[Federal Register Volume 81, Number 33 (Friday, February 19, 2016)]
[Notices]
[Pages 8582-8585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03442]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77137; File No. SR-NASDAQ-2015-144]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval of Proposed Rule Change To Amend Rules 5810(4),
5810(c), 5815(c) and 5820(d) To Provide Staff With Limited Discretion
To Grant a Listed Company That Failed To Hold Its Annual Meeting of
Shareholders an Extension of Time To Comply With the Annual Meeting
Requirement
February 12, 2016.
I. Introduction
On December 9, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to provide staff of NASDAQ's Listing
Qualifications Department (``Staff'') with limited discretion to grant
a listed company, that failed to timely hold its annual meeting of
shareholders, a certain period of time to comply with the annual
meeting requirement.\4\ The proposed rule change was published for
comment in the Federal Register on December 30, 2015.\5\ 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ As described in more detail below, the total amount of time
a listed company that fails to hold an annual meeting of
shareholders can remain listed on the Exchange will not be changing
under the proposed rule change.
\5\ See Securities Exchange Act Release No. 76731 (December 22,
2015), 80 FR 81573 (``Notice'').
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II. Description of the Proposed Rule Change
Companies listed on the Exchange must comply with various continued
listing requirements, one of which is to hold an annual meeting no
later than one year after the end of the company's fiscal year.\6\
Currently, if an Exchange-listed company fails to hold its annual
meeting, Staff has no discretion to allow additional time for the
company to regain compliance. Instead, Staff is required to issue a
Delisting Determination, subjecting the company to immediate suspension
and delisting, unless the company appeals the Delisting Determination
to the Hearings Panel.\7\ The only other Exchange rules where a listed
company is subject to immediate suspension and delisting is when a
company fails to timely solicit proxies and when the Staff determines
that the company's continued listing raises a public interest
concern.\8\ For all other deficiencies under the NASDAQ Listing Rules,
a listed company is provided with either the opportunity to submit a
plan to regain compliance or given a fixed cure period to regain
compliance.\9\
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\6\ Each company listing common stock or voting preferred stock,
and their equivalents, must hold an annual meeting of shareholders
no later than one year after the end of the company's fiscal year
and solicit proxies for that meeting. See Exchange Rules 5620(a) and
(b), respectively. The proposed rule change will also apply to
Exchange listed companies that are limited partnerships required to
hold an annual meeting. A company that is a limited partnership is
not be required to hold an annual meeting of limited partners unless
required by statute or regulation in the state in which the limited
partnership is formed or doing business or by the terms of the
partnership's limited partnership agreement. See Exchange Rules
5615(a)(4)(D) and (F); see also Notice, supra note 5, at 81573 n.3.
\7\ See Exchange Rule 5810(c)(1). A listed company may request
review of a Staff delisting determination by a Hearings Panel. See
Exchange Rule 5815. A timely request for a hearing will stay the
suspension and delisting pending the issuance of a written Panel
Decision. See Exchange Rule 5815(a)(1)(A).
\8\ See Exchange Rule 5810(c)(1); see also Notice, supra note 5,
at 81573.
\9\ See Exchange Rules 5810(c)(2) and (3); see also Notice,
supra note 5, at 81573. Generally, a listed company is allowed 45
calendar days to submit a plan of compliance for certain
deficiencies set forth in Exchange Rule 5810(c)(2)(i)-(iii). Upon
review of the plan, Staff may grant the company up to 180 calendar
days from the date of Staff's initial notification of the company's
non-compliance to regain compliance. See Exchange Rule 5810(c)(2)(A)
and (B); see also Exchange Rule 5810(c)(2)(F), which provides a
company 60 calendar days to submit a plan to regain compliance for
filing deficiencies. If upon review of the company's plan Staff
determines that an extension is not warranted, Staff will issue a
Delisting Determination, which triggers the company's right to
request review by a Hearings Panel. See Exchange Rule 5815; see also
Exchange Rule 5810(c)(2)(F).
