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"Nasdaq Speaks '15: Latest Developments and Interpretations"Tuesday, July 14, 2015 Join us for our annual webcast regarding what is happening at Nasdaq. During this webcast, senior Nasdaq Staffers will provide a wide range of practical guidance, from what are the latest rule changes to what are the latest Staff interpretations, and much more. Join these experts:
Jeff Werbitt, Associate Editor, TheCorporateCounsel.net: Welcome to today's webcast, "Nasdaq Speaks '15: Latest Developments and Interpretations." I wanted to remind everyone that there are course materials that accompany today's program, which provide the program overview, the speakers and their contact information, and other Nasdaq contacts and resources. You can access the course materials from a link on the page where you accessed this webcast. If you haven't already printed out the materials you should do that now, or at least pull them up on your screen for reference during the program. I want to welcome our panelists and thank them for joining us today. Let me go ahead and introduce them. Today we have Arnold Golub, Vice President and Deputy General Counsel, Nasdaq Listing Qualifications; David Strandberg, Associate Vice President, Nasdaq Listing Qualifications; William Slattery, Vice President, Nasdaq Listing Qualifications (Initial Listings); and Cyndi Rodriguez, Chief Legal Officer, Nasdaq Private Market. Now I'm going to turn it over to Arnold, who will get it started. Arnold Golub; Vice President and Deputy General Counsel, Nasdaq Listing Qualifications: Thanks, Jeff. I would like to thank you and Broc and TheCorporateCounsel.net for hosting this program. We hope to give the audience a little insight into some of the recent and upcoming changes at the Nasdaq Exchange, including some of our new and updated online resources. Then we'll talk about Nasdaq Private Market, which is a new initiative for private companies operating outside of the Exchange. I'm in the Nasdaq General Counsel's Office and work on listing questions. David Strandberg and I head up the Listing Qualifications department. David will talk about our continued listing program; he also oversees our listing investigations team. Will Slattery, who leads our Initial Listings group, will talk about the process there and some of the issues we see on the initial listing side. And Cyndi Rodriguez is the Chief Legal Officer for Nasdaq Private Market. In the material that Jeff referenced that are posted on TheCorporateCounsel.net website, you have all of our contact information. We also included the contact information for some other people in the Listing Group and listed the areas where they work. You should all feel free to reach out to any of us or any of the other people listed about anything we talk about today or down the road if you have questions about Nasdaq and our rules. We have also included links to some of the resources we will be talking about today. With that I'll turn it over to Will to talk about our initial listing process and some of the common issues we see there. William Slattery, Vice President, Nasdaq Listing Qualifications (Initial Listings): Thank you, Arnold. I'm a Vice President in the Listing Qualifications department here at Nasdaq. As Arnold mentioned, I'm primarily responsible for overseeing the review of issuers seeking to list securities on the Nasdaq Stock Market. Today I'm going to talk to you a little bit about the initial listing process, focusing on the facilities offered by the Listing Center, some recent listing statistics, some recurring issues we're seeing lately in our review of applications and the timing surrounding the listing application review process. Our listing process provides for the electronic submission of listing applications and related forms and documents, and provides you with a safe and secure method to submit your applications to Nasdaq staff for review. Our applications can be found at the Nasdaq Listing Center, which is the page on our website where you will find all the information you need to learn about our listing process. You will find a link to the Listing Center in the course materials associated with this webcast. In order to submit a listing application, you must first register with the Listing Center by creating a user account. Once registered, you will be able to log in to the Listing Center and submit your application and associated documentation. Our electronic application submission process incorporates a wide range of useful features. It incorporates the ability for you to begin the preparation of your application and then save your work so that it can be continued and submitted at another time. It also incorporates the ability for you to share your application form with colleagues, so that you can give others permission to access, review and update your application prior to submission. In the case of seasoned issuers, we streamline the preparation of the listing application forms by pre-populating your application with much of the required information. We also facilitate the electronic submission of supporting documentation by allowing you to attach other electronic documents to your application. These documents, along with your completed application, are readily accessible by you and your colleagues for future reference. It is worth noting that, in line with the improvement in market performance in recent