[Federal Register Volume 75, Number 212 (Wednesday, November 3, 2010)]
[Notices]
[Pages 67788-67791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27722]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63207; File No. SR-NASDAQ-2010-134]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt Additional Criteria
for Listing Commodity Stockpiling Companies That Have Indicated That
Their Business Plan is To Buy and Hold Commodities
October 28, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 15, 2010, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to adopt additional criteria for listing companies
that have indicated that their business plan is to buy and hold
commodities and to provide transparency to the criteria Nasdaq will
apply in doing so.
The text of the proposed rule change is below. Proposed new
language is in italic; proposed deletions are in brackets.\3\
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\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at http://nasdaqomx.cchwallstreet.com.
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5101. Preamble to the Rule 5100 Series.
No change.
[[Page 67789]]
IM-5101-1. Use of Discretionary Authority
No change.
IM-5101-2. Listing of Companies Whose Business Plan is to Complete One
or More Acquisitions
No change.
IM-5101-3. Listing of Companies Whose Business Plan is to Purchase and
Stockpile Raw Materials or Other Commodities
In the case of a Company whose business plan is to complete an
initial public offering and use the proceeds to purchase and stockpile
quantities of a raw material or other commodity (``commodity
stockpiling companies'' or ``CSCs''), Nasdaq will permit the listing if
the Company meets all applicable initial listing requirements, as well
as the conditions described below.
(a) Within 18 months of the effectiveness of its IPO registration
statement, or such shorter period that the company specifies in its
registration statement, the Company must invest at least 85% of the net
proceeds of the initial public offering in the raw material or other
commodity identified in the registration statement, or return the
unused amount pro-rata to its shareholders. The unused amount will be
calculated based upon the sum of: a) monies spent by the CSC on
acquiring the raw material or other commodity during the 18 month
period; and b) monies contracted to be spent by the CSC on acquiring
the raw material or other commodity over the ensuing 12 months.
(b) The Company must publish, or facilitate access to, at no cost
and in an easily accessible manner, regular pricing information
regarding the raw material or other commodity from a reliable,
independent source, at least as frequently as current industry practice
for the pricing of such raw material or other commodity, and no less
frequently than twice per week.
(d) The Company must publish its Net Market Value (``NMV'') on a
daily basis, or where pricing information for the raw material or other
commodity is not available on a daily basis, no less frequently than
twice per week. NMV is determined by multiplying the volume of the raw
material or other commodity held in inventory by the last spot price
published or otherwise relied upon by the Company, plus cash and other
assets, less any liabilities. In addition, if the spot price of the raw
material or other commodity fluctuates by more than 5%, the Company
shall publish its NMV within one business day of such fluctuation.
(c) The Company must publish the quantity of the raw material or
other commodity held in inventory, the average price paid and the
Company's NMV within two business days of any change in inventory held.
Where the Company contracts to purchase or sell a material quantity of
the raw material or other commodity, such information must be disclosed
in a Form 8-K filing within four business days.
(e) The Company must employ the services of one or more independent
third-party storage facilities, to safeguard the physical holdings of
the raw material or other commodity that the Company acquires. Such
facility should provide services consistent with those provided by
custodians and these must include: storage and safeguarding; insurance;
transfer of the raw material or other commodity in and out of the
facility; visual inspections, spot checks and assays; confirmation of
deliveries to supplier packing lists; and reporting of transfers and of
inventory to the CSC and its auditors. Review of the third-party
storage facility, including all lending, sales and delivery
arrangements, must be overseen by a committee of Independent Directors.
(f) In addition to meeting the requirements in the Rule 5600
Series, the Company must create a committee comprised solely of
Independent Directors who shall consider, at least quarterly, whether
the Company's purchasing activities have had a measurable impact on the
market price of the raw material or other commodity and shall report
such determinations and make subsequent recommendations to the Board of
Directors. The independent directors may rely upon, and shall have the
authority to engage and pay, an industry expert in conducting this
review. Should the Board of Directors disagree with, or not accept, the
recommendations of this committee, the Company will be required to file
a Form 8-K with the SEC outlining the relevant events, committee of
independent directors' determinations and recommendations, and
rationale for the Board's determination.