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The Exchange asserted in its filing that there are a variety of
mitigating reasons why a listed company may fail to timely hold an
annual meeting of shareholders.\10\ For example, the Exchange states
that it has observed
[[Page 8583]]
cases where a listed company was required to reschedule the annual
meeting after the meeting's deadline in order to provide its
shareholders more time to review proxy materials in connection with a
shareholder proxy contest.\11\ The Exchange also stated that it had
encountered listed companies that could not hold an annual meeting
because the company was delinquent in filing periodic reports and, as a
result, could not include the required financial information in a proxy
statement.\12\
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\10\ See Notice, supra note 5, at 81573.
\11\ See Notice, supra note 5, at 81573-74.
\12\ See Notice, supra note 5, at 81574. Under the current
rules, the Exchange states that a listed company could receive an
extension of time to regain compliance with the periodic filing
requirement. However, if during any such compliance period the
company subsequently fails to hold an annual meeting of shareholders
for any reason, Staff would be required to immediately issue a
Delisting Determination for both the periodic filing delinquency and
the annual meeting deficiency, notwithstanding that the extended
compliance period for the periodic filing delinquency has not
expired. See Rule 5810(c)(2)(A); see also Notice, supra note 5, at
81574.
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Accordingly, the Exchange has proposed to amend Exchange Rules
5810(4), 5810(c), 5815(c) and 5820(d) to provide listed companies that
fail to hold a timely annual meeting with the ability to submit a plan
of compliance for Staff's review.\13\ In its filing, the Exchange
proposed to amend Exchange Rule 5810(c)(1) by deleting the language
that a failure of a listed company to timely hold its annual
shareholders' meeting results in an immediate suspension and delisting.
The Exchange also proposed to amend Exchange Rule 5810(c)(2)(A)(iii) by
including references to Exchange Rules 5620(a) (Meeting of
Shareholders) and 5615(a)(4)(D) (Partner Meetings of Limited
Partnerships) under the list of deficiencies for which a listed company
may submit a plan of compliance for Staff review.
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\13\ See Notice, supra note 5, at 81574.
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Under proposed Exchange Rule 5810(c)(2)(G), in the case of
deficiencies from the annual meeting requirements of Exchange Rules
5620(a) and 5615(a)(4)(D), Staff's notice shall provide the listed
company with 45 calendar days to submit a plan to regain compliance
with these provisions; provided, however, that the company shall not be
provided with an opportunity to submit such a plan if review of a prior
Staff Delisting Determination with respect to the company is already
pending.\14\ In determining whether to grant the company an extension
to comply with the annual meeting requirement, and the length of any
such extension, Staff will consider certain factors, which should be
addressed in the company's compliance plan, including the likelihood
that the listed company would be able to hold an annual meeting within
the exception period, the company's past compliance history, the
reasons for the failure to timely hold an annual meeting, corporate
events that may occur within the exception period, the company's
general financial status, and the company's disclosures to the
market.\15\ Under proposed Exchange Rule 5810(c)(2)(G), Staff would be
limited to grant an extension upon review of the compliance plan, to no
more than 180 calendar days from the deadline to hold the annual
meeting. As noted above, the deadline to hold an annual meeting of
shareholders is one year after the end of the company's fiscal
year.\16\ The Exchange is also making other conforming changes to the
provisions in Exchange Rule 5810(c)(2)(B) to make clear that annual
meeting deficiencies are governed by the new provisions in Exchange
Rule 5810(c)(2)(G), rather than the plan review provisions that apply
to other deficiencies.
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\14\ See proposed Exchange Rule 5810(c)(2)(G)(i). The Exchange
also proposes that Staff may extend the deadline for up to an
additional 15 calendar days upon good cause shown and may request
such additional information from the listed company as is necessary
to make a determination regarding whether to grant such an
extension. See id.
\15\ See proposed Exchange Rule 5810(c)(2)(G)(ii). Under this
proposal, Staff review on whether to grant additional time to comply
will be based on information provided by a variety of sources, which
may include the listed company, its audit committee, its outside
auditors, the staff of the Commission, and any other regulatory
body. See id.
\16\ See proposed Exchange Rule 5810(c)(2)(G)(ii). In its
filing, the Exchange noted that it has observed that a substantial
majority of listed companies that received delisting notices for
failing to hold their annual meetings regain compliance within a six
month period. See Notice, supra note 5, at 81574 n.15.
