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Frequently Asked Questions
  Impact of Government Shutdown and Recommencement of Operations
Identification Number 1677
Impact of Government Shutdown and Recommencement of Operations
Publication Date: January 29, 2019


With the end of the government shutdown, the Securities and Exchange Commission has returned to normal operations. The Division of Corporation Finance has published an announcement stating that it generally will address matters in the order in which they were received; however, expedited assistance can be requested by contacting Consistent with Corp Fin’s statement during the shutdown, some registrants omitted or removed delaying amendments from their registration statements and Corp Fin will consider requests to accelerate the effective date of those registration statements if they are amended to include a delaying amendment prior to the end of the 20 day period and acceleration is appropriate. Corp Fin also stated it would treat no-action requests concerning shareholder proposals in the order they were received, but asked that notice of any timing constraints or changes in circumstances (such as if a company no longer needs a response) be sent to
Read more from Corp Fin >>

See, also, Statement by Chairman Clayton >>

Impact of Government Shutdown

No changes to Original text: During the government shutdown, the SEC is operating with a limited number of staff members. This impacts the ordinary process for companies seeking to list on Nasdaq, including companies first seeking to go public, and may impact companies already listed. Nasdaq has received a number of questions about various capital raising activities and has published a series of FAQs addressing certain scenarios during the shutdown. We will update this information periodically as events unfold.

Read the FAQs >>
Publication Date*: 1/29/2019 Mailto Link Identification Number: 1677
Frequently Asked Questions
  Enhancing Transparency in Regulation
Identification Number 1672
Enhancing Transparency in Regulation
Publication Date: January 10, 2019

At Nasdaq, we believe transparency is fundamental to investor protection and fair regulation, ensuring that investors are protected and listed companies understand our rules, can structure compliant transactions and are never surprised. To this end, in 2012, Nasdaq created the Listing Center's Reference Library, which today houses more than 450 frequently asked questions about listing matters, 100 anonymized versions of appellate listing decisions and 350 written Staff interpretations of the Listing Rules. To reinforce the critical role transparency plays in our regulatory program, we are publishing, together with the Nasdaq Listing and Hearing Review Council, our second annual Transparency Report.

This report describes the facts and circumstances that prompted Nasdaq Regulation Staff and Listing Hearing Panels to exercise discretionary authority under our Listing Rules with respect to a company's listing. It also describes the factors we considered in requesting that listed companies make significant changes to certain share issuances and in shortening compliance time frames otherwise available to listed companies under our rules. In all of these cases, we removed information that might identify the companies involved.

We believe that sharing this information helps companies better understand how Nasdaq applies its listing rules, which helps companies and their advisors better comply with those rules. As always, we welcome your comments, which can be emailed to us at

View the 2017 Transparency Report Here >>

View the 2016 Transparency Report Here >>

Publication Date*: 1/10/2019 Mailto Link Identification Number: 1672
Frequently Asked Questions
  It's Time to Fix the Proxy Process
Identification Number 1661
It's Time to Fix the Proxy Process
Publication Date: November 22, 2018

On November 15, 2018, John Zecca, Senior Vice President, General Counsel North America, and Chief Regulatory Officer of Nasdaq Regulation for U.S. Markets, participated in the SEC's Proxy Process Roundtable. Prior to his appearance at the roundtable, Mr. Zecca submitted a comment letter to the SEC advocating key changes to the proxy rules on behalf of public companies and retail investors.  Highlights are provided below. 

Nasdaq operates 19 regulated entities in the United States and Canada, including the Nasdaq Stock Market, which is home to over 3,000 public companies and exchange traded products.  Nasdaq is also a listed company and is subject to the same regulations as other public companies, including the proxy rules.

A common theme we hear as we talk to our listed companies (and our own experience confirms this) is that the proxy process is costly, inefficient, unduly complicated, and requires a disproportionate share of management's attention.  Specifically:

  • Companies routinely cite the proxy process as one of a series of complaints, which, in the aggregate, discourages them from joining the public markets.
  • Despite its cost and complexity, the current system results in a disproportionately few number of retail investors voting their shares. 
  • The current outdated proxy process also limits a company's ability to communicate with shareholders—especially younger retail shareholders—in the digital way that they prefer to communicate.

In my letter to the SEC dated November 15, 2018, we urge the Commission to address the cost and difficulties for companies to communicate with shareholders; reform the rules related to shareholder proposals; and require transparency about the methodologies and conflicts of proxy advisory firms, as well as a mechanism for companies to address errors by the firms. Excerpts from this letter, which address each of these issues, are provided below.

Proxy Voting Mechanics and Technology

The primary purpose of all aspects of the SEC's proxy rules should be to facilitate communications between companies and their shareholders.  In this digital age, it is notable how incredibly complex and expensive it is for companies to communicate with their shareholders, especially their retail shareholders. 

Problems fall into three broad categories:

  • Lack of transparency as to beneficial ownership.  Companies consistently report that there is over-voting and under-voting in their proxy elections, in part as a result of double-voting in connection with security lending.  Shareholders express frustration that they have no way to verify that their votes have been counted. 
  • The proxy process makes it impossible for companies and shareholders to communicate in the way retail shareholders expect to communicate today.  Because of the complexities of the proxy system, and particularly the distinction between objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBO), companies often don't know the identities of their retail shareholders, making it impossible to contact them directly.  Even when companies do know shareholders' identities, for proxy-related matters they must contact them through expensive intermediaries. 
  • Companies are frustrated they are charged fees that they cannot negotiate. Issuers receive large, obscure annual bills from intermediaries that they did not select, for delivering proxy materials.  In addition, while notice and access has improved the proxy system considerably, companies still pay a large amount in printing fees each year because intermediaries report that large numbers of stockholders have requested full set delivery of proxy materials. Issuers have little ability to contest, or even deconstruct, the annual bills they receive.  Companies would like to reach out to those stockholders to encourage them to use technology to receive materials, but again, the proxy system makes it difficult to identify and contact them.  Even where they can use electronic delivery the cost to do so remains high.

As a technology company, Nasdaq knows there is a better approach—and Nasdaq's eVoting initiative has shown that it is possible.  We have conducted proof of concept tests in Estonia and South Africa that use a cryptographically secure transaction private ledger to address many of the current challenges of the proxy process, including the lack of transparency and traceability in the voting process. In the Estonian market, we were able to use the national identity numbers issued to each resident to help establish each digital identity in this market where investors directly hold their securities. Users in South Africa, which has a central securities depositary (similar to the US), access eVoting via a web enabled front end; the system records the data on the blockchain. The system can also accommodate the transmission of voting-related materials and, of course, the audit trail and immediate vote tally functionality is available through permissioned reports that provide different levels of information to issuers and shareholders and, if needed, auditors and even regulators.

We are hopeful that technology will one day enhance many aspects of the proxy process, but in the meantime the SEC should consider the following actions:

  • Revise rules to permit direct communication between companies and their shareholders. 
  • Consider assigning the cost of the OBO designation to those shareholders whose status force those costs.
  • Give issuers a say in selecting intermediary providers and ensure transparency to companies about the fees they pay, giving them the ability to ensure that those fees are correct.  
  • Enhance the integrity of the shareholder vote by improving transparency and the mechanisms to reconcile long and short positions, thereby better limiting voting, and the cost of proxy solicitations, to only those persons entitled to vote.

Shareholder Proposals

Another cost that public companies face is related to the shareholder proposal process.  Many companies spend thousands of dollars and countless hours of management time addressing proposals from proponents who own minimal amounts of their shares. 

