Nasdaq Proposed Rule Amendments

By Cydney Posner

This month, Nasdaq filed with the SEC a set of proposed rule amendments to replace certain current Nasdaq disclosure requirements with references to the applicable disclosure requirements of Reg S-K, require the same disclosure as required by SEC Rules 10A-3(d)(1) and (2) and permit disclosure through a website and/or a press release to satisfy certain Nasdaq disclosure requirements.

Nasdaq currently requires a listed company to disclose in its proxy statement any reliance on the exceptions from Nasdaq's audit, compensation and nominating committee requirements that allow a company to have one non-independent director on the committee under exceptional and limited circumstances. To avoid duplication and confusion, Nasdaq proposes to require instead, for the audit committee, that a company relying on this exception comply with the disclosure requirements set forth in Item 407(d)(2) of Reg S-K. As described in Rule 10A-3(d)(1) and (2), the company would also be required to disclose reliance on certain exceptions from Rule 10A-3 and disclose an assessment of whether, and if so, how, such reliance would materially adversely affect the ability of the audit committee to act independently and to satisfy the other requirements of Rule 10A-3. For the nominating and compensation committees, Nasdaq proposes to revise Rules 5605(d)(3) and 5605(e)(3) to require instead the disclosures described in Instruction 1 to Item 407(a) of Reg S-K. Additional disclosures that are required by Nasdaq's rules, but not by Instruction 1 to Item 407(a), may be disclosed on a company's website. Nasdaq also proposes (finally) to amend the rule regarding disclosures of waivers of a company's code of conduct for directors or executive officers to allow disclosure by filing a current report on Form 8-K, by distributing a press release (in cases where a Form 8-K is not required), or by posting the information on the company's website in a manner that satisfies the requirements of Item 5.05(c) of Form 8-K.

On May 19, Nasdaq filed with the SEC a proposed rule amendment to require companies to provide prompt notification to Nasdaq after an executive officer of the company becomes aware of any noncompliance with the corporate governance requirements in the Rule 5600 Series, not just material noncompliance. Apparently, Nasdaq has consistently interpreted this requirement to mean that any noncompliance with these rules would be considered material and now proposes to modify the rule to make this clear by requiring notification of any noncompliance. This rule would also then be consistent with the NYSE requirement on the same topic. (See my email of 12/3/09.) The proposal became effective upon filing with the SEC, and Nasdaq implemented the proposed rule change 30 days after the date of the filing.