[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Notices]
[Pages 73104-73106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29605]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68343; File No. SR-NASDAQ-2012-118]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change To Modify Certain Disclosure
Requirements To Require Issuers To Publicly Describe the Specific Basis
and Concern Identified by Nasdaq When a Listed Issuer Does Not Meet a
Listing Standard and Give Nasdaq the Authority To Make a Public
Announcement When a Listed Issuer Fails To Make a Public Announcement
December 3, 2012.
I. Introduction
On October 3, 2012, 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 modify certain disclosure requirements
surrounding a listed issuer's non-compliance with the Exchange's
listing rules and give the Exchange the authority to issue a public
announcement when a listed issuer fails to do so. The proposed rule
change was published in the Federal Register on October 19, 2012.\3\
The Commission received no comments on the proposal. 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. 34-68053 (October
15, 2012), 77 FR 64369.
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II. Description of the Proposal
Before an issuer lists its securities on the Exchange for trading,
the issuer and the securities must meet the Exchange's initial listing
standards.\4\ These standards include, among other things, minimum
financial standards such as total market value, stock price, the number
of publicly traded shares, and corporate governance standards to ensure
transparency and accountability to the issuer's stakeholders. Once the
securities are listed for trading, the issuer and the securities would
need to meet the Exchange's continued listing standards to remain
listed on the Exchange.\5\
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\4\ See Nasdaq Rule 5000 series.
\5\ See id.
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In addition to the quantitative and corporate governance listing
standards, Nasdaq Rule 5101 also gives the Exchange discretion to deny
listing or continued listing based on any event or condition that makes
such listing or continued listing inadvisable or unwarranted, even
though the securities meet all enumerated standards.\6\ Nasdaq rules
discuss in more detail the use of such discretion and state that the
Exchange may deny initial or continued listing because it has concluded
that ``* * * a public interest concern is so serious that no remedial
measure would be sufficient to alleviate it.'' \7\
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\6\ See Nasdaq Rule 5101.
\7\ See Nasdaq Rule IM-5101-1.
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Nasdaq rules provide that when a listed issuer does not meet the
Exchange's continued listing standards, Nasdaq would immediately notify
the issuer of the deficiency.\8\ The Exchange notification consists of:
(1) Staff delisting determination which subjects the issuer and its
securities to immediate suspension and delisting, unless appealed; (2)
notification of deficiency for which the issuer may submit a plan of
compliance; (3) notification of deficiency for which the issuer is
entitled to automatic cure or compliance period; or (4) public
reprimand letters (collectively ``Nasdaq Staff Determinations''). After
a listed issuer receives a Nasdaq Staff Determination, Nasdaq rules
require the issuer to make a public announcement disclosing receipt of
the notification and the Exchange rules upon which the Nasdaq Staff
Determination is based.\9\
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\8\ See Nasdaq Rule 5810.
\9\ See Nasdaq Rule 5815(b). Nasdaq rules also provide for
review and/or appeals. See Nasdaq Rule 5800 series. The Exchange's
listing qualification department would notify the issuer of the
deficiency. See Nasdaq Rule 5810. Thereafter, the Exchange's hearing
panel, if requested by the issuer on a timely basis, would review
the delisting determination at a hearing. See Nasdaq Rule 5815. The
Exchange's listing and hearings review council could review the
decision of the Exchange's hearing panel, either on its own or
through the appeal of the issuer. See Nasdaq Rule 5820. Lastly, the
Exchange's board of directors could review the decision of the
Exchange's review council. See Nasdaq Rule 5825.
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Currently, the Exchange's rules require the listed issuer, after
receiving a Nasdaq Staff Determination, to make a public announcement
by filing a Form 8-K when required by Commission rules or by issuing a
press release disclosing receipt of the Nasdaq Staff Determination and
the Exchange rules upon which the deficiency is based.\10\
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\10\ See Nasdaq Rules 5250(b)(2), 5810(b) and IM-5810. The
Commission notes that under Nasdaq Rule 5810, an issuer that is late
in filing a periodic report must issue a press announcement by
issuing a press release disclosing receipt of the Nasdaq Staff
Determination and the Nasdaq rules upon which the deficiency is
based, in addition to filing any Form 8-K as required by Commission
rules.