Nasdaq proposes the following amendments to Rule 14a-8:

  • Increase the minimum ownership percentage to ensure that shareholders have a meaningful investment in the company before they are given access to the proxy. 
  • Delete the meaningless $2,000-dollar threshold and instead require that a proposing shareholder hold a material investment in that issuer.
  • Increase the holding period to a longer period, such as three years, which would help ensure that management and boards spend their scarce time focused on shareholder proposals that come from shareholders who are aligned with other shareholders in the long-term success of the company. 
  • Increase the resubmission thresholds, so companies aren't burdened year after year with proposals that the majority of their shareholders don't support. 

In addition, shareholder activists are increasingly using Notices of Exempt Solicitation on Form PX14A6G to advocate for certain proposals and policy issues without subjecting their materials to review by the company or the SEC.  As a result, communications about a shareholder proposal that would otherwise be excluded from a Company's proxy statement in accordance with Rule 14a-8 can nonetheless be presented to shareholders on a Form PX14A6G, which can be filed at any time prior to or after an annual meeting.   

Nasdaq proposes that the SEC revise the "cover" in Rule 14a-103 to clearly identify the filing party, similar to Schedules 13D and 13G, and require the filing party to disclose the number of shares held and any interest in the proposal or policy issues it is advocating for. The SEC should also consider restricting the time period in which a voluntary Notice may be filed.

Proxy Advisory Firms

Given the number of public companies, the large number of proposals placed on each company's proxy, and the limited time to consider these proposals, institutional shareholders have come to rely on proxy advisory firms.  While this service is valuable in theory, in practice the industry is a largely unregulated black box, rife with opacity, lack of accountability and conflicts of interest.  Specifically:

  • Proxy advisory firms are not required to fully or completely explain their criteria or provide companies a means to question analysis or even correct factual errors.

  • Proxy advisory firms are not required to disclose whether they have a financial relationship or ownership stake in the companies on which they report.

  • When shareholders rely on the voting recommendations of the proxy advisory firms, it further distances companies from their shareholders.

While the SEC took preliminary steps to address these concerns several years ago by issuing Staff Legal Bulletin 20 , and again earlier this year when it withdrew two no-action letters concerning the ability of investment advisors to rely upon recommendations by proxy advisory firms in voting their clients' securities, additional guidance is needed about the impact of this withdrawal and the important underlying concerns that other market participants have with proxy advisory firms. 

Proxy advisors must also have a line of communication with the companies they analyze and clear transparency around their ownership of, or short interest in, covered companies.  The stories we hear from public companies further bear this out.  In one case, in two successive years, a proxy advisory firm based its recommendations on an erroneous and incomplete understanding of the relevant facts.  In each instance, the company was told that it could avoid such issues by subscribing to (and paying for) the proxy advisory firm's corporate services.  

Each of the above issues are central to the willingness of companies to join the public markets and to retail investors' ability to interact with the companies whose shares they own.  Nasdaq urges the SEC to address the cost and difficulties of communicating with shareholders; update the rules related to shareholder proposals; and require transparency about the methodologies and conflicts of proxy advisory firms, as well as a mechanism for companies to address errors by the firms. 

Please note that the SEC encourages public companies to submit comments related to these topics.  Comments can be submitted here

* * * * *

For more information, read:

Letter from John Zecca, Chief Regulatory Officer of Nasdaq, to the SEC >>

Chairman Jay Clayton's Statement at the SEC Staff Roundtable on the Proxy Process >>

Commissioner Kara Stein's Opening Remarks at the 2018 SEC Staff Roundtable on the Proxy Process >>

Roundtable on the Proxy Process, November 15, 2018: Transcript >>

Publication Date*: 11/22/2018 Mailto Link Identification Number: 1661
Frequently Asked Questions
  Comment Solicitation: Initial Listing Liquidity Measures
Identification Number 1645
Comment Solicitation: Initial Listing Liquidity Measures
Publication Date: October 5, 2018

Click here to read our Comment Solicitation >>

Nasdaq is soliciting public comment on its initial listing criteria relating to the liquidity of equity securities. The comment solicitation is designed to elicit views on whether the rules should be changed and the impact of certain specific changes being considered on investor protection, the liquidity of listed securities and capital formation.

We encourage all interested parties to review the detailed description in our Comment Solicitation and provide comments before November 16, 2018.

Electronic responses are preferred and may be addressed to:

Publication Date*: 10/5/2018 Mailto Link Identification Number: 1645
Frequently Asked Questions
  Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Identification Number 1641
Business Development Companies Seek to Improve Retail Investor Access to Private Markets
Publication Date: September 24, 2018

The Securities and Exchange Commission's (SEC) Acquired Fund Fees and Expenses Rule (AFFE) has constrained investment and liquidity in business development companies (BDCs) and limited the ability of main street investors to invest in private companies. Here's how.

BDCs provide funding to middle market companies that are not yet large enough to access broad capital markets but require more capital for growth than banks can provide. The BDC corporate structure also offers retail or "main street" investors the opportunity to invest in private companies, through a vehicle that is more accessible than other forms of private investing that require investors to have a high net worth and a 10+ year commitment.

Late last month, SEC Chairman Jay Clayton told The Wall Street Journal that individual investors need more access to the private markets. In his speech in Nashville, he also said that companies located in the center of the U.S. (where there is less venture capital funding) need more access to capital. BDCs can help close both the investment opportunity gap and the capital gap. The industry, however, is hampered by an SEC disclosure requirement that appears to be misapplied.

We spoke with several members of the Small Business Investor Alliance (SBIA), an advocate for investors in small and medium sized businesses, to get a better understanding of the complexities of this issue and why a fix is long overdue.

BDCs are important to the economy.

BDCs were created by Congress in 1980 to fill the void left by traditional lenders that found themselves unable to lend to small and mid-sized businesses due to increased regulatory burdens. Currently BDCs have over $80 billion invested in small to medium sized businesses. BDCs must invest at least 70% of their assets in active small and mid-sized businesses based in the United States. They invest in a variety of industries and sectors across America including manufacturing, healthcare technology, aerospace, consumer products, food and beverage, energy, media, and IT. BDCs have various investment strategies, but typically make secured and unsecured loans between $10-$50 million to middle market companies. Many of these companies grow into household names: Cirque Du Soleil, Formula One, National Surgical Hospitals, and Brunswick Bowling are all companies that were financed at some point through BDC investments.

While the BDC universe is still relatively small as compared to that of closed-end funds, it plays a significant role in the economy: "BDCs facilitate capital formation into the middle market sector of the economy which is responsible for 1/3 of private sector jobs and produces more than $6 trillion in revenues annually," said Tonnie Wybensinger, Executive Director of the SBIA's BDC Council.

The AFFE Rule overstates the expenses of investing in BDCs.

The SEC passed the AFFE Rule in 2006 in an effort to help investors better understand the full spectrum of fees and expenses incurred by registered funds, in particular those that invest in other funds as part of their investment strategy. However, the application of the AFFE disclosure requirement overstates the expenses of mutual funds and other registered funds that invest in BDCs. BDCs hold a unique place in the registered funds' world acting as an operating company within a closed end fund structure. Adding the total expenses of the BDC into the expense ratio of a regulated fund effectively double counts the impact in a registered fund's expense ratio. A BDC's trading price already reflects its operating expense structure, which reduces the total return of the acquiring funds' investment in the BDC. Reflecting these expenses again under the AFFE rule results in double counting a BDC's expenses. The existing application of the AFFE rule disclosure to a BDC investment is therefore misleading and inaccurate.

