Start Preamble
Start Printed Page 79556
December 4, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[]
and Rule 19b-4 thereunder,[]
notice is hereby given that on December 1, 2020, The Nasdaq Stock Market LLC (“Nasdaq” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to adopt Listing Rule IM-5900-9 to offer certain listed companies access to a complimentary board recruiting solution to help advance diversity on company boards.
The text of the proposed rule change is detailed below: proposed new language is italicized and proposed deletions are in brackets.
* * * * *
IM-5900-9. Board Diversity Services
On December 1, 2020, Nasdaq filed a proposal (SR-Nasdaq-2020-081) to require each listed Company, subject to certain exceptions, to have, or explain why it does not have, at least two diverse directors on its board (the “Diversity Rule”). In order to help advance diversity on Company boards and to help Companies prepare for and, if approved, comply with the Diversity Rule, Nasdaq offers Eligible Companies complimentary access to two seats of a board recruiting solution, which will allow Companies to identify and evaluate diverse board candidates. Until December 1, 2022, any Eligible Company that requests access to this service through the Nasdaq Listing Center will receive complimentary access for one-year from the initiation of the service. This service has a retail value of approximately $10,000 per year.
An Eligible Company is:
(a) Any listed Company, except as described below, that represents to Nasdaq that it does not have (i) at least one director who self-identifies as female; and (ii) at least one director who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities, or who self-identifies as lesbian, gay, bisexual, transgender or as a member of the queer community;
(b) a listed Company that (i) is a Foreign Private Issuer (as defined in Rule 5005(a)(19), or (ii) is considered a foreign issuer under Rule 3b-4(b) under the Act and has its principal executive offices located outside of the United States, if it represents to Nasdaq that it does not have (i) at least one director who self-identifies as female; and (ii) at least one director who self-identifies as one or more of the following: female, an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the company's home country jurisdiction, or lesbian, gay, bisexual, transgender or as a member of the queer community; or
(c) a listed Company that is a Smaller Reporting Company (as defined in Rule 12b-2 under the Act), if it represents to Nasdaq that it does not have (i) at least one director who self-identifies as female, and (ii) at least one director who self-identifies as one or more of the following: female, Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities, or who self-identifies as lesbian, gay, bisexual, transgender or as a member of the queer community.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange 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. The Exchange 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
In a separate rule filing,[]
Nasdaq is proposing to require each of its listed companies, subject to certain exceptions, to: (i) Provide statistical information regarding diversity among the members of the company's board of directors; and (ii) to have, or explain why the company does not have, at least one director who self-identifies as a female, and at least one director who self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+.[]
Nasdaq is proposing herein to provide companies that would need to take action to satisfy that requirement, if approved, with a service to help them recruit diverse directors.
In researching the Diversity Proposal, Nasdaq reviewed dozens of empirical studies and found that an extensive body of academic research demonstrates that diverse boards are positively associated with improved corporate governance and financial performance.[]
In particular, studies have found that companies with gender-diverse boards or audit committees are associated with: more transparent public disclosures []
and less information asymmetry; []
better reporting discipline by management; []
a lower likelihood of manipulated Start Printed Page 79557earnings through earnings management; []
an increased likelihood of voluntarily disclosing forward-looking information; []
a lower likelihood of receiving audit qualifications due to errors,[]
non-compliance or omission of information; []
and a lower likelihood of securities fraud.[]
In addition, studies found that having at least one woman on the board is associated with a lower likelihood of material weaknesses in internal control over financial reporting,[]
and a lower likelihood of material financial restatements.[]
Studies also identified positive relationships between board diversity and commonly used financial metrics, including higher returns on invested capital, returns on equity, earnings per share, earnings before interest and taxation margin, asset valuation multiples and credit ratings.[]
In addition, investors and investor groups are calling for diversification in the boardroom []
and legislators at the federal and state level are increasingly taking action to encourage or mandate corporations to diversify their boards and improve diversity disclosures.[]
Given the positive attributes associated with diverse boards and investor desire for greater diversity in the boardroom, Nasdaq wants to advance board diversity among its listed companies. Nasdaq believes that offering a board recruiting solution will assist and encourage listed companies to increase diverse representation on their boards, which can result in improved corporate governance, thus strengthening the integrity of the market and building investor confidence. Nasdaq also believes that offering this service will help aid compliance with the Nasdaq Diversity Proposal, if it is approved. Nasdaq therefore is proposing to provide companies that have not yet achieved a certain level of diversity with one-year complimentary access for two users to a board recruiting solution, which will provide access to a network of board-ready diverse candidates, allowing companies to identify and evaluate diverse board candidates, and a tool to support board benchmarking. This service has an approximate retail value of $10,000.
