[Federal Register: October 16, 2006 (Volume 71, Number 199)]
[Notices]
[Page 60782-60783]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16oc06-109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54583; File No. SR-NASDAQ-2006-021]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order
Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto
to Modify Certain of Nasdaq's Corporate Governance Standards, Including
the Definition of Independent Director
October 6, 2006.
On July 28, 2006, The NASDAQ Stock Market LLC (``Nasdaq'' or ``the
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 amend Nasdaq Rules 4200(a)(15), IM-4200, and
4350, which pertain to Nasdaq's corporate governance standards for
listed companies. On August 7, 2006, Nasdaq filed Amendment No. 1 to
the proposed rule change. The proposed rule change, as amended, was
published for comment in the Federal Register on August 28, 2006.\3\
The Commission received no comment letters on the proposal. This order
approves the proposed rule change, as amended.
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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. 54333 (August 18,
2006), 71 FR 50955 (``Notice'').
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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,\4\ and, in
particular, Section 6(b)(5) of the Act.\5\ The Commission believes that
the proposed rule change would provide clarity and guidance to listed
companies, particularly with respect to the determination of whether a
director is independent. In particular, the proposed rule change would
preclude a finding of independence if a director accepts any
compensation from the company or its affiliates in excess of $60,000
during the prescribed time period.\6\ This proposed change would
[[Page 60783]]
align the Nasdaq rule with a corresponding rule of the New York Stock
Exchange LLC (``NYSE'') relating to corporate governance standards of
listed issuers.\7\ The proposal also would revise various other
provisions of Nasdaq's corporate governance standards, including by
amending several provisions to conform more closely with the NYSE's
corporate governance standards for its listed issuers.\8\
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\4\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\5\ 15 U.S.C. 78f(b)(5).
\6\ Under current Nasdaq Rule 4200(a)(15)(B), a director of a
listed company would not be considered independent if the director
or a family member of the director has accepted more than $60,000 in
payments from the company or its parent or subsidiary during the
time period set forth in the rule. The proposed rule change would
amend the rule to refer to compensation in excess of $60,000 from
the company, rather than payments. Nasdaq believes that, based on
its experience, a revised rule based on compensation rather than
payments more directly bears upon a director's independence.
\7\ See Section 303A.02(b)(ii) of the NYSE Listed Company
Manual. Proposed changes to Nasdaq's IM-4200 would provide examples
of non-compensatory payments, such as interest related to banking
services, insurance proceeds, and non-preferential loans from
financial institutions. At the same time, the proposed changes to
IM-4200 would make clear that payments made by the company for the
benefit of the director--such as political contributions to the
campaign of a director or a family member and loans to a director or
family member that are on terms not generally available to the
public--could be considered indirect compensation so as to preclude
a finding that the director was independent.
\8\ See Notice, supra note 3. These other changes relate to:
status of independent directors who served as interim officers for a
maximum one-year period; the definition of ``non-executive
employee;'' inclusion of parent and subsidiary within the meaning of
``company;'' and an exception in Nasdaq's standards relating to
audit committees for certain issuers that have a listed parent,
consistent with a similar exception contained in Rule 10A-3 under
the Act, 17 CFR 240.10A-3.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-NASDAQ-2006-021), as
amended, be, and hereby is, approved.\10\
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\9\ 15 U.S.C. 78s(b)(2).
\10\ Nasdaq advised that it will implement the proposed rule
change immediately upon approval by the Commission. Nasdaq
represented that, to facilitate the transition to the new rules, any
director that would be considered independent under the existing
rules prior to the rule change, but that no longer would be
considered independent under the new rules, would be permitted to
continue to serve on the issuer's Board of Directors as an
independent director until no later than 90 days after the approval
of this rule filing. The Commission notes that this transition
period does not affect an issuer's obligation to comply with the
requirements of Rule 10A-3 under the Act relating to audit
committees.
\11\ 17 CFR 200.30-3(a)(12).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
Jill M. Peterson
Assistant Secretary.
[FR Doc. E6-17080 Filed 10-13-06; 8:45 am]
BILLING CODE 8011-01-P