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The Exchange also has proposed to amend, in conjunction with the
changes described above, Exchange Rules 5815(c) and 5820(d) to limit
the maximum length of an extension that a NASDAQ Hearings Panel or the
NASDAQ Listing and Hearing Review Council (``Council''), respectively,
may grant a listed company for the failure to hold an annual meeting to
no more than 360 calendar days from the date of non-compliance.\17\
Under the Exchange's current rules, when a non-compliant company
receives a Delisting Determination, it may appeal that determination to
the Hearings Panel, which can grant an exception from the continuing
listed standards (which require compliance with the annual meeting
requirement) for a maximum of 180 calendar days from the date of the
Delisting Determination,\18\ and the company may further appeal an
unfavorable Hearings Panel decision to the Council, which can grant an
exception from the continuing listed standards for a maximum of 360
calendar days from the date of the Delisting Determination.\19\
Therefore, under both the proposed rule change and the current rules,
the total amount of time that a company could remain listed while not
in compliance with the annual meeting requirement is 360 calendar
days.\20\
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\17\ See proposed Exchange Rules 5810(c)(1)(G) and 5820(d)(5).
\18\ See Exchange Rule 5815(c)(1)(A). As noted above, an appeal
to the Hearings Panel results in an automatic stay of the suspension
and delisting.
\19\ See Exchange Rule 5820(d)(1).
\20\ See Notice, supra note 5, at 81574 (Exchange representing
that the total time that a listed company may be granted to regain
compliance with the annual meeting requirement is unchanged from the
current NASDAQ Listing Rules).
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Furthermore, the Exchange proposes to amend Exchange Rule 5810(4)
to make clear that a Public Reprimand Letter is not an available
notification type for unresolved deficiencies from the standards of
Exchange Rules 5250(c) (Obligation to File Periodic Financial Reports),
and the annual meeting requirements of Exchange Rules 5615(a)(4)(D),
and 5620(a).
Lastly, the Exchange noted in its filing that a listed company that
submits a plan of compliance and is not subject to the Exchange's all-
inclusive annual listing fee program (``Fee Program'') prior to January
1, 2018 will be subject to the $5,000 compliance plan review fee, in
addition to any other fees incurred in the appellate process, whereas a
company that has opted-in to the Fee Program will not.\21\
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\21\ See Exchange Rule 5810(c)(2)(A). Effective January 1, 2018,
all listed companies will be subject to the Fee Program and the
$5,000 fee will no longer be applicable to any company. See Exchange
Rule IM-5910-1 and IM-5920-1; see also Notice, supra note 5, at
81574. In addition, all listed companies, regardless of whether they
participate in the Fee Program or not, are subject to the $10,000
fee for each of the review by the Hearing Panel and appeal to the
Council set forth in Exchange Rules 5815(a)(3) and 5820(a),
respectively. See Notice, supra note 5, at 81574. Listed companies
may be subject to these fees at different times depending on if and
when they regain compliance. See id.
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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 rules and
regulations thereunder applicable to a national securities
exchange.\22\ In particular, the
[[Page 8584]]
Commission finds that the proposal 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 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; and are not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\22\ In approving the proposed rule changes, the Commission has
considered their impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\23\ 15 U.S.C. 78s(b)(4).
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The development and enforcement of meaningful corporate governance
listing standards for a national securities exchange is of substantial
importance to financial markets and the investing public, especially
given investor expectations regarding the nature of companies that have
achieved an exchange listing for their securities. In particular, the
Commission believes that the goal of ensuring that listed companies
have met their requirement to hold an annual meeting of shareholders
under the Exchange's Listing Rules is of critical importance to allow
shareholders the ability to exercise their rights to participate in
corporate governance matters, such as the election of directors. As a
publicly listed company, it is at a company's annual meeting that
shareholders will typically exercise their right to vote on such
important corporate matters as the election of directors. For these
same reasons, it is also important that companies that have failed to
timely hold an annual meeting of shareholders do not remain listed on a
national securities exchange if such deficiency is not cured in a
timely manner.