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In its proposal, the Exchange stated that some issuers comply with
this
[[Page 73105]]
requirement by merely disclosing the Exchange rule number and a
description of such rule, but do not provide additional disclosure to
allow the public to understand the deficiency or the underlying basis
for it. The Exchange stated, for example, that in situations where the
deficiency is not related to the quantitative continued listing
standards, such as when the Exchange initiates delisting proceedings
due to public interest concerns under Nasdaq Rule 5101, such issuer
disclosure would not be adequate for the public if the listed issuer's
public announcement only cites to Exchange Rule 5101 and does not
provide any details on the nature of the deficiency.
The Exchange proposes to change its rules in several ways to
address this issue. First, the Exchange would require issuers to
disclose each specific basis and concern cited by Nasdaq in the Nasdaq
Staff Determination.\11\ The Exchange proposal would also indicate that
issuers can provide their own analysis of the issues raised in the
Exchange's delisting determination.\12\ Finally, the Exchange proposes
to allow it to issue a public announcement if a listed issuer does not
make the required announcement or at any level of a proceeding after an
issuer receives a Nasdaq Staff Determination involving an issuer's
listing or trading.\13\ For example, if the issuer does not make the
public announcement within the allotted time, if the issuer's public
announcement does not contain all of the required information, or if
the issuer's public announcement contains inaccurate or misleading
information, the Exchange stated that it may issue a public
announcement with the required information.\14\
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\11\ See proposed Nasdaq Rules 5250(b)(2), 5810(b) and IM-5810-
1. This new requirement would be in addition to the current
requirement for a listed issuer to disclose receipt of a Nasdaq
Staff Determination and the rules upon which it is based.
\12\ See proposed Nasdaq Rule IM-5810-1.
\13\ See proposed Nasdaq Rules IM-5810-1 and 5840(l).
\14\ See proposed Nasdaq Rules IM-5810-1. Currently, if the
public announcement is not made by the listed issuer within the time
allotted, the Exchange would halt trading of the securities. The
Exchange proposes to halt trading if the issuer's public
announcement does not include all of the required information and to
allow the Exchange to make a public announcement with the required
information. See proposed Nasdaq Rule IM-5810-1. The Exchange also
proposes to resume trading if the Exchange makes the public
announcement if the issuer's failure to make the announcement is the
only basis for the trading halt. Id.
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III. Discussion and 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.\15\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\16\ 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 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.
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\15\ In approving the proposed rule change, the Commission has
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).
\16\ 15 U.S.C. 78f(b)(5).
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The development and enforcement of meaningful listing standards 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 issuers with
sufficient public float, investor base, and trading interest likely to
generate depth and liquidity sufficient to promote fair and orderly
markets. 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,
assuring compliance with its listing standards and detecting and
deterring manipulative trading activity.
The Commission finds that the proposed rule change is consistent
with the requirements of the Act. The proposal would require an issuer,
after receipt of a notification of deficiency of the Exchange's
continued listing standards, to issue more detailed public
announcements on the concerns identified in the Exchange's
determination. Currently, issuers are required to disclose receipt of
the notification and the Exchange rule(s) upon which the deficiency is
based. As the Exchange noted, in certain instances such disclosure is
inadequate. For example, some delisting notifications are based on the
Exchange exercising its public interest authority pursuant to Exchange
Rule 5101. Mere disclosure of the Exchange rule number would not
provide investors with the necessary information as to the reasons
behind the Exchange's deficiency determination. The Commission believes
that this proposal should provide investors with additional important
information on the listed issuer in order to help investors make
informed trading decisions.
As noted above, the Exchange's rules give listed issuers the right
to appeal a delisting determination or public reprimand letter.\17\
This process at the first appeal level involving a hearing panel review
can take up to six months. Without adequate disclosure of the specific
basis and concerns identified by the Exchange during this appeal
process, investors may not have full disclosure of the issues involving
the listed issuer that gave rise to the deficiency and that may affect
an investment decision. The Commission also notes that the proposal
furthers the intent behind the original requirement that a listed
issuer publicly announce in either its 8-K, if applicable, or a press
release that it has received a Nasdaq Staff Determination for a
deficiency and the rule on which it is based, which is to ensure
adequate disclosure to the public and investors on the deficiency. The
proposal will help to ensure that this purpose cannot be avoided by
minimal disclosure. The Commission believes that the benefits of full
disclosure on the specific basis for a Nasdaq Staff Determination
should help to prevent fraudulent and manipulative acts and practices
and further investor protection and the public interest, consistent
with Section 6(b)(5) under the Act.
