81 FR 44400 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director's Members or Nominees
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 130 (July 7, 2016)
Federal Register Volume 81, Issue 130 (July 7, 2016)
| Page Range | 44400-44404 | |
| FR Document | 2016-16123 |
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)] [Notices] [Pages 44400-44404] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-16123] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78223; File No. SR-NASDAQ-2016-013] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To Require Listed Companies to Publicly Disclose Compensation or Other Payments by Third Parties to Board of Director's Members or Nominees July 1, 2016. I. Introduction On March 15, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to require listed companies to publicly disclose compensation or other payments by third parties to board of director's members or nominees for director. The proposed rule change was published for comment in the Federal Register on April 5, 2016.\3\ On May 18, 2016, Nasdaq filed Amendment No. 1 to the proposal.\4\ On May 20, 2016, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\5\ On June 30, 2016, Nasdaq withdrew Amendment No. 1 and filed Amendment No. 2 to the proposal, which replaced and superseded the original proposal in its [[Page 44401]] entirety.\6\ The Commission received eight comments on the proposal by seven commenters, as well as a response to the comment letters from Nasdaq regarding the proposal \7\ This order grants approval of the proposed rule change, as amended by Amendment No. 2. --------------------------------------------------------------------------- \1\ 15 U.S.C.78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 77481 (Mar. 30, 2016), 81 FR 19678 (``Notice''). \4\ See Letter to Brent J. Fields, Secretary, Commission, from David Strandberg, Associate Vice President, Nasdaq dated May 18, 2016. \5\ See Securities Exchange Act Release No. 77879 (May 20, 2016), 81 FR 33571 (May 26, 2016). \6\ See Letter to Brent J. Fields, Secretary, Commission, from David Strandberg, Associate Vice President, Nasdaq dated June 30, 2016. In Amendment No. 2, Nasdaq clarified, among other things, that: The required disclosure must be made no later than the date on which the relevant company files or furnishes a definitive proxy or information statement (or, if the company does not file proxy or information statements, no later than when the company files its next Form 10-K or Form 20-F); the proposed rule does not separately require the initial disclosure of newly entered into agreements or arrangements, provided that disclosure is made pursuant to the rule for the next shareholders' meeting at which directors are elected; a company must make the required disclosure at least annually; the disclosure requirement encompasses non-cash compensation and other forms of payment obligation, such as indemnification; all references in the proposed rule to proxy or information statements are to the definitive versions thereof; remedial disclosure (when a company newly discovers an agreement that should have been disclosed), regardless of its timing, would not satisfy the annual disclosure requirements; and a company that provides disclosure in the current fiscal year pursuant to the requirement in Item 5.02(d)(2) of Form 8-K would not have to make separate disclosure under the proposed rule, although disclosure under Commission rules would not relieve a company of its ongoing obligation under the proposed rule to make annual disclosure. The amendment also explicitly states that, if a company provides disclosure in a definitive proxy or information statement, including to satisfy the Commission's proxy disclosure requirements, sufficient to comply with the proposed rule, the company's obligation to satisfy the rule is fulfilled regardless of the reason for which such disclosure was made. Amendment No. 2 also revised the proposal to explicitly permit the required disclosure to be made in an information statement in addition to other ways specified in the proposal; limit the required disclosure to the material terms of agreements or arrangements relating to compensation and payments in connection with a person's board service or candidacy; and permit Web site disclosure through a hyperlink to another Web site, provided that the other Web site is continuously accessible. Amendment No. 2 also added that a foreign private issuer would be permitted to follow home country practice in lieu of the proposal's requirements provided that it complies with the conditions set forth in Nasdaq Rule 5615. In addition, the amendment revised the effective date of the disclosure requirements to thirty days after Commission approval of the proposed rule and included a statement from Nasdaq that it would notify listed companies of the effective date. \7\ See Letters to Brent J. Fields, Secretary, Commission, from Andrew A. Schwartz, Associate Professor of Law, University of Colorado Law School, Boulder, Colorado, dated April 25 and 26, 2016 (``Schwartz Letters''); Bobby Franklin, President & CEO, National Venture Capital Association, dated April 26, 2016 (``NVCA Letter''); John Hayes, Chair, Corporate Governance Committee, Business Roundtable, dated April 26, 2016 (``Business Roundtable Letter''); John Endean, President, American Business Conference, dated April 28, 2016 (``American Business Conference Letter''); Marc M. Rossell, Chair, Securities Regulation Committee, Bar of the City of New York, dated May 20, 2016 (``New York City Bar Letter''); Heather C. Briccette, President & CEO, The Business Council of New York State, Inc., dated June 15, 2016 (``NYS Business Council Letter''); Darla Stuckey, President & CEO, Society for Corporate Governance, dated June 27, 2016 (``Society for Corporate Governance Letter''). See also See Letter to Brent J. Fields, Secretary, Commission, from David Strandberg, Associate Vice President, Nasdaq dated June 30, 2016 (``Response Letter''). