Waivers of Code of Conduct for Nasdaq Listed Companies

Mayer Brown Free Writings + Perspectives

Mayer Brown Free Writings + Perspectives

On September 5, 2023, the Securities and Exchange Commission (the “SEC”) posted and declared effective a Nasdaq rule proposal modifying requirements related to a waiver of the code of conduct in Listing Rules 5610 and IM-5610.  The new rules allow committees of a company’s board of directors to approve waivers of the code of conduct for directors or executive officers. Additionally, the new rules set the public disclosure time for such waivers made by Nasdaq-listed foreign private issuers (“FPIs”) to four business days, like any other Nasdaq-listed company.  The rules become effective on September 20, 2023.

Listing Rules 5610 and IM-5610 require all Nasdaq-listed companies to adopt a code of conduct meeting the definition of a “code of ethics” set out in Section 406(c) of the Sarbanes-Oxley Act.  The code of conduct must be applicable to directors, officers and employees, publicly available and have an enforcement mechanism.

The changes will provide more flexibility for the approval process and will require Nasdaq-listed FPIs to promptly disclose waivers.  Following the changes (underlined below), the waiver of the code for directors or executive officers must be:

  1. approved by the listed company’s board or a board committee; and
  2. publicly disclosed, also by FPIs, within four business days, in the manner described above.

Providing companies with oversight flexibility aligns Nasdaq-listed companies with NYSE-listed companies, which have been allowed to place oversight of such waivers with a committee of the board, according to NYSE Rule 303A.10.  Nasdaq-listed companies should review their codes of conduct for any appropriate changes and consider whether it would be more efficient and prudent to transfer oversight of waivers to a board committee.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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