It is this overstatement of the regulated fund's expense ratio and the misinformation it portrays that resulted in major index providers excluding BDCs in 2014 from index eligibility and contributed to a BDC industry-wide decline in institutional ownership and IPOs.

BDCs are important to main street investors.

BDCs offer retail investors the opportunity to participate in the growth phase of small and mid-sized private companies, a sector of the market that is increasingly capitalized outside of public markets. Historically, BDCs have provided good returns to investors compared to traditional fixed-income investments: "During the past three years, BDCs have returned on average approximately 9% per annum, according to the Wells Fargo BDC Index," shared Wybensinger. "For a fixed income-oriented product, that's a pretty good return for investors, whether they are retail or institutional."

The exclusion of BDCs from major indices triggered a material decline in BDC IPO activity and a significant decline in institutional ownership (which dropped from 42% at the end of 2013 to 29% by the end of 2017). Investment and liquidity in the BDC industry have been constrained as a result, and fewer BDC IPOs means fewer opportunities for retail investors to participate in the creation of new firms bringing additional capital to contribute to the growth phase of small and mid-sized businesses.

"The loss of institutional ownership impacts the quality of governance for the BDC industry, and by extension harms retail investors. Fewer institutional owners means lower voter turnout and limited professional oversight of BDC managers, for example through research analyst coverage," said Liz Greenwood, Corporate Secretary and Chief Compliance Officer of publicly traded BDC, BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a member of SBIA's legal steering committee. "There's an inherent governance benefit to retail investors when an industry has more institutional investors."

"BDCs are effectively excluded from passive investment manager investment," shared Ian Simmonds, CFO of TPG Specialty Lending and Chair of SBIA's BDC Council. "BDC portfolio companies are executing long-term growth strategies, and institutional shareholders tend to be more fundamentally based in their analysis. Exempting BDCs from the AFFE Rule will bring more stability to the sector's ownership, more liquidity into BDC stocks, and more depth to the overall shareholder base—all of which benefits retail shareholders."

The SEC has the authority to remedy this situation.

As markets evolve and change, a modernization of the regulatory framework supporting them is at times warranted. In fact, in the latest draft of the 2019 House Appropriations Bill Report, issued earlier this summer, Congress indicated that it would like the SEC to revisit the AFFE Rule as it pertains to BDCs.

There is precedent for exempting corporate structures similar to BDCs from AFFE disclosure. REITs and closed-end funds are already exempted from AFFE disclosure. When the SEC passed the AFFE rule in 2006, the BDC industry was in its infancy and there was no organized representative industry body to advocate on its behalf for exemption.

"We believe that while the AFFE Rule itself is fundamentally sound, its disclosure requirements shouldn't apply to BDCs, just as they don't apply to REITs. Exempting BDCs from the AFFE Rule will steer additional capital to the middle market sector of the economy and increase investor access to private companies, catalyzing job creation and economic growth," said Wybensinger.

For more information, visit and read SBIA BDC Modernization Agenda >>


Liz Greenwood is Corporate Secretary and Chief Compliance Officer of BlackRock TCP Capital Corp. (Nasdaq: TCPC) and a Managing Director of BlackRock TCP Capital's advisor, Tennenbaum Capital Partners, LLC. She also serves on the Legal Steering Committee of the SBIA.

Ian Simmonds is the Chief Financial Officer of TPG Specialty Lending, Inc. and a Managing Director of TPG Sixth Street Partners. He also serves as Chair of the SBIA's BDC Council.

The Small Business Investor Alliance (SBIA) advocates for investors of the small and medium-sized businesses that are a critical source of job growth in the U.S. The SBIA is the largest voice for business development companies (BDCs) in Washington, D.C., representing lower middle market private equity funds and investors who provide vital capital to small and medium sized businesses nationwide. Tonnie Wybensinger serves as the Executive Director of the SBIA BDC Council.

Publication Date*: 9/24/2018 Mailto Link Identification Number: 1641
Frequently Asked Questions
  SOX's Financial Expert Requirement 15 Years Later
Identification Number 1633
SOX's Financial Expert Requirement 15 Years Later
Publication Date: September 4, 2018

Ann C. Mulé is the Associate Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

This article was first published in Directors & Boards magazine. Republished with permission.

Many companies are missing an audit committee disclosure opportunity.

In the 15 years since the Sarbanes-Oxley Act of 2002 (SOX) was passed, large institutional investors have been "finding their voice" and sharing their views of board expectations with regard to composition, accountability and transparency.

One of the most important aspects of the legislation was that it added additional requirements for the audit committee — the board's financial-oversight lynchpin — in an effort to strengthen it.

SOX required an annual disclosure of whether or not the board of directors had at least one audit committee financial expert (ACFE) on its audit committee, and if so, the expert's name and whether or not they were independent of management.

Part of the reasoning underlying this new disclosure requirement was that someone who possessed the skills and experience to be qualified as an ACFE, would ask more challenging questions and, as a result, more effective financial oversight would occur.

SOX was specific as to the skill sets the designated ACFE should possess, and also how the ACFE acquired these skill sets.

While there has largely been consensus that individuals who possess deep accounting, auditing, or corporate finance expertise have the skill sets to qualify, there has been disagreement and confusion over whether or not an individual is qualified to be designated as an ACFE if she or he held a supervisory role over someone with these skill sets. Investors may differ as to which particular ACFE skill sets they want to see on the audit committee. However, are companies missing an opportunity to make the ACFE disclosure more transparent and easy to understand for investors?

Our exclusive review of the 2017 proxy statements of the Fortune 100 companies found the disclosure determining why an ACFE qualified was largely lacking.

Here is what we found:

1.    It was a difficult and time consuming task to determine the reason why an audit committee member qualified as an ACFE because very few companies have voluntarily disclosed this information within the language of the actual ACFE designation disclosure. Five companies that did disclose the ACFE qualifications within the context of the actual ACFE designation were The Travelers Companies, Inc., Johnson & Johnson, Marathon Petroleum Corporation, Best Buy and Target Corporation. Their disclosures were transparent and easy to follow because all of the information was contained in one place in the proxy statement. Such disclosures enable an investor to easily ascertain the diversity of ACFE skill sets present (or lack thereof) among the ACFEs as a whole.

As an example, Travelers designation disclosure reads as follows: "The Board also has determined that Mr. Dasburg's experience with KPMG Peat Marwick from 1973 to 1980, his service as a KPMG Tax Partner from 1978 to 1980, his experience as Chief Financial Officer of Marriott Corporation, as Chief Executive Officer of Northwest Airlines, Burger King Corporation and ASTAR and his service on the audit committees of other public companies qualify him as an audit committee financial expert, and he has been so designated. In addition, the Board designated Mr. Kane as an audit committee financial expert after considering his extensive experience as an audit partner with Ernst & Young for 25 years."

2.    Some companies clearly disclosed the specific reasons why an ACFE was designated within their director biographies in the proxy statement. Twelve companies took this approach: McKesson Corporation, United Technologies Corporation, Tyson Foods, Inc., Publix Super Markets, Inc., General Dynamics Corporation, CVS Health Corporation, Lockheed Martin, The Home Depot, Inc., Anthem, Inc., Walgreen Boots Alliance, Inc. and AmeriSourceBergen Corporation. Marathon Petroleum Corporation explicitly disclosed the reasons why each ACFE qualified both in the designation and in the director biographies.

3.    In many companies, it was not easy to determine the reason why one or more of the designated ACFE's qualified either from the actual ACFE designation disclosure or from the director biographies. In this case, one had to spend time carefully reading the director biographies to try to determine what experience or skill sets might qualify the individual as an ACFE.