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change as Modified by Amendment No. 2 Nasdaq is proposing to adopt Rule 5250(b)(3) to require each listed company to publicly disclose the material terms of all agreements or arrangements between any director or nominee for director on the company's board and any person or entity other than the company relating to compensation or other payment in connection with that person's candidacy or service as a director.\8\ The proposal would require disclosure of all such agreements and arrangements by no later than the date on which the company files or furnishes a definitive proxy or information statement subject to Regulation 14A or 14C under the Act in connection with the Company's next shareholders' meeting at which directors are elected (or, if they do not file proxy or information statements, no later than when the Company files its next Form 10-K or Form 20-F).\9\ --------------------------------------------------------------------------- \8\ See proposed Rule 5250(b)(3)(A). \9\ See proposed Rule 5250(b)(3). See also supra, note 6 for a description of changes made in Amendment No 2 as compared to the original filing. --------------------------------------------------------------------------- The proposal as modified by Amendment No. 2 would require a listed company to disclose this information either on or through the company' Web site or in the definitive proxy or information statement \10\ for the next shareholders' meeting at which directors are elected (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F). The proposed rule provides that a company would not need to make disclosure, however, of agreements and arrangements that: (i) Relate only to reimbursement of expenses in connection with candidacy as a director; (ii) existed prior to the nominee's candidacy (including as an employee of the other person or entity) and the nominees relationship with the third party has been publicly disclosed in a definitive proxy or information statement or annual report (such as in the director or nominee's biography); or (iii) have been disclosed under Item 5(b) of Schedule 14A of the Act or Item 5.02(d)(2) of Form 8-K in the current fiscal year.\11\ Such disclosure, however, pursuant to these provisions under Schedule 14A and Form 8-K in (iii) would not relieve a company of its disclosure obligations under the proposed rule.\12\ --------------------------------------------------------------------------- \10\ See supra note 6. \11\ See proposed Rule 5250(b)(3)(A). \12\ See id. --------------------------------------------------------------------------- The proposed rule states that a Company must make the disclosure required by the rule at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.\13\ The proposed rule further states that if a Company discovers an agreement or arrangement that should have been disclosed pursuant to the proposed rule but was not disclosed, then the Company must promptly make the required disclosure by filing a Form 8-K or 6-K, where required by Commission rules, or by issuing a press release.\14\ However, such remedial disclosure, regardless of its timing, would not satisfy the annual disclosure requirements under the proposed rule.\15\ --------------------------------------------------------------------------- \13\ See proposed Rule 5250(b)(3)(B). \14\ See proposed Rule 5250(b)(3)(C). \15\ See id. See also supra note 6. --------------------------------------------------------------------------- The proposal further provides that if a company undertakes reasonable efforts to identify all such agreements or arrangements, including asking each director or nominee in a manner designed to allow timely disclosure, and makes the required remedial disclosure promptly if it discovers an agreement or arrangement that should have been disclosed but was not, then the company will not be considered deficient with respect to the rule.\16\ --------------------------------------------------------------------------- \16\ See proposed Rule 5250(b)(3)(D). The proposed rule also provides that in, all other cases, the Company must submit a plan that satisfies Exchange staff that the Company has adopted processes and procedures designed to identify and disclose relevant agreements or arrangements. --------------------------------------------------------------------------- The Exchange also proposes to make a change to Nasdaq Listing Rule 5615, which permits foreign private issuers to follow their home country practice in lieu of certain corporate governance requirements of the Exchange, provided that the issuer fulfills the conditions set forth in that rule. Under the proposal, the required disclosure of third-party payments to directors will be included among the rule provisions where a foreign private issuer would be permitted to follow home country practice.\17\ To meet the conditions of Rule 5615, a foreign private issuer would be required to submit to Nasdaq a written statement from an independent counsel in its home country certifying that the company's practices are not prohibited by the home country's laws. The issuer would also be [[Page 44402]] required to disclose in its annual filings with the Commission (or, in certain circumstances, on its Web site) that it does not follow the proposed rule's requirements and briefly state the home country practice it follows in lieu of these requirements. --------------------------------------------------------------------------- \17\ See supra note 6. --------------------------------------------------------------------------- III. Comments on the Proposed Rule Change and Nasdaq's Response As previously stated, the Commission received a total of eight comment letters from seven commenters.