Nasdaq will offer this service to any Eligible Company, which is a listed company (except as described below) Start Printed Page 79558that represents to Nasdaq that it does not have: (i) At least one director who self-identifies as female; and (ii) at least one director who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities or who self-identifies as lesbian, gay, bisexual, transgender or as a member of the queer community. A company that is a Foreign Private Issuer (as defined in Rule 5005(a)(19)) or, (i) is considered a foreign issuer under Rule 3b-4(b) under the Act and (ii) has its principal executive offices located outside of the United States, will be an Eligible Company if the company represents to Nasdaq that it does not have: (i) At least one director who self-identifies as female; and (ii) at least one director who self-identifies as one or more of the following: Female, an underrepresented individual based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the company's home country jurisdiction, or lesbian, gay, bisexual, transgender or as a member of the queer community. A company that is a Smaller Reporting Company (as defined in Rule 12b-2 under the Act), will be an Eligible Company if the company represents to Nasdaq that it does not have: (i) At least one director who self-identifies as female, and (ii) at least one director who self-identifies as one or more of the following: female, Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities, or who self-identifies as lesbian, gay, bisexual, transgender or as a member of the queer community.[]
Nasdaq will offer this one-year service to Eligible Companies that request it on or before December 1, 2022. Nasdaq intends to evaluate the service and the progress made in enhancing diversity and may extend the program prior to its expiration through another rule filing.
Nasdaq notes that no other company will be required to pay higher fees as a result of this proposal and represents that providing this service will have no impact on the resources available for its regulatory programs.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section 6(b) of the Exchange Act,[]
in general, and furthers the objectives of Section 6(b)(5) of the Exchange Act,[]
in particular, in that it is 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. It is also consistent with this provision because it is not designed to permit unfair discrimination between issuers. Nasdaq also believes that the proposed rule change is consistent with the provisions of Sections 6(b)(4) []
and 6(b)(8),[]
in that the proposal is designed, among other things, to provide for the equitable allocation of reasonable dues, fees, and other charges among Exchange members and issuers and other persons using its facilities and that the rules of the Exchange do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.
Nasdaq believes that research surrounding the value of diversity on a company's board and investor interest in more diverse boards supports the fact that the proposal to offer access to a board recruiting solution promotes just and equitable principles of trade and protects investors and the public interest. Nasdaq believes that by making this service available more companies will seek to enhance the diversity of their boards to achieve these benefits. However, no company is required to use this service.
Nasdaq also believes it is reasonable, and not unfairly discriminatory, to offer the board recruiting solution only to Eligible Companies because these companies have the greatest need to identify diverse board candidates. In addition, if the Nasdaq Diversity Proposal is approved, these companies will need to identify diverse board candidates if they wish to satisfy that requirement instead of explaining why they do not satisfy it. Further, Nasdaq believes that companies that already have two diverse directors will already be familiar with the benefits of board diversity and have demonstrated that they do not need Nasdaq's assistance in identifying diverse candidates.
Nasdaq faces competition in the market for listing services,[]
and competes, in part, by offering valuable services to companies. Nasdaq believes that it is reasonable to offer this complimentary service as a tool to attract and retain listings as part of this competition. In particular, Nasdaq believes some companies will view the proposed board recruiting solution as a valuable tool to help achieve diversity, to the potential benefit of the company and its investors. Nasdaq also believes that offering this complimentary service will help it compete to attract and retain listings in light of the additional requirements contained in the Nasdaq Diversity Proposal.
For these reasons, Nasdaq believes it is not an inequitable allocation of fees, unfairly discriminatory, nor an unnecessary or inappropriate burden on competition to offer the board recruiting solution only to Eligible Companies.
The Commission has previously indicated pursuant to Section 19(b) of the Exchange Act []
that providing and updating the value of services offered to certain listed companies within the rulebook is necessary,[]
and Nasdaq does not believe this indication of value has an effect on the allocation of fees nor does it permit unfair discrimination, as all companies with fewer than two diverse directors will receive the same services. Further, this provision will enhance the transparency of Nasdaq's rules and the value of the services it offers, thus promoting just and equitable principles of trade. As such, the proposed rule change is consistent with the requirements of Section 6(b)(4) and (5) of the Exchange Act.
Nasdaq represents, and this proposed rule change will help ensure, that individual listed companies are not given specially negotiated packages of products or services to list, or remain listed, which the Commission has previously stated would raise unfair discrimination issues under the Exchange Act.[]
Start Printed Page 79559
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. As noted above, Nasdaq faces competition in the market for listing services, and competes, in part, by offering valuable services to companies. The proposed rule change reflects that competition, but does not impose any burden on the competition with other exchanges. Rather, Nasdaq believes that some companies will find the proposed board recruiting solution an attractive offering and therefore make listing or remaining listed on Nasdaq more attractive, which will enhance competition for listings.
Other exchanges can also offer similar services to companies, thereby increasing competition to the benefit of those companies and their shareholders. Accordingly, Nasdaq does not believe the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the 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
Paper Comments
- Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2020-082. This file number should be included on the subject line if email 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 website (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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2020-082, and should be submitted on or before December 31, 2020.
Start Signature
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[]
J. Matthew DeLesDernier,
Assistant Secretary.
End Signature
End Preamble
[FR Doc. 2020-27089 Filed 12-9-20; 8:45 am]
BILLING CODE 8011-01-P