years, there's been a corresponding increase in listing activity. We had 327 new listings in 2014, compared to 239 the prior year - an increase of 37%. We listed 189 issuers pursuant to an IPO in 2014, as against 126 in the prior year. We have already recorded 141 new listings this year. Now I would like to talk a little bit about recurring issues we see in our review of listing applications. First of all I would like to talk about shareholder counts. In order to become listed on Nasdaq, applicants must have certain minimum shareholder counts. Usually 300, 400 or 450 round-lot shareholders are required, in conjunction with a Nasdaq Capital Market, Nasdaq Global Market or Nasdaq Global Select Market listing, respectively. In the case of an applicant seeking to list in conjunction with an underwritten public offering we will accept a representation from the issuer that they will meet the minimum number through the offering process. For seasoned issuers we ask applicants to provide us with a shareholder list, both registered and beneficial, to allow us to conclude that the applicant meets the minimum requirement. We will review these documents closely for, among other things, duplicate entries, and also to identify any other unacceptable accounts. In this regard, please note that Nasdaq does not recognize shareholdings that have been gifted to employees or others for the purpose of meeting our listing criteria. Next, I would like to talk about regulatory issues. Our review process includes the performance of background checks on company officers, directors and principal shareholders. To facilitate this review, our application forms include a series of questions that all applicants are required to respond to, asking about past or current regulatory issues involving the company or its principals. It is important to bear in mind when answering this question with respect to the company's principals that there's no time limit on the questions covered by the request. It is also important to know that the reference to inquiries by regulatory, civil or criminal agencies should be interpreted broadly to include any and all communications with such agencies, no matter how routine or innocuous they might seem. Please note that it is in your interest to respond to these questions as completely as possible and as early as possible in the process to facilitate the completion of your review. Finally, I would like to talk about timing. Our goal is to process your application in a timely manner so that we are in the position to approve your application well in advance of your planned listing date, particularly in the case of those seeking to list in conjunction with a public offering. To this end, we encourage you to file your application as early as possible in the process, ideally as soon as you file the registration statement with the SEC, even if you are filing on a confidential basis. Thank you. I would now like to turn the program over to my colleague, David Strandberg. David Strandberg, Associate Vice President, Nasdaq Listing Qualification: Thanks, Will. I would like to say just a few words about our continued listing program. As I've said before, Will and his team get to date the company and we get to marry them. Be that as it may, the underlying core mandate of our continued listing program, and the primary focus underlying our efforts to monitor company compliance with our listing standards, is to protect investors and market integrity. To accomplish these goals, we've structured our program around continuous ongoing monitoring and review of company compliance with applicable requirements. A large focus of this effort is on reviewing SEC filings. Listing analysts review every Form 10-K, 10-Q, 20-F, 8-K, 6-K and proxy statement, among other filings, to assure compliance with the applicable listing standards. That's over 45,000 filings last year and more than 25,000 so far this year, including over 16,000 8-Ks and 6-Ks. Our listing analysts are able to do this work on a timely basis in large part because of how we use technology to help them do their jobs. For example, our compliance systems have direct feeds with third party vendors, so our listing analysts are able to see SEC filings as soon as they are made. Our system is smart enough to electronically flag and highlight company filings whose financial statements reflect deficiencies or other matters that require further analyst review. For instance, the system will flag a balance sheet that shows stockholders' equity below the applicable threshold. That way, our analyst can promptly verify the deficiency and/or follow up with the company, as required by our listing rules and procedures. The system is also smart enough to alert us when a Form 10-K or 10-Q filing is not made when it should be so that we can follow up, again as governed by our listing rules. In a similar manner, our systems are able to track a company's security price and the corresponding market value related standards. So we know, for example, how many days the company's stock price has been below our minimum bid price requirement, and also when it has regained compliance. I want to pause at this point and share some interesting statistics. So far this year, of the companies that have been below our standards at one point or another, more than half, at least for a time, have not complied with our minimum bid price requirement. This is the most