to be a 
Foreign Private Issuer to be in compliance with the domestic company 
requirements within the same timeframe of six months, except for the 
requirement set forth in Rule 5605(c)(2)(A)(ii).
    Specifically, the company shall have six months from the Foreign 
Private Issuer Determination Date to comply with the majority 
independent board requirement set forth in Rule 5605(b); the 
independent compensation and nominations committee requirements

[[Page 46531]]

set forth in Rules 5605(d)(2) and (e)(1)(B); and audit committee 
requirements set forth in Rule 5605(c)(2), including the three-person 
audit committee requirement. During the phase-in period, a company 
shall have an audit committee that satisfies Rule 5605(c)(3) and 
members of such audit committee shall meet the criteria for 
independence referenced in Rule 5605(c)(2)(A)(ii) (the criteria set 
forth in Rule 10A-3(b)(1) under the Act, subject to the exemptions 
provided in Rule 10A-3(c) under the Act). This proposal is consistent 
with the approach of the NYSE.\23\
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    \23\ See Section 303A.00 Introduction; of the NYSE Listed 
Company Manual. See also Securities Exchange Act Release No. 61067 
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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Preamble to Phase-In Rules
    Nasdaq proposes to add an introductory paragraph to Rule 5615(b) to 
improve the readability of the rules without changing its substance. 
Nasdaq also proposes to codify its current policy that a company that 
demonstrates compliance with a requirement during a phase-in period but 
subsequently falls out of compliance with that requirement before the 
end of the phase-in period, would not be considered deficient with the 
requirement until the end of the phase-in period. This treatment is 
consistent with treatment of a company that relied on a phase-in period 
throughout its duration.
Unavailability of Grace Periods Following the Expiration of Phase-In 
Periods
    Nasdaq proposes to amend Rules 5605(b)(1), 5605(c)(4), 5605(d)(4), 
and 5810(c)(3)(E) to codify its current position that a company relying 
on any phase-in period in Rule 5615(b) is not eligible for a cure 
period provided by Rule 5810(c)(3)(E), immediately following the 
expiration of the phase-in period, unless the company complied with the 
audit committee composition requirement in Rule 5605(c)(2)(A), the 
compensation committee composition requirement in Rule 5605(d)(2)(A), 
or the majority independent board requirement in Rule 5605(b)(1), as 
applicable, during such phase-in period but fell out of compliance with 
such requirement after having complied with the requirement before the 
end of the phase-in period. Nasdaq also proposes to codify its current 
policy that, if a company demonstrated compliance with the applicable 
requirement during the phase-in period, but subsequently fell out of 
compliance before the end of the phase-in period, for purposes of 
computing the applicable cure period, the event that caused the failure 
to comply is the event causing the company to fall out of compliance 
after having complied with the requirement, and not the end of the 
phase-in period. In these circumstances, as described above, the 
company would not be considered deficient with the requirement until 
the end of the phase-in period.
    In a situation where a company lists on Nasdaq or becomes subject 
to the requirements after it lists, relies on the phase-in period for 
one of the independent committees or the independent board 
requirements, and allows the phase-in period to run out without 
demonstrating compliance with the rule, Nasdaq believes it is not 
appropriate for the company to rely on the grace period immediately 
thereafter thus effectively extending the phase-in period. In such a 
case, Nasdaq will issue a Staff Delisting Determination letter to 
delist the Company's securities.
    Nasdaq also proposes to amend Rule 5810(c)(3)(E) to describe 
procedures for administering a cure period in the event a company fails 
to comply with the compensation committee composition requirement under 
Rule 5605(d)(2)(A) due to one vacancy. Specifically, as amended, Rule 
5810(c)(3)(E) will provide that if a company fails to meet the 
compensation committee composition requirement under Rule 5605(d)(2)(A) 
due to one vacancy, or one compensation committee member ceases to be 
independent due to circumstances beyond the member's reasonable 
control, the Listing Qualifications Department will promptly notify the 
company and inform it has until the earlier of its next annual 
shareholders meeting or one year from the occurrence of the event that 
caused the failure to comply with this requirement to cure the 
deficiency. However, if the company's next annual shareholders' meeting 
is held sooner than 180 days after the event that caused the 
deficiency, then the company has 180 days from the event that caused 
the deficiency to cure it.
Renumbering of Certain Rules and Other Clarifications
    Nasdaq proposes to amend Rule 5615(c)(3) to clarify that the 
applicable phase-in periods for companies ceasing to be a Controlled 
Company will be computed beginning on the date the company ceases to be 
a Controlled Company.
    In light of the proposed clarifications and modifications described 
above and to promote a coherent structure of the Listing Rules, Nasdaq 
proposes to renumber Rules 5615(c)(1), 5615(c)(2), and 5615(c)(3) as 
5615(a)(7)(A), 5615(a)(7)(B), and 5615(b)(7). Nasdaq also proposes to 
amend the title of the proposed Rule 5615(b)(7) to improve the 
readability of the rule without changing its substance and update cross 
references to account for renumbering of the rules.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\24\ in general and with 
Sections 6(b)(5) of the Act,\25\ in particular in that it is 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 regulating, clearing, settling, 
processing information with respect to, and 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. The Exchange further 
believes that the proposal is consistent with Rule 10A-3 under the Act 
concerning audit committee requirements for listed companies.
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    \24\ 15 U.S.C. 78f.
    \25\ 15 U.S.C. 78f(b)(5).
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    In approving substantially similar amendments by the NYSE, except 
for the clarification of the unavailability of a grace period following 
the expiration of a phase-in period, as described above, the Commission 
indicated that it believes that:

the proposed amendments relating to the phase-in period for 
specified companies newly listing on the [NYSE] (or newly becoming 
subject to certain corporate governance listing standards as a 
result of change in status) are reasonable. The proposed rules would 
permit a phase-in schedule similar to that allowed under the current 
rules for a company listing in conjunction with an IPO, and would 
extend such a phase-in schedule appropriately to companies listing 
in conjunction with spin-off and carve-out transactions, while 
offering an acceptable minimal tolerance for the special 
circumstances of each of these types of new listings with respect to 
the point in time that the standards would begin to apply. The 
Commission notes that the [NYSE's] proposal does not make 
adjustments for compliance with any requirements of Rule 10A-3 under 
the Act.
. . .

    The proposed rule change also would allow a company listing in 
conjunction with an IPO, a spin-off, or a carve-out a phase-in 
period with respect to the NYSE requirement that the audit committee 
of a listed company have at least three members. In the

[[Page 46532]]

Commission's view, permitting a company to have only one member on 
its audit committee by the listing date, at least two members within 
ninety days of the listing date, and three members within a year of 
the listing date, affords a reasonable accommodation for such 
companies.\26\
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    \26\ See the NYSE Approval Order at 63,810.

    The proposed rule change is also consistent with the provisions of 
Section 6 of the Act,\27\ in general and with Sections 6(b)(5) of the 
Act, in that it will clarify Nasdaq's current position as to the 
applicability of the phase-in periods for independent board and 
committee requirements for companies listing in connection with the IPO 
and codify treatment of a carve-out or spin-off transaction in this 
regard. The amended rules will also provide for treatment of companies 
that ceased to qualify as a foreign private issuer, the eventuality on 
which the rules are currently silent. This greater clarity and 
uniformity of treatment will promote just and equitable principles of 
trade. The proposed changes will enhance investor protection by making 
the impacted rules more transparent and easier to understand. In 
addition, Nasdaq will continue to protect investors and the public 
interest by maintaining the current requirements for the audit, 
nominations, and compensation committees, as well as the requirement 
for a majority independent board.
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    \27\ 15 U.S.C. 78f.
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    The proposed rule change is also designed to provide companies that 
are newly listing on Nasdaq and becoming subject to certain corporate 
governance listing standards as a result of this change in status a 
reasonable transition period, similar to that allowed under the current 
rules for a company listing in conjunction with an IPO and to that 
allowed by the NYSE. In this regard, the proposed rule change is 
designed to remove impediments to and perfect the mechanism of a free 
and open market and a national market system.
    The proposed rule change makes no adjustments for compliance with 
any requirements of SEC Rules 10A-3 or 10C-1 under the Act, nor does 
the proposed rule change grant an exemption or phase-in period with 
respect to the requirement in Rule 5605(c)(2)(A) that every listed 
company's audit committee--without distinction as to the committee's 
size--have at least one member who has past employment experience in 
finance or accounting, requisite professional certification in 
accounting, or any other comparable experience or background which 
results in the individual's financial sophistication. The revised rules 
will also require that, for a company with securities registered 
pursuant to Section 12(g) of the Act that lists those securities on 
Nasdaq, only independent directors, as defined in Rule 5605(a)(2), be 
