Nasdaq Technical Changes

News Brief

By: Cydney Posner

Nasdaq has implemented a number of small or technical changes in its corporate governance rules.

  • The definition of "independent director" has been modified to exclude from the types of relationships or activities that would impair independence:
    • loans from a financial institution made in the ordinary course, on substantially the same terms as prevailing for the general public, not involving unusual risk or other unfavorable factors and not otherwise subject to S-K item 404 disclosure; and
    • payments from a financial institution in connection with a deposit of funds or with the institution's acting in an agency capacity where the payments were made in the ordinary course on substantially the same terms as those prevailing for the general public and not otherwise subject to S-K item 404 disclosure.

The first provision is designed to clarify that loans exempt from disclosure under instruction 3 to S-K item 404(c) will not preclude a finding of independence. The second is designed to cover standard payments like interest or technical "payments." http://www.nasdaq.com/about/SR-NASD-2004-086_SEC_Approval.pdf

  • The "independent director" definition has also been changed to clarify that, with respect to the three-year lookback for payments to directors or family members of more than $60,000, the $60,000 threshold is calculated by looking at any period of 12 consecutive months within the three years preceding the independence determination. http://www.nasdaq.com/about/SR-NASD-2004-080_SEC_Approval.pdf
  • The listing requirements have also been changed to clarify that a company listing in connection with its IPO will have 12 months to comply with the majority independent board requirement in Rule 4350(c). http://www.nasdaq.com/about/SR-NASD-2004-080_SEC_Approval.pdf
  • For purposes of Rule 4350 (other than exception from the independent audit committee requirements set forth in Rule 4350(d)(2)(A)(ii) and the requirement to notify Nasdaq of material noncompliance set forth in Rule 4350(m)), a company will be considered to be listing in conjunction with an IPO if, immediately prior to listing, it does not have a class of common stock registered under the Act. For purposes of Rule 4350(d)(2)(A)(ii) and Rule 4350(m), a company will be considered to be listing in conjunction with an IPO only if it meets the conditions in SEC Rule 10A-3(b)(1)(iv)(A), that the company was not, immediately prior to the effective date of a registration statement, required to file periodic reports with the SEC. Companies that are emerging from bankruptcy or have ceased to be "Controlled Companies" within the meaning of Rule 4350(c)(5) will be permitted to phase-in independent nomination and compensation committees and majority independent boards on the same schedule as companies listing in conjunction with an IPO. However, a company that has ceased to be a Controlled Company must comply with the audit committee requirements as of the date it ceases to be a Controlled Company. Furthermore, the executive sessions requirement of Rule 4350(c)(2) applies to Controlled Companies as of the date of listing and continues to apply after it ceases to be controlled. http://www.nasdaq.com/about/SR-NASD-2004-080_SEC_Approval.pdf
  • For "small business issuers," the term "related-party transactions" will be defined by reference to Reg S-B, Item 404, and for non-U.S. issuers, will refer to items required to be disclosed under item 7B of Form 20-F. http://www.nasdaq.com/about/SR-NASD-2004-080_SEC_Approval.pdf
  • With respect to the shareholder approval requirements of Rule 4350(i), the rules have been modified to allow that vote to be taken by written consent. http://www.nasdaq.com/about/SR-NASD-2004-70_SEC_Approval.pdf
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