4.    To complicate things further, there were two companies that had only "Supervisory CEO ACFE's" as designated ACFE's on their audit committees. In other words, neither of these companies had a designated ACFE with deep accounting, auditing and/or corporate finance expertise on their audit committees (i.e., no "Preparer ACFE" "Auditor ACFE," or "Evaluator ACFE.") However, after spending the time to do a further analysis of the background and skill sets of the audit committee members who were not designated as ACFEs, it was determined that each company had a non-designated member(s) who possessed either deep accounting or corporate finance expertise on the committee.

5.    Regardless of one's position with regard to the merit/value of the "Supervisory CEO ACFE," another relevant question that investors should be asking is whether or not some companies may be incorrectly designating a CEO as an ACFE who does not technically meet the necessary "active supervision" requirement as per the SEC's adopting release. In some cases, it was impossible to determine if this was the case through reading the proxy disclosures.

6.    Numerous organizations track the absolute number of ACFE's on audit committees and the absolute number has trended upward over time. This implies that the financial expertise of the audit committee as a whole has been increasing, which is a good trend. However, in some cases, simply tracking the numbers may lead to an incomplete picture. For example, with regard to a specific company, if the absolute number of ACFE's has increased numerically but all of them are "Supervisory CEO ACFE's" (i.e., none of whom have deep accounting, auditing and/or corporate finance expertise), shouldn't this information be readily available to investors so that they can independently decide whether or not that particular audit committee is "fit for purpose" with respect to financial oversight? (Or, at least whether or not there is a need to perform a more detailed review to see what other financial oversight skill sets may or may not be present in the non-designated members?)

Since the audit committee is charged with critical financial oversight responsibilities, investors should be able to easily understand what financial oversight skill sets are possessed by the directors on the board committee as a whole. They should also, as an important first step, understand WHY the board determined that the audit committee member qualifies as an ACFE.

It is important to note that boards and companies are already doing the due diligence work internally to make the judgment call as to whether or not an audit committee member qualifies as an ACFE, and why. Why not clearly share this important information with investors as way to assist and engage with them?


Ann C. Mulé is the Associate Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware where she oversees and manages all of the professional, public service and academic outreach activities of the Center.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 9/4/2018 Mailto Link Identification Number: 1633
Frequently Asked Questions
  Get a Handle on Critical Audit Matters
Identification Number 1627
Get a Handle on Critical Audit Matters
Publication Date: July 30, 2018

Cindy Fornelli is the Executive Director of the Center for Audit Quality.

Last year, following approval by the Securities and Exchange Commission, the Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard that significantly changes the auditor's report—with equally significant implications for investors, audit committees and others. The new standard is now moving through an implementation period.

The identification and communication of critical audit matters (CAMs) is the most significant change required by the new standard. If you feel like you don't fully have a handle on CAMs yet, you're not alone. Here are some FAQs to help.

What is a CAM?

The CAMs requirement adopted by the PCAOB is intended to make the auditor's report more informative and relevant to investors and other users of financial statements. According to the new standard, a CAM is "any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee" and that:

  • relates to accounts or disclosures that are material to the financial statements, and;
  • involved especially challenging, subjective, or complex auditor judgment.

How will auditors determine whether a matter is a CAM?

The determination of whether a matter is a CAM is principles based, and the new standard does not specify that any matter would always be a CAM. The new standard specifies that an auditor, in determining whether a matter involved especially challenging, subjective, or complex auditor judgment, should take into account, alone or in combination, certain nonexclusive factors (as specified in the new standard), such as the auditor's assessment of the risks of material misstatement, including significant risks.

What impact will CAMs have on the communication between the auditor and audit committee?

The source of CAMs are those matters communicated or required to be communicated to the audit committee. PCAOB auditing standards already require a wide range of topics to be discussed and communicated with the audit committee, which in most cases means most, and that it is likely that all of the matters that will be CAMs are already being discussed with the audit committee. However, not every topic that is discussed with the audit committee will rise to the level of a CAM. The PCAOB Board believes there should not be a chilling effect or reduced communications to the audit committee because the requirements for such communications are not changing.

Could a significant deficiency in internal control be a CAM?

The determination that there is a significant deficiency in internal control over financial reporting cannot be a CAM because such determination in and of itself is not related to an account or disclosure. However, a significant deficiency could be among the principal considerations that led the auditor to determine a matter is a CAM. For example, if a significant deficiency was among the principal considerations in determining that revenue recognition was a CAM, then the auditor could describe the relevant control-related issues over revenue recognition in the broader context of the CAM without using the term "significant deficiency."

Will CAMs only relate to the current audit period?

The PCAOB requires the communication of CAMs identified in the current audit period. While most companies' financial statements are presented on a comparative basis, requiring auditors to communicate CAMs for the current period, rather than for all periods presented, will provide relevant information about the most recent audit and is intended to reflect a cost-sensitive approach to auditor reporting. In addition, investors and other financial statement users will be able to look at prior years' filings to analyze CAMs over time; however, the standard permits the auditor to choose to include CAMs for prior periods.

Will the auditor be the original source of information about the company in the auditor's CAM communication?

The new standard includes a note explaining that the auditor is not expected to provide information about the company that has not been made publicly available by the company, unless such information is necessary to describe the principal considerations that led the auditor to determine that a matter is a CAM or how the matter was addressed in the audit. The SEC has stated that they believe that situations where auditors would be required to provide information about the company that management has not already made public would be exceptions, arising only in limited circumstances, and not a pervasive occurrence.

What impact are CAMs expected to have on financial reporting?

Increased attention on CAMs could result in an incremental focus on aspects of management's related disclosures. This could result in discussion between and among management, the audit committee, and the auditor on how CAMs are described, and that may have an impact on management's consideration of the information to disclose in the financial statements related to that particular matter. Early dialogue among auditors, management, and the audit committee will be important.

These questions and much more are covered in a new publication from the Center for Audit Quality (CAQ), Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Other Users of Financial Statements. I invite you to read that report and to find more resources on auditor reporting at the CAQ website.


A securities lawyer, Cindy Fornelli has served as the Executive Director of the Center for Audit Quality since its establishment in 2007.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 7/30/2018 Mailto Link Identification Number: 1627
Frequently Asked Questions
  Meet the Architects of Nasdaq's Next Generation of Regulation
Identification Number 1622
Meet the Architects of Nasdaq's Next Generation of Regulation
Publication Date: July 16, 2018

Nasdaq is looking forward to the next generation of regulatory technologies and processes that will enhance the integrity and transparency of the markets of the future. In order to ensure it fully leverages its regulatory expertise, Nasdaq is reorganizing its various compliance functions under one umbrella: Nasdaq Regulation.

We recently spoke with Nasdaq Senior Vice President, John Zecca, who is leading this initiative, to find out how this new framework will benefit investors and listed companies.

Q: Why is Nasdaq consolidating its regulatory functions under one umbrella?

A: Regulation has been an integral part of Nasdaq since we introduced electronic trading to the capital markets in 1971. Companies list with us, and investors have confidence in us, because they trust the integrity of our markets. Integrity and transparency in capital markets foster confidence with investors and issuers, deter bad actors and accelerate growth.

This reorganization will elevate our regulatory group to make it easier for Nasdaq's listed companies and investors to reach out with questions, concerns, or tips. We are making it clear to bad actors that our first priority is ensuring the integrity of our markets for issuers and investors—that we are watching and prepared to take action if necessary.

Innovation is also core to Nasdaq's brand, and we are positioning Nasdaq's regulatory team to become the architects of the next generation of regulation. The capital markets are evolving every day: new listing products are in development and technology is transforming transaction and surveillance models. By creating a more cohesive regulatory team structure, we can leverage all of our expertise to better focus on regulatory strategic planning.