\18\ Four commenters expressed general support for the proposal.\19\ One of these commenters stated that third-party payment arrangements of the kind covered by the proposal ``present numerous problems besides the obvious potential conflict of interest that shareholders should consider in voting for board members.'' \20\ In addition, the commenter believed that ``the ability to keep both arrangement and the terms thereof secret provides `raiders' and other types of activists an unfair tactical advantage over the incumbent board members,'' and that ``if an insurgent candidate is elected to the board, secrecy around that board member's outside compensation can inhibit the effective functioning of the board of directors.'' \21\ Echoing similar beliefs, another of these commenters stated that full disclosure of the material terms of third party arrangements with a director is ``a necessary element of understanding and assessing the ability of directors and director nominees to fulfill their fiduciary duties.'' \22\ Another commenter stated its belief that ``investors need to know if there are compensation arrangements for any director in which an entity other than the listed company is paying for that particular director's service.'' \23\ --------------------------------------------------------------------------- \18\ See supra note 7. \19\ See Schwartz Letters, Business Roundtable Letter, American Business Conference Letter, and Society for Corporate Governance Letter, supra note 7. \20\ See American Business Conference Letter. \21\ Id. \22\ See Business Roundtable Letter. \23\ See Society for Corporate Governance Letter. --------------------------------------------------------------------------- One comment letter stated its aim as ensuring that Nasdaq was fully informed as it considered whether to move forward with the proposed rule change, in view of what it described as the somewhat complex arrangements that can exist when a board member of an issuer is a general partner of a venture capital fund partnership that owns a substantial interest in the issuer and is also a member or an associate of the venture capital firm that formed the venture capital fund.\24\ This commenter recommended that Nasdaq clarify the conditions of the exemption in the rule for pre-existing relationships as well as the degree of detail needed in disclosures required by the proposed rule.\25\ --------------------------------------------------------------------------- \24\ See NVCA Letter, supra note 7. \25\ Id. The NVCA Letter also noted that potential restrictions on the ability of individuals who receive compensation to serve as a director could adversely affect venture capital firms due to the structure of venture capital funds. See id. The Commission knows that this is not within the scope of the Nasdaq proposed rule change. --------------------------------------------------------------------------- Finally, two commenters recommended that the proposed rule change not be approved.\26\ One of these commenters indicated uncertainty as to whether the issues addressed by the Exchange's proposal are not adequately covered by existing Commission rules.\27\ This commenter further believed that the Commission should ``promote desirable uniformity in the nature of required disclosures to investors about director compensation arrangements at public companies, without differentiation based on the exchange on which a company's securities are listed.'' \28\ --------------------------------------------------------------------------- \26\ See New York City Bar Letter and NYS Business Council Letter, supra note 7. \27\ See New York City Bar Letter id. \28\ Id. The commenter cited, in this regard, the Commission's Disclosure Effectiveness Project. --------------------------------------------------------------------------- The other commenter opposing approval of the proposed rule change, similarly, believed that proposal ``may be duplicative'' because the Commission already has rules that ``may already address the disclosures covered in the proposed rule change.'' \29\ This commenter argued that ``approving similar rules aimed at the same goal but from a different regulator would make compliance unnecessarily difficult and would not be an efficient use of resources,'' adding that if more disclosure was required by the proposal than by the Commission's rules, ``investors in Nasdaq-listed companies would be receiving different information on these matters than investors in companies listed on other exchanges, which could lead to confusion.'' \30\ The commenter further argued that the Nasdaq proposal would require companies to ``unnecessarily incur costs and expend energy without any meaningful benefit to shareholders.'' \31\ --------------------------------------------------------------------------- \29\ See NYS Business Council Letter, supra note 7. \30\ Id. \31\ Id. --------------------------------------------------------------------------- In its Response Letter, Nasdaq cited the letters that had been received in support of its proposed rule change, noting that the submitters of these letters shared the Exchange's view that the proposed disclosures would be meaningful to shareholders and relevant to their investment and voting decisions. In response to the view of opposing commenters that existing Commission regulations may already require the disclosure mandated by the proposed rule, Nasdaq noted that the proposal would not require separate disclosure when disclosure sufficient to satisfy the proposed rule has been made by a company under existing Commission proxy rules. Acknowledging that there are various Commission rules that may, in some circumstances, apply to third party director payments, Nasdaq stated, nonetheless, that the nature, scope and timing of these required disclosures may not in all cases be the same as the disclosure mandated by its proposal.