frequently - cited compliance issue, followed by filing delinquencies and failures to comply with the majority board independence and committee composition standards. This is generally consistent with historical patterns. The good news is that, year to date, nearly 75% of the companies that fell below a requirement subsequently regained compliance while remaining listed. This suggests that the rules we have are properly calibrated, and that the built-in compliance cure periods are working. But we aren't complacent - we are always looking for ways to innovate and improve our listing standards. One example of this is a proposal we recently made to modify the requirement that listed companies must hold an annual meeting of shareholders no later than one year after the end of the company's fiscal year. Currently, should a company fail to do so, our rules do not allow for a cure period or any staff discretion in providing additional time to regain compliance. Instead, we are required by our rules to issue a delisting determination, subjecting the company to immediate suspension and delisting. Of course, companies may request a review of the determination before an independent hearing panel, which automatically stays the delisting pending the panel's written decision. We have observed a variety of reasons why a company may fail to hold an annual meeting. For example, a company may attempt to hold an annual meeting before the deadline but is unable to obtain a quorum. In other cases, a company may have misjudged the time required for SEC review of a proxy statement. Other companies cannot solicit proxies and hold a meeting because they were delinquent in filing periodic reports and therefore cannot include required financial information in their proxy statement. We've also observed that most companies are able to regain compliance with these requirements within six months. All of these circumstances -- and to ensure consistency with other continued listing standards that allow for the submission of a compliance plan, or have a built-in compliance cure period, which we know are effective - led us to propose to modify the applicable rules to provide our staff with limited discretions to grant a company an opportunity to submit a plan of compliance. Upon review of the plan, the staff would be permitted to grant a limited extension of time to regain compliance, should that be warranted. Our proposal, which is publicly available on our website, is currently under review by the SEC Division of Trading and Markets. We hope to have a revised rule in place before the end of the year. We also have qualitative requirements for continued listing. For instance, our analysts review proxies to ensure companies' boards and committees are properly composed. We also check to see that there are no regulatory issues or developments that require follow-up or requests for information, such as government investigations or allegations of misconduct, management changes or so-called "noisy auditor" resignations, among other developments that may warrant further inquiry. We also require companies to notify us in advance of entering into certain transactions. For example, we require that a company provide us with 15 days advance notice before issuing 10% or more of their shares in a fund-raising or acquisition transaction. We review these transactions to ensure that they comply with our shareholder approval and voting rights rules. This is another important function that analysts perform. While we understand that transactions materialize quickly and often change rapidly depending on market conditions, we encourage companies to submit this form as early as possible to ensure that any potential issues under our rules - for instance, rules related to shareholder approval and voting rights - are identified early, to give us a chance to identify and address them before the transaction closes. We spend a lot of time on the phone with companies discussing deal structures to be sure they are consistent with our rules and investors are protected. We are very happy to do that. Lately we've been seeing a number of merger transactions structured as so-called "inversions," such that the domestic listed company will create a holding company incorporated in a foreign jurisdiction, and then the holding company will acquire the listed company and perhaps also a target company. Depending on the terms of these deals, these transactions either result in a listed company having to submit a substitution listing event notification form or the post-merger entity having to go through our initial listing process. For this reason, we encourage companies to let us know about any merger transactions as early as possible, to be sure there is sufficient time to review the transactions and ensure our rules are met. Lastly, I wanted to say a few words about our shareholder approval rules, which have for the most part remain unchanged for the better part of 25 years. We have to enforce those rules as they are written. But we are always looking for ways to innovate around our listing rules and to adapt to and anticipate changes in the market. With this in mind, we are currently reviewing our shareholder approval requirements to determine if there are ways to simplify or at least update them to reflect a dynamic and rapidly changing market and the ever-evolving nature of capital- raising transactions. To help us, we plan to solicit public comment in ways to improve and update our rules, keeping in mind our shareholder protection mandate. We hope you can help us. Our contact information is on the slide deck and we are always happy to hear from you. Arnold?