* * * * *
IM-5605-3. Audit Committee Charter
Each Company is required to adopt a formal written charter that
specifies the scope of its responsibilities and the means by which it
carries out those responsibilities; the outside auditor's
accountability to the audit committee; and the audit committee's
responsibility to ensure the independence of the outside auditor.
Consistent with this, the charter must specify all audit committee
responsibilities set forth in Rule 10A-3(b)(2), (3), (4) and (5) under
the Act. Rule 10A-3(b)(3)(ii) under the Act requires that each audit
committee must establish procedures for the confidential, anonymous
submission by employees of the listed Company of concerns regarding
questionable accounting or auditing matters. The rights and
responsibilities as articulated in the audit committee charter empower
the audit committee and enhance its effectiveness in carrying out its
responsibilities.
Rule 5605(c)(3) imposes additional requirements for investment
company and commodity stockpiling company audit committees that must
also be set forth in audit committee charters for these Companies.
5605(c)(2) Audit Committee Composition
(A) No change.
5605(c)(2)(B) Non-Independent Director for Exceptional and Limited
Circumstances
No change.
IM-5605-4. Audit Committee Composition
No change.
5605(c)(3) Audit Committee Responsibilities and Authority
The audit committee must have the specific audit committee
responsibilities and authority necessary to comply with Rule 10A-
3(b)(2), (3), (4) and (5) under the Act (subject to the exemptions
provided in Rule 10A-3(c) under the Act), concerning responsibilities
relating to: (i) Registered public accounting firms, (ii) complaints
relating to accounting, internal accounting controls or auditing
matters, (iii) authority to engage advisors, and (iv) funding as
determined by the audit committee. Audit committees for investment
companies must also establish procedures for the confidential,
anonymous submission of concerns regarding questionable accounting or
auditing matters by employees of the investment adviser, administrator,
principal underwriter, or any other provider of accounting related
services for the investment company, as well as employees of the
investment company. Audit committees for commodity stockpiling
companies must also establish procedures for the identification and
management of potential conflicts of interest, and must review and
approve any transactions where such potential conflicts have been
identified. This should include any material amendment to the
[[Page 67790]]
management agreement, including any change with respect to the
compensation of the manager.
IM-5605-5. The Audit Committee Responsibilities and Authority
Audit committees must have the specific audit committee
responsibilities and authority necessary to comply with Rule 10A-
3(b)(2), (3), (4) and (5) under the Act (subject to the exemptions
provided in Rule 10A-3(c) under the Act), concerning responsibilities
relating to registered public accounting firms; complaints relating to
accounting; internal accounting controls or auditing matters; authority
to engage advisors; and funding. Audit committees for investment
companies must also establish procedures for the confidential,
anonymous submission of concerns regarding questionable accounting or
auditing matters by employees of the investment adviser, administrator,
principal underwriter, or any other provider of accounting related
services for the investment company, as well as employees of the
investment company. Audit committees for commodity stockpiling
companies must also establish procedures for the identification and
management of potential conflicts of interest, and must review and
approve any transactions where such potential conflicts have been
identified. This should include any material amendment to the
management agreement, including any change with respect to the
compensation of the manager.
* * * * *
(b) Not applicable [sic].
(c) Not applicable [sic].
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq wants to list companies whose business plan is to complete
an initial public offering and use the proceeds to purchase and
stockpile quantities of a specified commodity. As a result, Nasdaq
proposes to adopt IM-5101-3, which will set forth criteria designed to
afford investors in CSCs additional protection.
As a threshold matter, a CSC will be required to meet all
applicable initial listing requirements. Thus, for initial listing,
companies seeking to list on the Nasdaq Global Market must have a
minimum market value of listed securities of $75 million and companies
seeking to list on the Nasdaq Capital Market must have a minimum market
value of listed securities of $50 million.\4\ However, due to their
special characteristics, including:
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\4\ Rules 5405(b)(3)(A) and 5505(b)(2)(A). Note that given the
nature of these companies, they will not satisfy the alternative
initial listing requirements because of the income and operating
history requirements of those standards.
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There might not be an underlying futures market in the
particular raw material or other commodity to be stockpiled;
It may be impractical to appoint a custodian for certain
types of raw material or commodity; and
Their structure as corporations, not exchange traded
funds.