\32\ Nasdaq averred that it had considered the concerns raised in the comment letters, but believes the proposal as amended adequately addresses them.\33\ --------------------------------------------------------------------------- \32\ Nasdaq cited its proposal's ongoing annual and remedial disclosure requirements as examples. See supra note 7. \33\ In this regard, Nasdaq specifically mentioned the concerns raised in the NVCA Letter around board service by venture capital board members. --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful review, 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.\34\ In particular, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,\35\ which requires, among other things, that the Exchange'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; and not be designed to permit, among other things, unfair discrimination between issuers. --------------------------------------------------------------------------- \34\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \35\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The development, implementation, and enforcement of standards governing the initial and continued listing of securities on an exchange are activities of critical importance to financial markets and the investing public. Listing requirements, among other things, serve as a means for an exchange to provide listed status only to companies that meet certain initial and continued quantitative and qualitative [[Page 44403]] criteria that help to ensure that fair and orderly markets can be maintained once the company is listed. The corporate governance standards embodied in the listing standards of national securities exchanges, in particular, play an important role in assuring that exchange-listed companies observe good governance practices, including that listed companies provide adequate disclosure to allow investors to make informed investment and voting decisions. The Commission has long encouraged exchanges to adopt and strengthen their corporate governance listing standards in order to, among other things, provide greater transparency into the governance processes of listed issuers and enhance investor confidence in the securities markets. The majority of the commenters, as described above, were supportive of the proposal and thought it was important to ensure that investors have material information about third party payments to nominees and existing directors. Two commenters, however, requested that the Commission not approve the Nasdaq's proposal.\36\ The commenters were concerned that the Exchange requirements may be duplicative of Commission disclosure requirements and that disclosure of director compensation is a matter more suited to uniform regulation by the Commission. --------------------------------------------------------------------------- \36\ See New York City Bar Letter and Business Council Letter, supra note 7. --------------------------------------------------------------------------- The Commission recognizes that there may be some overlap with Commission disclosure requirements. Depending on the facts and circumstances, various provisions under the federal securities laws, such as Items 401(a) and 402(k) of Regulation S-K, Item 5(b) of Schedule 14A, and Item 5.02(d) of Form 8-K, may require disclosure of third party compensation arrangements with or payments to nominees and/ or board members.\37\ We note that it is not unusual for national securities exchanges to adopt disclosure requirements in their listing rules that supplement or overlap with disclosure requirements otherwise imposed under the federal securities laws. For example, notwithstanding the requirements imposed by the federal securities laws to report certain material events shortly after they occur on Form 8-K, national securities exchanges maintain separate, broader disclosure rules that require prompt disclosure of material information.\38\ These and other disclosure-related listing standards help to ensure that listed companies maintain compliance with the disclosure requirements under the federal securities laws and contribute to the maintenance of fair and orderly markets by providing investors with material and current information necessary for informed investment and voting decisions. --------------------------------------------------------------------------- \37\ In addition to these specific disclosure requirements, information about third party compensation arrangements may be required under other provisions of the federal securities laws which require disclosure of any additional material information necessary to make the statements included in the relevant filing, in light of the circumstances under which they are made, not misleading. See, e.g., Exchange Act Rules 10b-5, 14a-9, and 14c-6. \38\ See, e.g., NYSE Section 202.05; Nasdaq Rule 5250(b)(1). --------------------------------------------------------------------------- The proposal contains certain exceptions to address some of the concerns raised by commenters about overlap with Commission rules. For example, an exception is provided for disclosure of arrangements or agreements that have been disclosed under Item 5(b) of Schedule 14A or Item 5.02(d) of Form 8-K in the current fiscal year. In addition, in Amendment No. 2, Nasdaq made clear that if, in response to a Commission disclosure requirement, a company provides disclosure in a definitive proxy or information statement sufficient to comply with the proposed rule, such disclosure would also