Q: How is Nasdaq's regulatory function going to evolve with this reorganization?

A: We made the conscious decision years ago to separate Nasdaq's regulatory programs from its business operations to minimize the potential for conflicts of interest—both real and perceived. That separation will continue going forward.

Nasdaq currently operates seven self-regulatory organizations (SROs) in the United States and we believe there is much to be gained from a more holistic approach to regulation. By virtue of this new framework, our team will have additional opportunities to work more closely together - to share ideas, concerns, and insights - and to ensure that there is no knowledge gap across our markets.

In keeping with Nasdaq's identity as a technology innovator, our regulatory technologists will continue to be critical to the integrity and smooth functioning of our markets. As markets become more automated, technologists become as integral to regulation as lawyers, economists, and accountants. Nasdaq recognized this early on. In fact, Nasdaq was the first market to implement an ongoing internal regulatory testing program to ensure our trading platforms were in compliance with new rules and regulations.

Q: How is the newly-reorganized Nasdaq Regulation team going to benefit investors and companies trading on Nasdaq exchanges?

A: By working more closely together, we will give our SRO regulatory teams more exposure to, and a better understanding of, all facets of Nasdaq's regulatory program. In bringing our regulatory teams and functional areas together, our regulatory team becomes more efficient and more collaborative, and they can focus on regulatory concerns for the future, while staying ahead of the game on technology. We will become smarter and better-informed regulators.

We are also bringing greater visibility of our regulatory group to the public, to act as a deterrent to bad actors. It will be easier for companies and investors to contact the right people with concerns or tips. In fact, anyone with tips or concerns about conduct occurring on our markets should call our new Investigations and Enforcement Hotline at +1 301 978 8310 or email our Investigations and Enforcement Team at

Q: How else will this reorganization benefit regulation?

A: By giving our regulatory team broader exposure, I want to enable us to think more strategically and focus on new and emerging risks. As the markets are evolving, as new listing products are developed, we've got to change with the times. I want the team to think about what surveillance will be like 10 years down the line: How will automation impact our markets? What do the markets of the future look like? By creating cross-functional teams, we can better leverage the vast resources and broad scope of talent within Nasdaq's regulatory arm.


John Zecca is Senior Vice President, General Counsel North America, and Head of Nasdaq Regulation for U.S. Markets. Mr. Zecca previously served as Nasdaq's senior corporate counsel and was responsible for public company compliance and mergers and acquisitions. He is a frequent speaker on market regulation and corporate governance. Prior to joining Nasdaq, Mr. Zecca served as legal counsel to an SEC Commissioner and in the SEC's Office of General Counsel.

Publication Date*: 7/13/2018 Mailto Link Identification Number: 1622
Frequently Asked Questions
  Non-GAAP Measures: Questions and Insights
Identification Number 1511
Non-GAAP Measures: Questions and Insights
Publication Date: April 9, 2018

Cindy Fornelli is the Executive Director of the Center for Audit Quality (CAQ).

The use of financial measures that do not conform to US Generally Accepted Accounting Principles (GAAP) has long been the subject of debate—even controversy. While it has ebbed and flowed over the years, this discussion is unlikely to disappear.

Consistent with its mission to convene and collaborate with stakeholders to advance the discussion of critical issues, the CAQ held a series of 2017 roundtable discussions regarding the presentation and use of non-GAAP measures—and the opportunities to enhance trust and confidence in this information. Each roundtable was attended by approximately 20 to 25 individuals including audit committee members, management, investors, securities lawyers, and public company auditors. Because the presentation and use of non-GAAP measures can vary from industry to industry, each roundtable focused on a specific industry: pharmaceutical, real estate, and technology.

These events each began with a set of key questions, on which participants provided no shortage of insights. We have published a full report, Non-GAAP Measures: A Roadmap for Audit Committees, on the roundtables' findings, as well as a companion video that provides additional context and real-life examples of how audit committees are thinking about non-GAAP measures.

Here, we provide some high-level key themes.

Why is GAAP so important?

No discussion of non-GAAP measures can take place without a discussion of GAAP itself. At the roundtables, participants made clear that they view the GAAP information as the "bedrock" or "starting point" for the financial information that companies present. GAAP, they said, provides a useful baseline that offers comparability from one company to the next.

If GAAP is the bedrock, why do companies present non-GAAP measures?

Participants were asked to share their views on what drives the presentation and use of non-GAAP measures. Several common themes emerged from the discussion.

  • Demand from investment analysts: Participants shared that requests from investment analysts are often a primary reason company management chooses to present a non-GAAP measure. Investment analysts find that non-GAAP measures help them better understand the company's underlying business performance or forecast the company's long-term value in their proprietary models.
  • Desire to tell the company's story: Participants also acknowledged, however, that company management does not present non-GAAP measures solely for investment analysts. Rather, non-GAAP measures can be a tool to help tell a company's story and provide users of the information with insight into how management evaluates company performance internally. In some cases, non-GAAP measures are also an input into how the company compensates employees for company performance.

What are top challenges related to non-GAAP measures?

Participants acknowledged that non-GAAP measures present challenges to certain stakeholders in the financial reporting supply chain.

  • Investors are challenged by the lack of consistency in the calculation of non-GAAP measures from one company to the next. Such irregularity makes it difficult for non-GAAP measures to be compared across companies—even within the same industry. It also can be a challenge for end-users to know whether the performance reported by the press is a GAAP measure or a non-GAAP measure.
  • Management representatives indicated that they spend a significant amount of time (1) discussing what information to include in or exclude from non-GAAP measures they present, and (2) making sure the information is presented fairly and disclosed transparently.
    Audit committees noted that their challenges related to non-GAAP measures tend to be an extension of management's challenges. Audit committees want to understand the reason the company is presenting the measure, and the roles and responsibilities of those involved with the information, including company personnel (e.g., finance and internal audit) and the external auditor. Further, they want to know how the company's non-GAAP measures compare with the information presented by peer companies.

To address challenges, should non-GAAP measures be standardized?

Not necessarily. Representatives from management at all of the roundtables indicated that standardization may limit their ability to tell their companies' story.

The real estate industry makes use of a supplemental standardized non-GAAP measure: funds from operations (FFO). The FFO measure, which was defined by Nareit, is in widespread use and is recognized by the Securities and Exchange Commission. That said, in addition to reporting Nareit defined FFO, companies report various forms of FFO (e.g., adjusted FFO, normalized FFO, company FFO). So even within one industry that has agreed on a standardized non-GAAP measure, there are still variations on how it is reported.

Why is dialogue so important around non-GAAP measures?

Participants emphasized the significant judgment involved in determining how to treat a one-time transaction or event in non-GAAP measures, and they agreed that company management and audit committees strive to execute good judgment when making these decisions. To that end, many companies have enhanced the rigor of their presentation and disclosure of these metrics.

There was consensus among participants that audit committees can promote rigor related to non-GAAP measures by having a dialogue with company management as well as internal and external auditors. Among other things, this dialogue can help the audit committee to set clear expectations regarding the roles and responsibilities—relative to non-GAAP measures—of each member of the financial reporting supply chain.

What is the external auditor's non-GAAP role?

In a nutshell, the external auditor's opinions on the company's financial statements and, when required, the effectiveness of the company's internal control over financial reporting (ICFR) do not cover non-GAAP measures. Professional auditing standards indicate that the auditor should read non-GAAP measures presented in documents containing the financial statements (such as annual and quarterly reports) and consider whether non-GAAP measures or the manner of their presentation is materially inconsistent with information appearing in the financial statements or a material misstatement of fact.