As discussed above, the Exchange believes that, in some cases,
there may be mitigating reasons for why a listed company failed to
fulfill its annual meeting requirement, and for which immediate
suspension and delisting may not be an appropriate outcome under the
circumstances.\24\ In these cases, the proposed rule change gives Staff
discretion to analyze whether the reason for the annual meeting
deficiency and the plan to regain compliance merit an exception to
immediate suspension and delisting.\25\ In this regard, the Commission
notes that under the Exchange's current rules, a listed company
receiving a Staff Delisting Determination for a failure to hold an
annual meeting may immediately appeal the determination to a Hearings
Panel, which generally results in an automatic stay of the suspension
and delisting pending the issuance of a written Panel Decision.\26\ In
practice, it is the Commission's understanding from the Exchange that
listed companies will often appeal a suspension and delisting
determination for failure to hold an annual meeting in order to receive
the automatic stay from the Hearings Panel. As such, the proposed rule
change provides Staff with the ability to analyze particular instances
of non-compliance with the annual meeting requirement prior to any
appeal to the Hearings Panel, and if Staff deems it warranted, allow a
non-compliant company to carry out a compliance plan for a limited time
that could enable the company to become compliant again without the
need to appeal to the Hearings Panel (or Council).
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\24\ See Notice, supra note 5, at 81575.
\25\ See proposed Exchange Rule 5810(c)(2)(G).
\26\ See supra note 7. The Commission notes that the proposed
factors, set forth in proposed Exchange Rule 5810(c)(2)(G)(ii), that
would be used to determine whether to grant an exception for the
failure to hold an annual meeting, and the length of any such
exception, are substantially similar to the factors used by a
Hearings Panel to determine whether to grant a further stay of a
Staff Delisting Determination. See Exchange Rule 5815(a)(1)(B).
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Importantly, the Commission notes that the maximum time allowed by
the proposed requirements for a deficient company to remain listed
while trying to regain compliance with the annual meeting requirement
(360 calendar days) would be the same as the maximum time allowed by
the current requirements for a deficient company (that appeals to both
the Hearings Panel and Council, and is granted the maximum permitted
extensions of time by those adjudicatory bodies) to remain listed while
not in compliance with the annual meeting requirement (also 360
calendar days).\27\ The difference under the proposed rule change is
that, pursuant to Staff's discretion, the non-compliant company may be
granted an exception from the continued listed requirements of up to
180 calendar days from the annual meeting deadline (i.e., the first
180-days of the overall 360-day time period) in order to potentially
fulfill a compliance plan and avoid a Delisting Determination.\28\ By
contrast, under the Exchange's current rules, since there is no
opportunity for a compliance plan, the full 360-day period is spent
before the Hearings Panel and the Council, assuming the non-compliant
company has appealed its Delisting Determination to both the Hearings
Panel and Council and been granted the maximum allowable exceptions
from the continued listing requirements by those adjudicatory bodies.
In the Commission's view, the fact that the current maximum time period
that a company could remain listed while not in compliance with the
annual meeting requirement will be unchanged under the proposal
suggests that the proposal is reasonably designed to continue to afford
adequate protection to investors with respect to companies that fail to
hold an annual meeting in the time required under the Exchange rules.
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\27\ Compare proposed Rules 5815(c)(1)(G) and 5820(d)(5) with
current rules 5815(c)(1)(A) and 5820(d)(1); see also Notice, supra
note 5, at 81574 (Exchange representing that the total time that a
listed company may be granted to regain compliance with the annual
meeting requirement is unchanged from the current NASDAQ Listing
Rules).
\28\ If the non-complaint company is ultimately unsuccessful in
this regard, however, and is issued a Delisting Determination, the
Hearings Panel and Council may grant an additional exception only
out to 360 calendar days from the annual meeting deadline. In other
words, if a non-compliant company receives the full 180-day
exception from Staff in order to attempt to carry out a compliance
plan but does not regain compliance by the end of that 180-day
period and is therefore issued a Delisting Determination, it would
only have 180 more days to avail itself of its appeal rights.