satisfy the company's disclosure obligation under the Nasdaq rule. Further, the proposal permits listed companies, to the extent the disclosure is not otherwise required in a proxy or information statement, to disclose the information on a Web site, either directly or through a hyperlink. This should help to mitigate any disclosure burden on companies that have already provided the required disclosure in a prior Commission filing because the rule only would require the company to post a link to that filing on its Web site. To the extent, there are certain factual scenarios that would require disclosure not otherwise required under Commission rules, we believe that it is within the purview of a national securities exchange to impose heightened governance requirements, consistent with the Act, that are designed to improve transparency and accountability into corporate decision making and promote investor confidence in the integrity of the securities markets.\39\ --------------------------------------------------------------------------- \39\ For example, the Commission has previously determined that exchange listing standards relating to audit committee independence requirements that included heightened requirements beyond those specifically mandated by Rule 10A-3 were consistent with the Act. See Securities Exchange Act Release No. 48745 (Nov. 4, 2003), 68 FR 64154 (Nov. 12, 2003). --------------------------------------------------------------------------- Concerning the instant proposal, to the extent that it would, in certain situations, provide investors and market participants additional information to make informed investment and voting decisions, we believe it is consistent with the requirements of Section 6(b)(5) of the Act. Finally, the Commission notes that certain changes and clarifications were made to the proposal by Nasdaq in response to comments. Amendment No. 2 clarified that non-cash compensation includes indemnification and further clarified in the proposed rule language that the material terms of the agreement or arrangement that need to be disclosed are those relating to compensation and not limited to cash payments. Further, Nasdaq amended the rule language concerning an exception to disclosure relating to relationships that existed prior to a nominee's candidacy. That proposed change states that no additional disclosure is required if the prior relationship between the nominee and the third party has been publicly disclosed in a definitive proxy or annual report. The Exchange further clarified in the amended rule language in proposed IM-5250-2 the timing of when the disclosure needs to be made when the disclosure is posted on the Company's Web site. These changes, among the others made in Amendment No. 2, help to clarify the proposal and address some of the concerns expressed by the commenters. V. Solicitation of Comments on Amendment No. 2 Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NASDAQ-2016-013 on the subject line. 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-2016-013. 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 Web site (http://www.sec.gov/ [[Page 44404]] 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 Web site 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; 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-2016-013 and should be submitted on or before July 28, 2016. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 2 The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 2, prior to the 30th day after the date of publication of the notice of Amendment No. 2 in the Federal Register. As noted above, in Amendment No. 2, the exchange clarified various aspects of the proposed rule's applicability and included new provisions that enhance the proposal.\40\ The Commission believes the clarifications in Amendment No. 2 would provide market participants with greater transparency regarding the requirements for listed companies to disclose compensation or other payments by third parties to board of director's members or nominees under Nasdaq's rules. In addition, in Amendment No. 2, the Exchange revised the proposed date of effectiveness of the proposed rule change.\41\ The Commission believes this revision will allow listed companies appropriate time to comply with the proposed rule change. --------------------------------------------------------------------------- \40\ See supra note 6. \41\ See id. --------------------------------------------------------------------------- Because Amendment No. 2 provided additional transparency to the disclosure requirements imposed by the proposed rule change, enhanced its provisions, and provided a revised date of effectiveness which will allow listed companies time to comply with the new requirements, the Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 2, on an accelerated basis, pursuant to Section 19(b)(2) of the Act.\42\ --------------------------------------------------------------------------- \42\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\43\ that the proposed rule change (SR-NASDAQ-2016-013), as modified by Amendment No. 2, be, and it hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \43\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\44\ --------------------------------------------------------------------------- \44\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-16123 Filed 7-6-16; 8:45 am] BILLING CODE 8011-01-P
![44400 Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
13. The Interfund Lending Committee presented to the Fund Board in unless it has fully disclosed in its
will monitor the Interfund Loan Rates connection with the review required by prospectus and/or SAI all material facts
charged and the other terms and conditions (13) and (14). about its intended participation.