permitted on the audit committee during the transition period. In 
addition, SEC Rule 10A-3 under the Act requires at least one member of 
a listed company's audit committee to be independent as of the Listing 
Date, even when the company is allowed a phase-in period with respect 
to the other audit committee members.\28\ As a result, Nasdaq believes 
that the proposed rule change is designed to prevent fraudulent and 
manipulative acts and practices and to protect investors and the public 
interest.
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    \28\ See 17 CFR 240.10A-3(b)(1)(iv) (providing an exemption for 
an issuer that was not required to file reports with the Commission 
pursuant to section 13(a) or 15(d) of the Act).
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    To improve the readability of the rules Nasdaq proposes to renumber 
certain rules and make other clarifying and conforming changes without 
changing the substance of such rules. Nasdaq believes that the improved 
readability of the rules will perfect the mechanism of a free and open 
market by making the rules easier to understand and apply.
    Finally, Nasdaq proposes to amend Listing Rules 5605(b)(1), 
5605(c)(4), 5605(d)(4), and 5810(c)(3)(E) to codify its current 
position that a company relying on any phase-in period in Rule 5615(b) 
is not eligible for a cure period provided by Rule 5810(c)(3)(E), 
immediately following the expiration of the phase-in period, unless the 
Company demonstrated compliance with the applicable requirement during 
such phase-in period. In a situation where a company lists on Nasdaq, 
relies on the phase-in period for one of the independent committees or 
the independent board requirements, and allows the phase-in period to 
run out without gaining compliance with the rule, Nasdaq believes it is 
not appropriate for the Company to rely on the grace period immediately 
thereafter thus effectively extending the phase-in period. Nasdaq 
believes that this rule change will protect investors and the public 
interest by limiting the maximum time a company may remain listed 
without fully complying with independent committees or the independent 
board requirements.
    Finally, Nasdaq believes that codifying Nasdaq's position regarding 
the computation of the applicable phase-in periods, as well as other 
clarifying changes will perfect the mechanism of a free and open market 
by making the rules easier to understand and apply.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. The proposed rule 
change will have little or no impact on competition as it merely 
eliminates potential confusion, clarifies Nasdaq current position as to 
the applicability of its rules, and harmonizes Nasdaq's rules regarding 
the applicability of the phase-in periods for audit, nominations, and 
compensation committees, as well as the requirement for a majority 
independent board with the requirements of the NYSE.\29\ Similarly, 
Nasdaq believes that the proposed amendments will have little or no 
impact on the intra market competition.
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    \29\ See Section 303A.00 Introduction; of the NYSE Listed 
Company Manual. See also Securities Exchange Act Release No. 61067 
(November 25, 2009), 74 FR 63808 (December 4, 2009) (approving SR-
NYSE-2009-89).
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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 (i) as the Commission may 
designate up to 90 days of such date 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 shall: (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 (https://www.sec.gov/rules/sro.shtml); or

[[Page 46533]]

     Send an email to [email protected]. Please include 
file number SR-NASDAQ-2024-019 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-2024-019. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NASDAQ-2024-019 and should 
be submitted on or before June 20, 2024.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-11700 Filed 5-28-24; 8:45 am]
BILLING CODE 8011-01-P