Golub: Thanks, David. Let's talk about another recent rule change, this one related to fees. This past year, Nasdaq adapted a new fee structure, which has been very popular with our listed companies. Historically, on Nasdaq as well as on other exchanges, companies paid an annual fee to be listed, but also paid fees to list newly issued shares of a listed class, and for certain events, such as a change in their name or symbol, a reincorporation, or an inversion, as David was talking about. Companies have complained to us about these fees over the years. Often times, the share issuances are beyond the control of the company, such as when the options are exercised by employees. Companies therefore found the additional listing fees difficult to budget for. Companies also told us that they weren't raising money in some of these situations, so the fees caught them off guard. Over the years, we've tried various ways to modify the fees to address these concerns, such as by exempting de minimis issuances. But we still heard complains. Last year, Nasdaq became the first exchange to launch an all-inclusive annual listing fee program to address these concerns. Under this program, the all-inclusive annual fee covers all the typical costs of listing for the year, including issuing additional shares, name changes and record-keeping changes. It even replaces the fee we used to charge for a formal written staff interpretation of specific governance questions. Companies were allowed to elect between our historical fee structure and this new all-inclusive program for 2015, with everyone transitioning to the all-inclusive fee in 2018. In response to requests from companies over the last couple of months, last week we filed a rule change to reopen the election period and allow companies that did not opt in to the all-inclusive program this year to do so for 2016. Your company can do so by using a simple check-box form on the Listing Center, which will be available later this month. It can do so all the way up until December 31 of this year. Once the company makes the election to transition to the all-inclusive fee for next year, it will stop being billed fees for listing additional shares at that point. So there is an incentive to opt in sooner, rather than waiting for December 31. Note, though, that the other fees under the old fee schedule will continue to be owed up until the end of the year, even if the company does opt in sooner for next year. We're reaching out to our finance contacts at all of our listed companies to talk about this. You may also want to make sure that your company knows this option is available and that it may save some money. If a company has a question about this fee program, you can reach out to the main listing qualifications number in the materials. A better bet is to call your corporate client group relationship manager. Golub: Now I'll spend a few minutes talking about some of our newest additions to the Listing Center, and give you a preview of some of the upcoming changes we have planned. Since introducing the Listing Center in 2009, companies have submitted almost 30,000 applications and forms using our online system. We get more than 50,000 page views a month on the Listing Center. One big advantage of using the Listing Center is that it's more efficient for you. Will talked a little bit about this on the initial listing side. But our currently listed companies also complete their forms and notifications online. All of these forms and applications are programed to be intelligent, so they only show the relevant part of the form based on the information you've provided up to that point. If you want to preview a sample of an application or a form, you can do that too on the Listing Center website, so you can gather any information before you start to complete the form. If multiple people are working on different of parts of a form or an application, they can share that document between them. When you finally hit "submit" on the document, we send an automatic confirmation to your e-mail address, along with a copy of the submission for your records. For currently-listed Nasdaq companies, as well as for applicants, we're able to pre-populate many of the fields based on the symbol and the CIK code you use for your SEC filings. We recently expanded that capacity to include board member information. So if you're completing a listing application for a company that's already trading, you will find the names and the biographies of each board member preloaded from your public filings. We also have a Reference Library that's part of the Listing Center. This houses hundreds of FAQs, Staff Interpretations and Listing Council decisions. You can already browse that material by category and search through it. In the coming days, you'll notice that we've started to highlight our most popular FAQs in a "top ten" category, which lists the most popular FAQ's over the last 30 days. We'll be adding similar "top ten lists" to the landing pages for the Listing Council decisions and the Staff Interpretations in August. All of these materials are designed to help make our rules more transparent and to help you get to answers on questions you have