conditions of the Interfund Loans and 17. The Interfund Lending Committee For the Commission, by the Division of
will make a quarterly report to each will prepare and submit to each Fund Investment Management, under delegated
Fund Board concerning the Board for review an initial report authority.
participation of the Funds in the describing the operations of the Facility Robert W. Errett,
Facility and the terms and other and the procedures to be implemented
Deputy Secretary.
conditions of any extensions of credit to ensure that all Funds are treated
fairly. After the commencement of the [FR Doc. 2016–16038 Filed 7–6–16; 8:45 am]
under the Facility.
14. Each Fund Board, including a Facility, the Interfund Lending BILLING CODE 8011–01–P
majority of the Independent Fund Board Committee will provide quarterly
Members, will: reports on the operations of the Facility
to each Fund Board. Each Fund’s chief SECURITIES AND EXCHANGE
(a) review, no less frequently than
compliance officer, as defined in Rule COMMISSION
quarterly, the relevant Fund’s
participation in the Facility during the 38a-1(a)(4) under the Act (a ‘‘Fund
preceding quarter for compliance with CCO’’), shall prepare an annual report [Release No. 34–78223; File No. SR–
the conditions of any order permitting for its Fund Board for each year that the NASDAQ–2016–013]
such transactions; Fund participates in the Facility, which
report evaluates the Fund’s compliance Self-Regulatory Organizations; The
(b) establish the Bank Loan Rate
with the terms and conditions of the Nasdaq Stock Market LLC; Notice of
formula used to determine the interest
application and the procedures Filing of Amendment No. 2 and Order
rate on Interfund Loans and review, no
established to achieve such compliance. Granting Accelerated Approval of a
less frequently than annually, the
Additionally, each Fund CCO will Proposed Rule Change, as Modified by
continuing appropriateness of the Bank
also annually file a certification Amendment No. 2, To Require Listed
Loan Rate formula; and
(c) review, no less frequently than pursuant to Item 77Q3 of Form N–SAR, Companies to Publicly Disclose
annually, the continuing as such Form may be revised, amended, Compensation or Other Payments by
appropriateness of the relevant Fund’s or superseded from time to time (‘‘N– Third Parties to Board of Director’s
participation in the Facility. SAR’’), for each year that the Fund Members or Nominees
15. In the event an Interfund Loan is participates in the Facility, that certifies July 1, 2016.
not paid according to its terms and such that the Fund and Lord Abbett have
default is not cured within two business established procedures reasonably I. Introduction
days from its maturity or from the time designed to achieve compliance with
On March 15, 2016, The Nasdaq Stock
the lending Fund makes a demand for the terms and conditions of the order. In
Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’)
payment under the provisions of the particular, the certification will address
filed with the Securities and Exchange
Interfund Lending Agreement, Lord procedures designed to achieve the
Commission (‘‘Commission’’), pursuant
Abbett promptly will refer such loan for following objectives:
(a) That the Interfund Loan Rate will to Section 19(b)(1) of the Securities
arbitration to an independent arbitrator Exchange Act of 1934 (‘‘Act’’ or
selected by each Fund Board involved be higher than the Repo Rate, but lower
than the Bank Loan Rate; ‘‘Exchange Act’’) 1 and Rule 19b–4
in the loan who will serve as arbitrator thereunder,2 a proposed rule change to
of disputes concerning Interfund (b) compliance with the collateral
requirements as set forth in the require listed companies to publicly
Loans.2 The arbitrator will resolve any disclose compensation or other
problem promptly, and the arbitrator’s application;
(c) compliance with the percentage payments by third parties to board of
decision will be binding on both Funds. director’s members or nominees for
The arbitrator will submit, at least limitations on interfund borrowing and
lending; director. The proposed rule change was
annually, a written report to each Fund published for comment in the Federal
Board setting forth a description of the (d) allocation of interfund borrowing
and lending demand in an equitable Register on April 5, 2016.3 On May 18,
nature of any dispute and the actions 2016, Nasdaq filed Amendment No. 1 to
taken by the Funds involved to resolve manner and in accordance with
procedures established by the Fund the proposal.4 On May 20, 2016, the
the dispute. Commission extended the time period
16. Each Fund will maintain and Board; and
(e) that the interest rate on any within which to approve the proposed
preserve for a period of not less than six
Interfund Loan does not exceed the rule change, disapprove the proposed
years from the end of the fiscal year in
interest rate on any third-party rule change, or institute proceedings to
which any transaction by it under the
borrowings of a borrowing Fund at the determine whether to disapprove the
Facility occurred, the first two years in
time of the Interfund Loan. proposed rule change.5 On June 30,
an easily accessible place, written Additionally, each Fund’s 2016, Nasdaq withdrew Amendment
records of all such transactions setting independent registered public No. 1 and filed Amendment No. 2 to the
forth a description of the terms of the accountants, in connection with their proposal, which replaced and
transactions, including the amount, the audit examination of the Fund, will superseded the original proposal in its
maturity, and the Interfund Loan Rate, review the operation of the Facility for
the rate of interest available at the time compliance with the conditions of the
srobinson on DSK5SPTVN1PROD with NOTICES
1 15 U.S.C.78s(b)(1).
