SEC Approves Nasdaq Corporate Governance Rule Changes
Author: Destiny Aigbe
September 6, 2024
On August 26, 2024, the U.S. Securities and Exchange Commission (SEC) approved a significant set of amendments to Nasdaq Listing Rules 5605, 5615, and 5810. These changes, submitted by The Nasdaq Stock Market LLC, introduce updated phase-in schedules for compliance with Nasdaq’s corporate governance requirements. This blog will break down the new rules, which affect companies going public through initial public offerings (IPOs), carve-outs, spin-offs, and other methods, including those transferring from other exchanges or emerging from bankruptcy.
Key Changes in Nasdaq’s Corporate Governance Requirements
1. IPO Compliance Deadlines Under the New Rules, companies going public via an IPO must meet specific deadlines for forming compensation, nomination, and audit committees. By the listing date or within a year, these companies must have committees composed of independent directors, providing clear expectations for firms seeking to list on Nasdaq.
2. Companies Transferring from Other Exchanges Companies transferring from other national exchanges, such as the New York Stock Exchange, must meet phase-in requirements similar to IPOs. However, the New Rules clarify that only securities registered under Section 12(b) of the Securities Exchange Act can qualify for this phase-in period.
3. Carve-outs and Spin-offs Nasdaq’s new rules require companies emerging from carve-out or spin-off transactions to meet specific audit, compensation, and board member independence standards. These firms must achieve full compliance within one year of their listing date.
4. Foreign Private Issuers Foreign private issuers, who have previously relied on home country governance practices, must now comply with Nasdaq's domestic corporate governance requirements within six months if they lose their foreign private issuer status under Rule 3b-4.
5. Bankruptcy, Controlled Companies, and Section 12(g) Companies The New Rules provide similar phase-in schedules for companies emerging from bankruptcy, companies ceasing to be controlled companies, and those previously registered under Section 12(g) of the Exchange Act.
New Cure Period Guidelines
The New Rules confirm that companies relying on phase-in periods are not eligible for an additional cure period after the phase-in ends, unless they fell out of compliance during the phase-in period due to circumstances beyond their control. Nasdaq will calculate the cure period based on the triggering event.
Conclusion
These updates to Nasdaq’s corporate governance requirements provide clarity and structure for companies navigating the listing process. Businesses must carefully review these new rules and ensure they are prepared to meet Nasdaq’s rigorous standards. At Aigbe Law Firm, we can help you understand how these changes impact your company and assist you in maintaining compliance during your transition to a public market.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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