about the listing requirements quickly, without needing to reach out to us. A big focus for us now is to make these tools more accessible on mobile devices. We recently made changes to allow users to search the Reference Library and log in to the Listing Center to complete the applications and forms with an iPad. In the fall, we're looking to release an IOS app that will have all the current functionality of our Reference Library plus some new features, such as the ability to save contents to your personal lists of favorites. We also have initial and continued listing guides posted on the Listing Center which go through the list of requirements and fees applicable for initial and continued listing, respectively, and include links to the relevant rules. Many of these improvements and new resources came from users' suggestions. We welcome your comments. You can use the LQ main number in the resource section of the materials for this webcast or the contact information on the Listing Center website. In addition to using the Listing Center platform for the submission of forms and to promote the transparency of Nasdaq listing rules, last month we added a new component which we call our Governance Clearinghouse. We will use this as a forum to promote dialogue and exchange ideas across a variety of topics, ranging from corporate governance and market structure to ways public companies can improve board room diversity and voluntarily incorporate cost-effective corporate sustainability initiatives into their business plans. The forum is designed to post information on all sides of the issues that are important to our companies and their investors and provide tools for companies and their advisers to engage with stakeholders on these issues. One reason we created this forum is that we often hear from stakeholders about ideas for new listing standards and concerns with governance, many of which are good ideas or good things to have a dialogue about but are not necessarily appropriate for a listing standard. We hope to use the Clearinghouse, as I've said, as a platform to encourage those discussions and to provide information for people looking to voluntarily adopt some of these practices. You can find that Governance Clearinghouse in the links in the materials we posted, or on the Listing Center under the "Listing U.S." menu at the top of the page. We would love to get some feedback on what we have posted and some ideas for new topics. With that, I'll pass things over to Cyndi. She will transition from the public company space to the Nasdaq Private Market, where some exciting things are happening. Cyndi Rodriguez, Chief Legal Officer, Nasdaq Private Market: Thank you, Arnold. I'm the Chief Legal Officer for Nasdaq Private Market. Nasdaq Private Market is a new initiative which began operation in March of last year and is based in San Francisco. It was created to help private companies efficiently manage and provide access to transactions in their restricted securities and to provide ongoing investor relations. It was created in response to the transforming state of the private capital markets, with private securities becoming an increasingly important asset class. One reason behind this change was the passage of the JOBS Act in 2012, which increased the threshold for mandatory Exchange Act registration four-fold, from 500 shareholders of record of a class of equity securities to 2,000. Easier access to capital has also encouraged companies to stay private longer. The increase in the threshold of record shareholders, together with the generally longer timeframe before companies decide to go public, has created unique challenges for private companies, including a greater need to facilitate shareholder liquidity. Along with a suite of other company tools offered to private companies, Nasdaq Private Market helps private companies address these challenges and helps companies stay private longer by introducing company-controlled automation tools to streamline the transaction process in a manner that also enhances and unifies the information available to investors. Nasdaq Private Market engages with private companies through a holistic approach, with four primary products. The first is a company-controlled portal, which serves primarily as a persistent data room in which private companies can house company information and manage ongoing investor and employee communication. We also offer companies a marketing and visibility tool which allows companies to take advantage of optional advertising and visibility support, including such things as public relation support, Times Square advertising, custom events on the Nasdaq MarketSite, online advertising and social media campaigns. We also offer a platform technology that helps private companies facilitate structured liquidity programs and other forms of programs, in the secondary and primary markets. Finally, we offer Exact Equity, an equity management tool for private companies which helps companies track their cap table and provide stock plan administration in a single system of records. I'm going to spend a little bit more time talking about our liquidity and equity management tools for private companies, focusing first on liquidity solutions. Nasdaq Private Market offers private company tools and resources to optimize their growth. It is a company-first platform focused on giving companies tools to obtain liquidity, efficiency and