Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Friday, December 6, 2013

NASDAQ & NYSE Corporate Governance

The Dodd-Frank Act added Section 10C to the Securities Exchange Act of 1934, as amended (the Exchange Act), which requires that the SEC adopt rules directing securities exchanges to prohibit the listing of any equity security of an issuer that is not in compliance with Section 10C’s compensation committee and compensation adviser requirements. On June 20, 2012, the SEC adopted Final Rules implementing the Section 10C requirements.
On September 26, 2012, the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) proposed amendments to their corporate governance listing standards for compensation committee and adviser independence requirements. The proposals were directed by the Securities and Exchange Commission (SEC), which implements Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act.
Certain NASDAQ’s proposed rules relating to compensation committee responsibility and authority will become effective upon SEC approval. The NYSE and NASDAQ proposed rules are scheduled to be adopted by the SEC prior to June 27, 2013.  As a result, the proposed rules may not be applicable in the upcoming 2013 proxy season for companies with a December 31 year end.

Proposed NASDAQ Rule Amendments
Compensation Committee and Charter Requirements
 Existing NASDAQ rules, do not require a listed company to have a formal compensation committee. Executive compensation can be determined by either a compensation committee consisted solely of independent directors or by a vote of a majority of independent directors of the issuer’s board of directors. NASDAQ’s proposed rules require listed companies to have a standing compensation committee that consists of at least two directors both of which must be independent.
The NASDAQ proposed rules also require exchange listed companies to certify that they have adopted a formal written compensation committee charter and that the compensation committee will conduct annual review and assessment of its charter. Additionally, the charter must address the scope of the committee’s responsibilities, how it its responsibilities are carried out, it’s responsibilities for determining executive compensation, and specific responsibilities for the retention and compensation of compensation advisers and the assessment of their independence.
Independence of the Compensation Committee 
The NASDAQ proposals include a mandatory prohibition against service on the compensation committee if the director receives compensatory fees. As such, NASDAQ’s proposed rules prohibit a compensation committee member from accepting, directly or indirectly, any consulting, advisory, or other compensatory fee from the issuer or its subsidiaries other than directors’ fees.
The NASDAQ proposals require the issuer’s board of directors to take into consideration whether a director is an affiliate and if so, whether the director’s judgment is impaired as a member of the compensation committee.
The NASDAQ proposed rules include a cure period, during which the company may cure a member of the compensation committee’s failure to be independent for reasons beyond the member’s reasonable control. The issuer may cure the deficiency before its next annual meeting or one year from the noncompliance date, provided that the cure period does not exceed 180 days from the date of the noncompliance. The proposed rules do not affect the existing “exceptional and limited circumstances” exemption for compensation committee independence, which remain available.
The NASDAQ proposed rules adopted the six enumerated factors set forth in Section 10C-1.
The NASDAQ proposed rules would exempt specified categories of issuers from the new proposed requirements, including controlled companies, limited partnerships, asset-backed companies, management investment companies, and cooperatives. Foreign private issuers are also exempt from these requirements if they follow home country practices and disclose in their annual reports each requirement that is not followed. The NASDAQ proposals require a foreign private issuer to disclose the reasons why it does not have an independent compensation committee.
The NASDAQ proposed rules exempt smaller reporting companies from the proposed compensation committee independence requirements, and the requirements for compensation advisers. Under the proposals, smaller reporting issuers are  required to have a standing compensation committee consisting of at least two independent directors who must satisfy the existing standard of independence and must have a written compensation committee charter or board resolution that specifies the committee’s responsibilities and authority, other than those relating to compensation advisers under the proposed rules.
Implementation Timeline
Upon approval by the SEC, NASDAQ proposes to make effective the proposals concerning a compensation committee’s authority and its responsibility to select, retain, and fund compensation advisers and to assess their independence. The remaining proposals, including those relating to compensation committee structure, charter, and independence, will become effective upon the earlier of (i) the second annual meeting held after SEC approval of the proposed rules or (ii) December 31, 2014.
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For further information about this article, please visit and or contact Brenda Hamilton, Securities Attorney, 101 Plaza Real South, Suite 202 N, Boca Raton, Florida 33432, at (561) 416-8956 or by email This information is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings, please contact Hamilton and Associates at (561) 416-8956 or Please note that the prior results discussed herein do not guarantee similar outcomes.

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