the Interfund Loan is made on overnight application and their review will form 2 17 CFR 240.19b–4.
repurchase agreements and bank the basis, in part, of the auditor’s report 3 See Securities Exchange Act Release No. 77481
borrowings, and such other information on internal accounting controls in Form (Mar. 30, 2016), 81 FR 19678 (‘‘Notice’’).
4 See Letter to Brent J. Fields, Secretary,
2 If the dispute involves Funds with different
N–SAR. Commission, from David Strandberg, Associate Vice
Fund Boards, the respective Fund Boards will select
18. No Fund will participate in the President, Nasdaq dated May 18, 2016.
an independent arbitrator that is satisfactory to each Facility upon receipt of the requisite 5 See Securities Exchange Act Release No. 77879
Fund. regulatory and shareholder approval (May 20, 2016), 81 FR 33571 (May 26, 2016).
VerDate Sep<11>2014 17:23 Jul 06, 2016 Jkt 238001 PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 E:\FR\FM\07JYN1.SGM 07JYN1](https://thefederalregister.org/doc/81_FR_44530/page/1.svg)
![44404 Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
rules/sro.shtml). Copies of the companies time to comply with the new the Exchange, and at the Commission’s
submission, all subsequent requirements, the Commission finds Public Reference Room.
amendments, all written statements good cause for approving the proposed
II. Self-Regulatory Organization’s
with respect to the proposed rule rule change, as modified by Amendment
Statement of the Purpose of, and
change that are filed with the No. 2, on an accelerated basis, pursuant
Statutory Basis for, the Proposed Rule
Commission, and all written to Section 19(b)(2) of the Act.42
communications relating to the Change
proposed rule change between the VII. Conclusion
In its filing with the Commission, the
Commission and any person, other than It is therefore ordered, pursuant to self-regulatory organization included
those that may be withheld from the Section 19(b)(2) of the Act,43 that the statements concerning the purpose of,
public in accordance with the proposed rule change (SR–NASDAQ– and basis for, the proposed rule change
provisions of 5 U.S.C. 552, will be 2016–013), as modified by Amendment and discussed any comments it received
available for Web site viewing and No. 2, be, and it hereby is, approved on on the proposed rule change. The text
printing in the Commission’s Public an accelerated basis. of these statements may be examined at
Reference Room, 100 F Street NE., For the Commission, by the Division of the places specified in Item IV below.
Washington, DC 20549, on official Trading and Markets, pursuant to delegated The self-regulatory organization has
business days between the hours of authority.44 prepared summaries, set forth in
10:00 a.m. and 3:00 p.m. Copies of the Brent J. Fields, sections A, B and C below, of the most
filing also will be available for Secretary. significant aspects of such statements.
