May 23, 2024

Nasdaq Proposes Phase-In and Cure Period Changes and Clarifications

Yesterday, the SEC posted this notice & request for comment for a proposed Nasdaq rule change that would amend Rules 5605, 5615 and 5810 to make the following (and other non-substantive) changes:

– Clarify and modify the phase-in schedules to the independent director and committee requirements for IPOs by amending Rule 5615:

  • To include the text of the phase-in provisions of SEC Rule 10A-3 regarding the number of independent audit committee members required post-IPO (rather than simply referencing the rule)
  • To provide that companies may also phase in compliance with the three-member requirement for audit committees on a schedule that tracks Rule 10A-3 (i.e., at least one member by the listing date, at least two members within 90 days and at least three members within one year)
  • To allow companies to comply with the requirement to have one independent director on the compensation and nominations committees by appointing such director by the earlier of the date the IPO closes or five business days from the listing date (to avoid conflicting with a common practice of holding a meeting to appoint additional independent directors shortly after the listing date but prior to closing)


– Clarify and/or modify certain phase-in periods for companies emerging from bankruptcy, transferring from national securities exchanges, listing securities previously registered under Section 12(g), listing in connection with a carve-out or spin-off transaction or ceasing to qualify as a foreign private issuer or controlled company

– Codify its current positions that:

  • A company relying on the applicable phase-in period is not eligible for a cure period immediately following the expiration of the phase-in period unless it complied with the applicable audit committee, compensation committee or majority independent board requirement during the phase-in period but fell out of compliance, and
  • If a company demonstrated compliance but subsequently fell out of compliance before the end of the phase-in period, the cure period is calculated based on the event that caused the non-compliance (not the end of the phase-in period)


– Amend Rule 5810 to describe cure period procedures if a company fails to meet the compensation committee composition requirement due to one vacancy or one member ceasing to be independent: Nasdaq will notify the company and the company must cure by the earlier of its next annual meeting or one-year from the event (with a minimum of 180 days if the annual meeting is held sooner)

The SEC is seeking comments on the proposal.

Meredith Ervine