Though external auditors do not audit non-GAAP measures as part of the financial statement or ICFR audits, audit committees and management may consider leveraging the external auditors as a resource when evaluating non-GAAP measures.

How can the audit committee enhance its non-GAAP role?

At the roundtables, there was wide recognition of the benefits of increased audit committee oversight and involvement with non-GAAP measures. The CAQ's full roundtable report offers audit committees insights on the way forward. It is available free of charge at the CAQ website.


Also from the CAQ see Preparing for the Leases Accounting Standard: A Tool for Audit Committees. This tool is designed to help audit committees exercise their oversight responsibilities as companies implement the new lease accounting standard, which will begin to take effect in January 2019.


A securities lawyer, Cindy Fornelli has served as the Executive Director of the Center for Audit Quality since its establishment in 2007.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 4/9/2018 Mailto Link Identification Number: 1511
Frequently Asked Questions
  Revitalize Biotech with these 5 Policy Initiatives
Identification Number 1509
Revitalize Biotech with these 5 Policy Initiatives
Publication Date: April 3, 2018

In this post, Charles Crain of the Biotechnology Innovation Organization (BIO) highlights five legislative and regulatory reforms that he believes would address some of the principal challenges facing biotech companies that go public. Notably, several of these proposals are modest revisions to existing SEC rules and federal legislation, including the JOBS Act. These proposed reforms are consistent with Nasdaq's comprehensive blueprint for stronger, more robust public markets: The Promise of Market Reform: Reigniting America's Economic Engine.

1. Bring transparency to short seller positions

Biotech companies, many in the pre-revenue phase, are easy targets for short sellers. That's primarily due to a lack of liquidity in their stocks and blinded FDA clinical studies that make it easy to circulate false information in the market to drive down stock prices. This includes a new spurious breed of short sellers who initiate patent challenges for the sole purpose of driving the stock price down to make money. This disturbing behavior is highly damaging to industries that are based on intellectual property—like biotech.

BIO has been working with Nasdaq to advocate for increased transparency around short selling positions, which would help inform the market and prevent biotech companies from being taken advantage of by investors who don't have the best interest of long-term investors (and patients of these potentially life-saving drugs and therapies) at heart.

2. Establish SEC oversight of proxy advisory firms

Proxy advisory firms have developed an outsized market influence over biotech companies, relative to their theoretical mission. These firms claim they're only providing recommendations to investors, but what they're actually doing is inserting their own judgment over investors, company management, and corporate boards in terms of how companies should be run.

In an industry like biotech, which has a unique business model that isn't directly comparable to other industries, these one-size-fits-all recommendations can be misleading to investors and damaging to the companies themselves.

BIO and Nasdaq both support the Corporate Governance Reform and Transparency Act, a bi-partisan bill that has already passed the House of Representatives. This bill provides for SEC oversight of proxy advisory firms, and BIO believes it will help reduce conflicts of interest and allow investors to make informed proxy voting decisions.

3. Allow pre-revenue small businesses to maintain SOX 404(b) exemption for 10 years

External auditing of a company's internal controls, as required by SOX 404(b), is expensive for small businesses, potentially costing upwards of $500,000 annually. That money could otherwise be spent on life-saving R&D, and given the simple business model and straightforward corporate structure of small biotech firms, the benefits don't justify the costs. These companies typically have 30 or 40 employees, almost all of whom are scientists, so there's not much complicated financial maneuvering going on; clinical trial results and scientific data are more material concerns.

The JOBS Act was tremendously helpful to the biotech industry; more than 250 emerging biotech companies relied on provisions in the law to help them go public. This compares to just 55 biotech IPOs in the five years before passage of the JOBS Act. The positive impact of this legislation was due in part to the five-year exemption from the SOX 404(b) external auditing requirements granted to emerging growth companies. However, it can take upwards of 15 years to develop a biotech drug, not five, so the cost burden of external auditing is still going to hit some companies in their pre-revenue phase.

BIO has endorsed the Fostering Innovation Act, a bi-partisan legislative solution to reduce the cost of auditing internal controls. The Fostering Innovation Act extends the five-year exemption to 10 years for certain pre-revenue companies. Given that it's a very targeted piece of legislation (only the smallest of companies are still pre-revenue at year six), we have been able to get strong congressional momentum behind this solution, which has already passed the House.

4. Expand the SEC's definition of "non-accelerated filer"

The SEC's non-accelerated filer definition, which scales compliance requirements for small businesses (including a SOX 404(b) exemption), is presently limited to companies with a public float below $75 million. In BIO's view, that limit is too low: a 20 or 30-person biotech may be valued as high as $150-$200 million. That doesn't mean such a company actually has $200 million sitting in their bank account to be spending on Section 404(b); it means their investors are optimistic about the company's potential to fight devastating diseases one day in the future.

BIO is working with the SEC, as well as allies like Nasdaq, to expand the definition of a non-accelerated filer to allow companies with a public float below $250 million to qualify, and to add a revenue component that exempts pre-revenue companies from SOX 404(b) compliance. This will allow pre-revenue companies to focus investor funds on R&D, instead of external auditing that doesn't provide additional value to investors.

Based on the SEC's initial analysis, there are 782 additional public companies that would be added to the universe of non-accelerated filers if the public float limit was raised from $75 million to $250 million. Assuming each of these companies spent on average of $500,000 per year in external auditing, expanding the definition would divert nearly $400 million from compliance to R&D and business development. On the flip side, investor exposure is minimal. If the SEC makes this small, technical change to the definition, only 0.03% of the total float in the market would be exempted from SOX 404(b) compliance via the non-accelerated filer exemption.

5. Implement tax code reforms that incentivize investment in pre-revenue innovators

While 90% of BIO's membership is in the pre-revenue phase, the remainder are revenue-generating companies that have long been hamstrung by high corporate tax rates in the U.S. BIO member companies were therefore very pleased that Congress was able to lower the corporate rate, move to a territorial system, and maintain the R&D credit in the Tax Cuts and Jobs Act. The reduction in the corporate rate will allow those companies more capital to invest in R&D in the United States, and create opportunities to pursue partnerships and mergers with smaller biotech businesses (which is often how smaller biotech companies fund the next stage in their research).

More could be done, however. There are tax policy levers that Congress can pull on the pre-revenue side to incentivize innovation for these small businesses and pre-revenue companies, including investor-side incentives and rules to help companies better utilize net operating losses (NOLs) and/or R&D credits, neither of which pre-revenue companies can use because they don't have a tax liability to offset. For example, BIO supports allowing a small R&D company's NOLs to be carried forward after a financing round or M&A event, rather than being limited by Section 382 of the tax code. We also want to make sure the qualified small business stock rules in Section 1202 work as effectively as possible to attract investors to growing biotechs via the Section's 100% capital gains exclusion.

For more information, read Nasdaq Talks to Congressman Sean Duffy and Vitae Pharmaceuticals' CEO Jeff Hatfield about Proxy Advisor Legislation and Short Selling Transparency >>


Charles Crain is the Director of Tax & Financial Services Policy at the Biotechnology Innovation Organization (BIO). Charles's portfolio includes capital markets, securities, accounting, and tax policies that impact BIO's member companies, including the JOBS Act, legislation to enhance capital markets access for emerging companies, market structure reform, decimalization and tick size, and small company auditing standards. Charles serves as BIO's representative to the Equity Capital Formation Task Force and the SEC Government-Business Forum on Small Business Capital Formation.