inspection and copying at the principal
[FR Doc. 2016–16123 Filed 7–6–16; 8:45 am] A. Self-Regulatory Organization’s
office of the Exchange. All comments
received will be posted without change; BILLING CODE 8011–01–P Statement of the Purpose of, and
the Commission does not edit personal Statutory Basis for, the Proposed Rule
identifying information from Change
SECURITIES AND EXCHANGE
submissions. You should submit only 1. Purpose
COMMISSION
information that you wish to make
available publicly. All submissions Under the Penny Pilot Program, the
[Release No. 34–78203; File No. SR–ISE– minimum price variation for all
should refer to File Number SR– 2016–15]
NASDAQ–2016–013 and should be participating options classes, except for
submitted on or before July 28, 2016. Self-Regulatory Organizations; the Nasdaq–100 Index Tracking Stock
International Securities Exchange, (‘‘QQQQ’’), the SPDR S&P 500 Exchange
VI. Accelerated Approval of Proposed Traded Fund (‘‘SPY’’) and the iShares
Rule Change, as Modified by LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule Russell 2000 Index Fund (‘‘IWM’’), is
Amendment No. 2 $0.01 for all quotations in options series
Change To Extend the Penny Pilot
The Commission finds good cause to Program that are quoted at less than $3 per
approve the proposed rule change, as contract and $0.05 for all quotations in
modified by Amendment No. 2, prior to June 30, 2016. options series that are quoted at $3 per
the 30th day after the date of Pursuant to Section 19(b)(1) of the contract or greater. QQQQ, SPY and
publication of the notice of Amendment Securities Exchange Act of 1934 (the IWM are quoted in $0.01 increments for
No. 2 in the Federal Register. As noted ‘‘Act’’),1 and Rule 19b–4 thereunder,2 all options series. The Penny Pilot
above, in Amendment No. 2, the notice is hereby given that on June 29, Program is currently scheduled to
exchange clarified various aspects of the 2016, the International Securities expire on June 30, 2016.3 The Exchange
proposed rule’s applicability and Exchange, LLC (the ‘‘Exchange’’ or the proposes to extend the Penny Pilot
included new provisions that enhance ‘‘ISE’’) filed with the Securities and Program through December 31, 2016,
the proposal.40 The Commission Exchange Commission the proposed and to provide a revised date for adding
believes the clarifications in rule change as described in Items I and replacement issues to the Penny Pilot
Amendment No. 2 would provide II below, which items have been Program. The Exchange proposes that
market participants with greater prepared by the self-regulatory any Penny Pilot Program issues that
transparency regarding the requirements organization. The Commission is have been delisted may be replaced on
for listed companies to disclose publishing this notice to solicit the second trading day following July 1,
compensation or other payments by comments on the proposed rule change 2016. The replacement issues will be
third parties to board of director’s from interested persons. selected based on trading activity for the
members or nominees under Nasdaq’s most recent six month period excluding
rules. In addition, in Amendment No. 2, I. Self-Regulatory Organization’s the month immediately preceding the
the Exchange revised the proposed date Statement of the Terms of Substance of replacement (i.e., beginning December
of effectiveness of the proposed rule the Proposed Rule Change 1, 2015, and ending May 31, 2016). This
change.41 The Commission believes this The ISE proposes to amend its rules filing does not propose any substantive
revision will allow listed companies to extend a pilot program to quote and changes to the Penny Pilot Program: All
appropriate time to comply with the to trade certain options classes in penny classes currently participating will
proposed rule change. increments (‘‘Penny Pilot Program’’). remain the same and all minimum
Because Amendment No. 2 provided The text of the proposed rule change is increments will remain unchanged. The
srobinson on DSK5SPTVN1PROD with NOTICES
additional transparency to the available on the Exchange’s Web site Exchange believes the benefits to public
disclosure requirements imposed by the www.ise.com, at the principal office of customers and other market participants
proposed rule change, enhanced its who will be able to express their true
provisions, and provided a revised date 42 15 U.S.C. 78s(b)(2). prices to buy and sell options have been
of effectiveness which will allow listed 43 15 U.S.C. 78s(b)(2).
44 17 CFR 200.30–3(a)(12). 3 See Exchange Act Release No. 75312 (June 26,
40 See supra note 6. 1 15 U.S.C. 78s(b)(1).
2015), 80 FR 38251 (July 2, 2015) (SR–ISE–2015–
41 See id. 2 17 CFR 240.19b–4. 21).
VerDate Sep<11>2014 17:23 Jul 06, 2016 Jkt 238001 PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 E:\FR\FM\07JYN1.SGM 07JYN1](https://thefederalregister.org/doc/81_FR_44530/page/5.svg)
Document Created: 2018-02-08 07:54:36
Document Modified: 2018-02-08 07:54:36
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 44400 |
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