control. It essentially provides companies with an efficient way to control secondary transactions in their securities. But it can also help with companies wishing raise capital, should they choose to do so. As I mentioned, the marketplace platform offered by Nasdaq Private Market is a multi-broker dealer network which allows private later-stage growth companies to provide founders, early investors and employees improved access to liquidity and premier institutional investors. Liquidity programs on our platform are issuer-controlled, which means our company clientsdetermine the terms for the program and the parameters of who participates in the program. Our companies must be qualified for inclusion on the platform based on requirements that are set by Nasdaq Private Market depending on the type of transaction companies wish to facilitate. Many of the companies we work with are looking to conduct structured liquidity programs in the form of tender offers in order to provide their employees with an opportunity to monetize at least part of their equity compensations prior to an IPO. A company-controlled liquidity program can also serve as a useful employee incentive and retention plan for these companies. Usually the buyer is the company itself or institutional investors close to the company. Such companies qualify on the platform by meeting minimum standards for reporting and disclosure on the platform to participants in the program, which include audited and unaudited financial information and company information including management biographies, business description and capitalization information. Companies must also agree to either adopt an insider trading policy or provide for one in their transaction documents. Companies may also want to connect with new investors through access to Nasdaq Private Market's multi-broker network platform, either in the form of primary capital raises or other forms of company-controlled secondary transactions, in which the broker/dealers that are qualified as members on our platform could source new investors in the company's securities. For such activity, Nasdaq Private Markets will require those particular companies to meet at least one of our quantitative thresholds, based on such things as funding received, total assets and annual revenue, annual net income, shareholders' equity, or sponsorship by a recognized financial institution. Companies that qualify under this higher membership standard would also have to provide the same minimum reporting and disclosure information to participants as I've mentioned previously. More information regarding our company requirements can be found on our website at www.nasdaqprivatemarket.com. In 2014, Nasdaq Private Market also introduced Exact Equity, which is an integrated stock plan administration and capitalization table tracking solution for private companies. Through Exact Equity, Nasdaq Private Market offers software as a service equity management technology that clients can administer. In addition, it provides a way to outsource stock plan administrative services for private companies and other customers, such as law firms, who prefer to have Nasdaq Private Market administer their clients' plans. Exact Equity can provide companies with cap table tracking, a waterfall tool, various "what if" scenarios and ASC 718 reporting. Exact Equity is provided at no charge to smaller or recently founded companies. We view Nasdaq Private Market's combination of Exact Equity and its facilitation of liquidity programs as effectively providing private companies with a fully integrated end-to-end service with all the tools a company needs in one place, including equity capital, structured liquidity programs, cap table management and other instruments. Along with Nasdaq OMX, Nasdaq Private Market is also very committed on the legislative front. We are currently in active discussions with our lawmakers to enact legislation that would modify an existing legal framework for secondary sales by private company shareholders to accredited investors, which is currently known as "Rule 4(a) 1 ½." Our policy effort here is to urge our lawmakers to create a clear federal exemption from registration for transactions in which each purchaser is an accredited investor, and the seller is not the issuer or an underwriter acting on behalf of the issuer. We also seek that these transactions have blue sky pre-emption. We believe such legislation would be an important contribution to the overall success of our private company clients. Finally, Nasdaq Private Market announced in June that a blockchain technology initiative would be piloted on Exact Equity, in partnership with Chain, which is a leading provider of blockchain technology to financial institutions and enterprises. This initiative is meant to leverage the block chain to help facilitate issuance and transfer of shares of privately held companies. Our plan is to launch the digital ledger technology to expand and enhance the equity management capabilities and tools currently offered to our company clients. So that's a broad overview of Nasdaq Private Market. Please feel free to contact me with any follow up questions regarding our business. I thank you for your attention. Werbitt: Thanks again to all the panelists for a great program and to all those that have joined us today. I hope everyone has a great day. 
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