BIO is the world's largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers, and related organizations.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 4/3/2018 Mailto Link Identification Number: 1509
Frequently Asked Questions
  Five Things Your Company Can Do Now to Prepare for GDPR
Identification Number 1499
Five Things Your Company Can Do Now to Prepare for GDPR
Publication Date: March 1, 2018

Enforcement of the EU's General Data Protection Regulation (GDPR) begins in just a few months on May 25th of this year. Consistent with the EU's approach to privacy as a "fundamental human right," the regulation requires businesses established outside of the EU to protect personal data and individuals' privacy rights when offering goods and services in the EU or monitoring the behavior of EU citizens. Companies that fail to comply face steep fines (up to four-percent of total "turnover" or revenue). The business case for compliance with GDPR goes beyond fines from the EU: Poor data security can costs businesses dearly in terms of data breach mitigation costs as well as consumer confidence and trust.

Time is running out for U.S. companies transacting business in the EU to become "GDPR ready," but given that the GDPR leaves much to interpretation, the exact requirements of the law are likely to evolve over time. Michael Kallens, Associate General Counsel, Ethics and Compliance at Nasdaq, shares practical advice for companies in the midst of ensuring their privacy programs meet GDPR's and EU regulator expectations.

1. Think of May 2018 as milestone, not a deadline.

GDPR is a standards and principles-based law, rather than prescribing precise technical requirements. Formal guidance from the EU is pending on many fronts, so there is a great deal of uncertainty about what exactly the law requires, how it will be interpreted, and how it will be enforced.

As companies prepare to meet the regulation's enforcement date of May 25, it's important to remember that an entire eco-system will impact how this law is applied. This includes:

  • Enforcement and audits (which will not occur until after May 2018);
  • National laws implementing the GDPR, which can add or vary requirements in the regulation;
  • Intersection of the GDPR with other laws, such as MiFID2, ePrivacy, and employment laws;
  • General best practices and industry-specific best practices;
  • Customer requirements, especially if the company is a processor, in the B2B space or delivering services to large multi-national companies;
  • Actions by public interest groups;
  • Shareholder expectations; and
  • Events including privacy incidents, hacks, and data mishandling.
Even if a company has put in place compliance measures to meet core elements by May, it will need to adjust the program and monitor for any changes as the initial enforcement actions and cases alleging non-compliance will bring more clarity to how obligations will be applied in practice.

2. Prioritize, plan and get buy-in.

When developing the plan to become compliant with GDPR, consider all the necessary stages of rollout: outreach to build initial awareness, baselining compliance program and identifying improvements, operationalizing enhancements, and maintaining continuing compliance. A project of this magnitude requires a formal project manager in addition to subject matter experts to allocate work, manage tasks and provide rigor and accountability around the effort. The project needs to include a clear transition point where the effort will convert from a "project" to an ongoing, operational compliance program that will continue indefinitely.

Consider the following when prioritizing compliance activities and/or enhancements:

  • Tasks with long lead times or dependencies like programming or system changes;
  • Changes to core business processes (as opposed to minor adjustments or changes to contingent/ancillary processes);
  • Processes like data mapping that involve data calls, which always take a longer time to complete than estimated;
  • Regulatory impacts particular to your company's industry, including requirements needed to comply with customer commitments or continue to deliver services; and
  • Opportunities for privacy to be incorporated with other change efforts (e.g., existing projects to improve information security or data governance).
Once the plan comes together, buy-in and continued engagement from senior executives is critical to ensuring the plan will be adhered to and necessary decisions are escalated to the right level.

Companies should not try to do everything at once but rather prioritize based on needs and risk. During the awareness phase of the project, publicize the project plan, including the calendar for implementation. A good outreach and awareness effort will provide details to the departments and functions that will be involved in compliance, while simultaneously communicating how the project will be staged so the teams know when requirements relevant to them will be addressed.

3. Build out the implementation team and delegate.

Responsibility for building up to compliance with the GDPR should be distributed throughout the organization, with leads reporting to a central project team and supported by compliance – not compliance doing everything for everyone. Any enterprise of significant size will need to establish a formal project management structure using well-established governance practices for significant change management projects, including a steering committee, a project manager following project management discipline, subject matter experts, and work streams with assigned leads.

The GDPR will affect virtually every type of professional discipline supporting the organization, including HR, marketing, audit, law, and finance. Professional organizations in each of these disciplines are setting up forums and crafting best practices to support compliance. Corporate compliance should encourage project leads within these various disciplines to be engaged with their professional associations to gather best practices and remain informed. It is important to ensure that the project does not become a "legal project" or an "information security program" as success is dependent on engagement in all departments throughout the organization.

Beyond what the law requires, companies serving as data processors need to consider the legal obligations that GDPR introduces directly on the data processors as well as customer requirements and market practices of competitors. To help account for this, sales and account management teams should also be involved.

4. Document, document, document.

A core tenant of privacy compliance is to "say what you do and do what you say" regarding personal data handling. With GDPR, contemporaneous documentation of how customer data is being handled within the organization is critical. A key update to the law is maintaining a record of processing regarding each type of personal data used by the organization. Documenting processes is a tedious task, but one that requires assigned responsibility to ensure it is completely in a timely manner and consistently maintained. Companies should consider requiring key business owners to certify to the accuracy of their portions of the record of processing similar to how they certify compliance with SOX requirements.

5. Account for cultural challenges to compliance.

A company's culture can have greater impact than policies and procedures on compliance; therefore, any GDPR compliance program needs to account for the culture of the organization. Consider whether the company is a "hoarder of information," "asks forgiveness rather than permission when innovating" and other ways corporate culture may impact data privacy compliance. And as with any major change, a plan to build to compliance with the GDPR should consider ways to influence the levers of change within the organization. Any such change should look to build on the strengths of the culture to achieve compliance.

Learn more about Nasdaq BWise and how BWise can support your organization with all aspects of GDPR compliance >>


Michael Kallens is an Associate General Counsel in Nasdaq's Office of General Counsel and a senior member of Nasdaq's Global Ethics and Compliance Team. Michael has led industry working groups on developing best practices for corporate ethics programs and is a frequent speaker on ethics and compliance topics. In 2014, he received the Outstanding In-House Counsel Award from the Association of Corporate Counsel-National Capital Region for his work in the area of corporate ethics and compliance.

Publication Date*: 3/1/2018 Mailto Link Identification Number: 1499
Frequently Asked Questions
  Nasdaq Proposes to Modify Shareholder Approval Rules
Identification Number 1494
Nasdaq Proposes to Modify Shareholder Approval Rules
Publication Date: February 21, 2018 

During 2016 and 2017, Nasdaq solicited comments from, and held discussions with, market participants regarding whether, given the changes in the capital markets over the past 30 years, Nasdaq could update its shareholder approval rules to enhance the ability for capital formation without sacrificing investor protections. Based on the feedback received, and Nasdaq's experience, Nasdaq has proposed to amend its rules to: (i) change the definition of market value for purposes of the shareholder approval rules from the closing bid price to the lower of the closing price or the average closing price of the common stock for the five trading days immediately preceding the signing of the binding agreement; and (ii) eliminate the requirement for shareholder approval of issuances at a price less than book value but greater than market value.

The Securities and Exchange Commission is seeking comments on this proposal. We encourage all interested parties to review the detailed description of these proposed changes in our rule filing and provide comments to the SEC before March 13, 2018.