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\17\ See supra note 9.
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In addition, as described above, Nasdaq's proposal also
specifically states that in its public announcement, a listed issuer
can provide its own analysis of the issues raised in a staff delisting
determination. While the Commission notes that the appropriate forum
for appealing a delisting determination is within the adjudicatory
process provided in the Exchange's rules and this provision should not
be used as a way to litigate the issues through the public
announcement, the proposed rule simply reflects that issuers may
currently make public announcements for a variety of reasons. In the
event that an issuer discloses inaccurate or misleading analysis, the
Exchange represented that the Exchange could use the new authority in
proposed Nasdaq Rule 5840(l), as discussed below, to issue an Exchange
clarifying public announcement.\18\ The
[[Page 73106]]
Commission believes that the proposal is reasonably balanced to allow
issuers to express their analysis, while the proposed rules help to
ensure that there will not be inaccurate, misleading or confusing
public information through the Exchange's authority to issue its own
public announcement in response to such issuer's announcement. The
Commission expects the Exchange to actively monitor issuers' analysis
and for the Exchange to promptly issue a public announcement if the
Exchange detects misleading or inaccurate information.\19\ Based on the
above, the Commission believes that, consistent with Section 6(b)(5) of
the Act, that the proposal should prevent fraudulent and manipulative
acts and practices and further investor protection.
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\18\ The Commission notes that this order only addresses issues
raised by the Exchange's proposal and does not address any issues or
liabilities that may arise under the Act.
\19\ The Commission expects Nasdaq to monitor the new
requirements and propose to make changes if necessary.
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The Commission also finds that the proposed changes that would
allow the Exchange to make an issuer's required public announcement
about a Nasdaq Staff Determination should the issuer fail to do so
within the time allotted or if the announcement does not contain all
the required information are consistent with the requirements of the
Act. The Commission notes that, for the same reasons noted above, it is
important that there is adequate notification of a Nasdaq Staff
Determination to investors and the public. Therefore, if the issuer
fails to make the required disclosure the Exchange will have the
authority to do so. The Commission notes that the proposal is similar
to the rules of another national securities exchange.\20\ As described
above, the Exchange's proposal will also clarify some of the rule
language concerning a trading halt that is imposed for an issuer's
failure to make the public announcement, and update these requirements
to reflect the other changes being adopted herein. The Commission
believes these changes are appropriate and will ensure that a trading
halt can be imposed for failure to adequately disclose information in
the public announcement, and clarify that such trading halt would be
lifted after the Exchange makes the public announcement assuming that
is the only basis for the trading halt. Based on the above, the
Commission believes that these aspects of the proposal are consistent
with furthering investor protection and the public interest.
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\20\ See New York Stock Exchange Listed Company Manual Section
802.02.
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Finally, the Commission believes that the proposed new provision
that gives the Exchange the authority to make a public announcement
involving an issuer's listing or trading on Nasdaq at any level of a
proceeding under its Rule 5800 Series in order to maintain the quality
of and public confidence in its markets and to protect investors and
the public interest is consistent with the Act. For example, the
Exchange could use this authority to counter any inaccurate or
misleading statements in an issuer's own public announcement with
respect to the issuer's delisting. The Commission also believes that
this authority could be useful in those situations, as noted by Nasdaq
in its filing, where an issuer is trading in the over-the-counter
market pending its delisting appeal and does not make its own
announcement when the appeal is finally denied. In such a situation,
Nasdaq could use its authority to make such an announcement. In both
situations noted above, allowing the Exchange to make a public
announcement if there is a lack of accurate public information
concerning a Nasdaq Staff Determination would be important for
investors and the public interest consistent with Section 6(b)(5) of
the Act.\21\
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\21\ The Commission does not believe giving the Exchange the
authority to make such public announcements replaces any due process
or rights to appeal a delisting notification or public reprimand
letter under the Exchange's adjudicatory process, but rather is
meant simply to provide a way for the public to get accurate
information about an issuer that is subject to a Staff
Determination. The Commission expects the Exchange to monitor its
use of this authority consistent with this purpose.
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IV. Conclusion
It is therefore ordered that, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-NASDAQ-2012-118) be, and it
hereby is, approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-29605 Filed 12-6-12; 8:45 am]
BILLING CODE 8011-01-P