Nasdaq believes that a separate set of listing standards is
appropriate and will impose the following additional criteria for
listing a CSC: \5\
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\5\ These criteria were in places derived from protections
Nasdaq has built into the rules relating to Special Purpose
Acquisition Companies.
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(a) The CSC must represent that unless at least 85% of the net
proceeds of the offering are used to acquire the raw material or other
commodity within 18 months of the effectiveness of the registration
statement, it will return the unused amount to its common stockholders.
The unused amount will be calculated based upon the sum of: (a) Monies
spent by the CSC on acquiring the raw material or other commodity
during the 18 month period; and (b) monies contracted to be spent by
the CSC on acquiring the raw material or other commodity over the
ensuing 12 months.
(b) The CSC shall publish, or otherwise facilitate access to (at
no-cost in an easily accessible manner), regular pricing information in
the raw material or other commodity from a reliable, independent source
at least as frequently as current industry practice for pricing of such
raw material or other commodity, and no less frequently than twice per
week.
(c) The CSC shall publish its Net Market Value (``NMV'') \6\ on a
daily basis, or where pricing information for the raw material or other
commodity is not available on a daily basis, no less frequently than
twice per week. NMV is determined by multiplying the volume of the raw
material or other commodity held in inventory by the last spot price
published, plus cash and other assets, less any liabilities. In the
event that the spot price of the raw material or other commodity
fluctuates by more than 5%, the CSC shall publish its revised NMV
within one business day of such fluctuation.
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\6\ NMV differs from Net Asset Value (``NAV'') as NMV reflects
the market price of indium, whereas NAV reflects the lower of cost
or market price.
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(d) The CSC shall publish information concerning the quantity of
the raw material or other commodity that it holds in inventory no later
than two business days after taking delivery of or removing such raw
material or other commodity from its warehouse.
(e) The CSC must retain independent third-party storage facilities
that provide services consistent with those provided by custodians.
These services must include:
a. Storage and safeguarding;
b. Insurance;
c. Transfer of the raw material or other commodity in and out of
the facility;
d. Visual inspections, spot checks and assays;
e. Confirmation of deliveries to supplier packing lists;
f. Reporting of transfers and of inventory to the CSC and its
auditors.
Review of the third-party storage facility, including all lending,
sales and delivery arrangements, must be overseen by a committee of
independent directors.
(f) The CSC shall create a committee comprised solely of
independent directors, which shall consider not less than quarterly,
whether the CSC's purchasing activities have had a measurable impact on
the price of the raw material or other commodity and shall report such
determinations and make subsequent recommendations to the Board of
Directors. The independent directors may rely upon, and shall have the
authority to engage and pay, an independent industry expert in
conducting this review. Should the Board of Directors disagree with, or
not accept, the recommendations of this committee, the Company will be
required to file a Form 8-K with the SEC outlining the relevant events,
committee of independent directors' determinations and recommendations,
and rationale for the Board's determination.
(g) The Audit Committee charter shall include the responsibility to
establish procedures for the identification and management of potential
conflicts of
[[Page 67791]]
interest where such conflicts might act to the detriment of investors,
and to review and approve any transactions where such conflicts have
been identified. This should include any material amendment to the
management agreement, including any change with respect to the
compensation of the manager.
Nasdaq believes that these additional requirements will help
protect investors by ensuring that CSCs remain committed to their
described investment objectives and strategy; that adequate information
will be available to investors on an ongoing basis regarding the value
of their underlying investment; and that additional safeguards will
exist in the form of independence and oversight of certain activities.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\7\ in general and with Sections
6(b)(5) of the Act,\8\ in particular. Section 6(b)(5) requires, among
other things, that a registered national securities exchange's rules
must be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. The proposed
rule change is consistent with these requirements in that it imposes
additional requirements on CSCs, which are designed to protect
investors and the public interest and prevent fraudulent and
manipulative acts and practices on the part of the CSC and their
promoters.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall:
(a) By order approve or disapprove such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2010-134 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-134. This
file number should be included on the subject line if e-mail 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/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 a.m. and 3 p.m. Copies of such 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-2010-134 and should be submitted on or before November 24, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27722 Filed 11-2-10; 8:45 am]
BILLING CODE 8011-01-P