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Moreover, the Commission emphasizes that, under the proposal, Staff
retains the discretion not to grant an exception from the continued
listing requirements to a company that has failed to hold its annual
meeting on time. The Commission expects Staff to exercise this
discretion carefully and discerningly. Staff's analysis in this regard
would include consideration of the factors set forth in proposed
Exchange Rule 5810(c)(2)(G)(ii), which the deficient company also would
be required to discuss in its compliance plan. The Commission expects
Staff to carefully scrutinize these factors when conducting its
analysis, and not to grant an exception from the continued listing
requirements when Staff believes that such an exception is not
warranted or it is unlikely the company will be able to hold its annual
meeting within the time permitted. For example, a listed company that
demonstrates a history of failures to hold a timely annual meeting
could, and most likely should, still be subject to immediate suspension
and delisting.\29\
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\29\ See proposed Exchange Rule 5810(c)(2)(G)(ii). The
Commission notes that such a company would have a right to appeal
the determination to a Hearings Panel, which will generally stay the
suspension and delisting.
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Additionally, the Exchange rules will continue to provide Staff
with the ability to send an immediate Delisting Determination to a
deficient company when Staff has determined that, after review of the
facts and circumstances of the deficiency, continued listing raises a
[[Page 8585]]
public interest concern.\30\ Accordingly, the Commission believes the
proposed rule change will continue to enable the Exchange to
immediately suspend and delist companies that have failed to hold an
annual meeting when the circumstances warrant it, but at the same time
will provide the Exchange with flexibility to address instances in
which the failure to hold an annual meeting, in the Exchange's
discretion, counsels in favor of giving the non-compliant company an
opportunity to regain compliance for a limited time period without
being subject to immediate suspension and delisting or having to avail
themselves of the Hearings Panel process to stay the action. The
Commission believes, therefore, that the proposed rule change is
designed to protect investors and the public interest, as well as to
promote just and equitable principles of trade.
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\30\ See Exchange Rule 5810(c)(1).
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The Commission further notes that, as an additional protection of
investors and the public interest, a listed company that receives
notification that it is deficient in satisfying the annual meeting
requirement will continue to be required to publicly disclose that it
has received notification of non-compliance with the annual meeting
requirement.\31\ In addition, the Exchange publicly discloses a list of
companies that are non-compliant with the continued listing standards
and the listing standards with which they failed to comply.\32\
Furthermore, by making it clear in the proposed rules that a Public
Reprimand Letter does not apply to deficiencies from the requirement to
hold an annual meeting, the Commission believes that the proposal
should benefit the public interest and protect investors by helping to
ensure that deficient companies are subject to suspension and delisting
for failure to hold an annual meeting and ensures that the only cure
under the Exchange rules is for the company to hold its annual
meeting.\33\ Accordingly, for the foregoing reasons, the Commission
believes that the proposed rule change is reasonably designed to
further the goals of Section 6(b)(5) of the Act.
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\31\ See Exchange Rule 5810(b) and IM-5810-1. See also Item 3.01
of Commission Form 8-K, which requires that a registrant disclose
any notification from the exchange that maintains its principal
listing that the registrant does not satisfy a rule or standard for
continued listing on the exchange.
\32\ See Exchange List of Non-Compliant Companies, available at
https://listingcenter.nasdaq.com/NonCompliantCompanyList.aspx.
\33\ Exchange Rule 5805(j) defines a ``Public Reprimand Letter''
as a letter issued by Staff or a written decision of an Adjudicatory
Body in cases where the listed company has violated an Exchange
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.
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The Commission also finds that the proposal is consistent with
Section 6(b)(4) of the Act,\34\ which requires that the rules of an
exchange provide for the equitable allocation of reasonable dues, fees,
and other charges among its members and issuers and other persons using
its facilities. Specifically, the Commission believes that assessing
the $5,000 compliance plan review fee for deficiencies from the annual
meeting requirement on listed companies that have not opted-in to the
Fee Program is reasonable and equitably allocated because it is the
same fee that is charged for other deficiencies that allow for the
submission of a plan of compliance.\35\ Furthermore, the Commission
believes that assessing different fees between listed companies that
elect to participate in the Fee Program and those that do not are
consistent with the approach allowed when the Fee Program was
adopted.\36\
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\34\ 15 U.S.C. 78s(b)(5).
\35\ See proposed Exchange Rule 5810(c)(2)(A)(iii); see also
supra note 21.
\36\ See Notice, supra note 5, at 81575.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\37\ that the proposed rule change (SR-NASDAQ-2015-144), be, and hereby
is, approved.
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\37\ 15 U.S.C. 78f(b)(2).
\38\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03442 Filed 2-18-16; 8:45 am]
BILLING CODE 8011-01-P