[Federal Register: November 28, 2006 (Volume 71, Number 228)]
[Notices]
[Page 68855-68856]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28no06-96]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54797; File No. SR-NASDAQ-2006-041]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change to Modify an Aspect of the
Definition of Independent Director
November 20, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 3, 2006, The NASDAQ Stock Market LLC (``Nasdaq''), filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been substantially prepared by Nasdaq. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to amend its Rules 4200(a)(15)(B) and IM-4200 to
modify an aspect of Nasdaq's definition of ``independent director.''
Nasdaq will implement the proposed rule upon approval by the
Commission.
The text of the proposed rule change is available on Nasdaq's Web
site at http://www.nasdaq.com, at Nasdaq's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to modify the definition
of an ``independent director'' in Nasdaq's rules to reflect recent
changes made to Commission rules. The definition of ``independent
director'' is relevant to Nasdaq's corporate governance standards for
listed companies.\3\
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\3\ See Nasdaq Rule 4350(c)-(d).
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Current Nasdaq Rule 4200(a)(15) and IM-4200 generally preclude a
director of a listed company from being considered independent if the
director has received more than $60,000 in compensation from the
issuer. Nasdaq states that this threshold was originally based on the
disclosure threshold set by the Commission in Regulation S-K, Item
404.\4\ Since the Commission recently adopted a proposal to raise this
threshold to $120,000,\5\ Nasdaq believes that it would be appropriate
to raise its independence threshold to the same amount.
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\4\ 17 CFR 229.404.
\5\ See Securities Exchange Act Release No. 54302A (August 29,
2006), 71 FR 53158 (September 8, 2006).
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When the $60,000 threshold in the definition of independent
director was first adopted in 1999, the proposal to implement the rule
stated that ``* * * Nasdaq believes that a compensation threshold of
$60,000 is appropriate as it corresponds to the de minimis threshold
for disclosure of relationships that may affect the independent
judgment of directors set forth in SEC Regulation S-K, Item 404.'' \6\
Nasdaq states that the disclosure amount from Item 404 was chosen for
the independence test in Nasdaq's rules because it was transparent and
straightforward for issuers to understand and apply.\7\ Moreover,
Nasdaq believes that using this disclosure threshold greatly simplifies
its proxy review process for assessing compliance with the independent
director requirements. In that regard, with the Commission's disclosure
threshold set at $120,000, issuers will not be required to disclose
lower amounts between $60,000 and $120,000, and therefore, in the
absence of the proposed rule change, it would be difficult for Nasdaq
to monitor the independent director requirement.\8\
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\6\ See Securities Exchange Act Release No. 41982 (October 6,
1999), 64 FR 55510 (October 13, 1999).
\7\ Telephone conference among Ira Brandriss and Kristie Diemer,
Special Counsels, Commission, and Erika Moore, Assistant General
Counsel, Nasdaq, on November 8, 2006 (``Telephone conference with
Nasdaq'').
\8\ Nasdaq also notes that while the existing Nasdaq rule
prohibits an independent director from receiving payments in excess
of $60,000, the comparable rule of the New York Stock Exchange LLC
(``NYSE'') prohibits compensation in excess of $100,000. See Section
303A.02(b)(ii) of the NYSE Listed Company Manual.
It should be noted that even when an individual has passed the
``bright line'' test of independence amended by this proposal, a
board of directors could still determine on its own that the
individual should not be considered independent, depending upon the
amount of the compensation and the surrounding circumstances. See
Nasdaq Rule 4200(a)(15) and IM-4200. Telephone conference with
Nasdaq.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\9\ in general and with Section
6(b)(5) of the Act,\10\ in particular. Section 6(b)(5) requires, among
other things, that Nasdaq's rules be designed to prevent fraudulent and
manipulative acts and practices, 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. Nasdaq states that the
proposed change is consistent with these requirements because it will
conform Nasdaq rules to Commission rules and provide a standard that is
clear, straightforward and uniform for issuers to understand and apply.
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\9\ 15 U.S.C. 78f.
\10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any
[[Page 68856]]
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which Nasdaq consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2006-041 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2006-041.
This file number should be included on the subject line if e-mail is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of the Nasdaq. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASDAQ-2006-041 and should be submitted on or before
December 19, 2006.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-20134 Filed 11-27-06; 8:45 am]
BILLING CODE 8011-01-P