Read the proposed rule change in the Federal Register >>

Submit a comment on SR-NASDAQ-2018-008 >>
Publication Date*: 2/21/2018 Mailto Link Identification Number: 1494
Frequently Asked Questions
  Enhancing Transparency in Regulation
Identification Number 1480
Enhancing Transparency in Regulation
Publication Date: January 10, 2018 

At Nasdaq, we believe transparency of our Listing Rules, policies and procedures results in fairer and more effective regulation. To this end, in 2012, Nasdaq created the Listing Center's Reference Library, which today houses more than 400 frequently asked questions about listing matters, 100 anonymized versions of appellate listing decisions and 350 written Staff interpretations of the Listing Rules. To reinforce the critical role transparency plays in our regulatory program, we continue to develop and enhance the utility of our Listing Center's Reference Library website and expand the information available through this free web portal.

It is with this in mind that Nasdaq Staff, in conjunction with the Nasdaq Listing Hearing and Review Council, developed the Listing Qualifications Transparency Report. This report includes anonymized information regarding the facts and circumstances that prompted Listing Qualifications Staff and Hearings Panels to exercise the discretion afforded by the Listing Rules to impose additional or more stringent criteria or to shorten time frames otherwise available to companies. It also describes instances when, following Listing Qualifications Staff review of certain share issuances, listed companies made significant changes to their transactions. We believe that sharing this information helps companies better understand how Nasdaq applies its listing rules, which helps companies and their advisors better comply with those rules. It is our expectation that we will prepare this report annually. We look forward to your comments, which can be emailed to us at

View the Transparency Report Here >>
Publication Date*: 1/10/2018 Mailto Link Identification Number: 1480
Frequently Asked Questions
  Nasdaq MarketWatch: Making Market Surveillance SMARTer
Identification Number 1263
Nasdaq MarketWatch: Making Market Surveillance SMARTer
Publication Date: October 7, 2016

In order to keep pace with sophisticated trading technology and manipulation techniques being used to gain a trading advantage, trading venues need the same level of sophisticated tools as trading professionals. For exchanges, the ability to maintain a fair, transparent and safe market is critical to attracting liquidity. Proven at over 50 marketplaces and regulators, SMARTS Market Surveillance is an industry benchmark for real-time and T+1 solutions for market surveillance, supervision and compliance. Nasdaq MarketWatch leverages Nasdaq’s own SMARTS technology to power surveillance on multiple exchanges around the world. In addition to its exchange and regulator audience, SMARTS surveillance solutions also power surveillance for over 120 market participants and 139+ markets.

Q:  What is SMARTS? 

A: SMARTS Market Surveillance leverages 20+ years of expertise from working with a wide range of needs – from simple to complex – to provide organizations with a robust platform to manage cross-market, cross-asset, multi-venue surveillance. The technology has powerful visualization tools to simplify the monitoring process by distilling complex information into a single snapshot that provides clear guidance on where to focus an investigation. Additionally, the technology correlates real-time and historical data with detection patterns to ensure early detection of unusual trading patterns that could be potential breaches of exchange trading rules and practices.

Q:  How does SMARTS benefit investors?

A: The graphical visualization tools that SMARTS provides help market surveillance analysts monitor the market in order to detect and prevent market manipulation and keep the market fair for all investors. SMARTS technology allows analysts to investigate specific time periods when trading occurred by distilling thousands of data points into an intuitive visualization that can pinpoint trading activities down to the millisecond. This allows for making a fair and equal assessment of all trading made by market participants.

Tools available for a surveillance analyst include graphical displays of trading activity, order book replays, market maker monitoring, market overview and statistical evaluation, data mining etc.

Q:  What is the future of SMARTS and market surveillance?

A: The future in market surveillance lies within market intelligence and machine learning. Instead of an analyst working through piles of data and sorting out false positives versus real indicators of market manipulation, the solution infrastructure will contain an intelligent machine that has pre-sorted and added logic to the alerts and the data, based on historical observations and patterns. This will highly improve the effectiveness of market surveillance and introduce more opportunities to include profiling of behavior and market participants into surveillance patterns. The future of market surveillance is evolving to meet the ongoing change in investor behavior and to adapt to new attempts to manipulate the market.


Learn More about Nasdaq’s state-of-the art market surveillance in this Dow Jones story >>

Publication Date*: 10/10/2016 Mailto Link Identification Number: 1263
Frequently Asked Questions
  SEC Guidance on Pay Ratio Disclosure Rules
Identification Number 1273
SEC Guidance on Pay Ratio Disclosure Rules
Publication Date: October 26, 2016

The SEC recently released five Compliance & Disclosure Interpretations regarding the upcoming company pay ratio disclosure rules. These rules require companies to provide disclosure of their pay ratios for their first fiscal year beginning on or after Jan. 1, 2017. For most companies with a fiscal year that ends on December 31, the initial pay ratio disclosure must be included in the 2018 proxy statement using 2017 compensation.

Read more from the SEC >>
Publication Date*: 10/26/2016 Mailto Link Identification Number: 1273
Frequently Asked Questions
  Nasdaq Petitions SEC for Short Position Disclosure
Identification Number 1211
Nasdaq Asks SEC for Short Position Disclosure
Publication Date: December 9, 2015

On December 7, 2015, Nasdaq filed a petition asking the SEC to adopt rules to require public disclosure by investors of short positions in exact parity with the disclosure requirements currently applicable to long investors, including the timing for such disclosure and when updates are required. In Nasdaq’s view, this is a much needed improvement to transparency around short positions.

Among other benefits, enhanced transparency will: (1) provide companies with insights into trading activity to help them engage with market participants and (2) give investors information to help them make meaningful investment decisions -- all of which enhance market efficiency and fairness.

Read the full petition >>

Publication Date*: 12/9/2015 Mailto Link Identification Number: 1211
Frequently Asked Questions
  How Exchanges Regulate Short Sales?
Identification Number 1191
How Exchanges Regulate Short Sales
Publication Date: November 18, 2015

While short selling is generally legal, abusive short sale practices, including short sales affected to manipulate the price of a stock, are prohibited. The Securities and Exchange Commission and the Listing Exchanges regulate short selling through Regulation SHO.

Rule 201 of Regulation SHO is designed to prevent short selling in a security that has already experienced a significant intra-day price decline. In this manner, Rule 201 prevents further downward pressure on the security from short selling and allows long holders to sell first in the event of such a decline. Listing Exchanges, including Nasdaq, implement Rule 201.

What does Rule 201 of Regulation SHO require?

Rule 201 generally prohibits a trading center from executing or displaying a short sale order of an Exchange-listed security at a price that is less than or equal to the current national best bid price, if the price of that security has decreased by 10% or more from the prior day’s closing price.

How does Rule 201 of Regulation SHO operate for Nasdaq-listed securities?

Nasdaq systems enforce Rule 201 for Nasdaq-listed securities. If a Nasdaq-listed security has decreased by 10% or more from the prior day’s closing price, Nasdaq systems prevent the security from being sold short for the reminder of that day and until the close of trading on the next trading day.

If Nasdaq determines that the prior day’s closing price for a listed security was incorrect in the system and resulted in an incorrect determination of the trigger price, Nasdaq may correct the prior day’s closing price and lift the short sale prohibition before the end of that time period.

Similarly, if Nasdaq determines that the short sale prohibition was triggered because of a clearly erroneous execution in the security, Nasdaq may also lift the prohibition before the end of that time period.

What reference price does Nasdaq use to calculate the short sale prohibition?

Nasdaq systems calculate the Short Sale prohibition based upon the prior day’s closing price. If a security did not trade on Nasdaq on the prior trading day (such as due to a trading halt, trading suspension or otherwise), the prohibition will be based on the last sale on Nasdaq for that security on the most recent day on which the security traded.

In the case of a new security offering, such as an IPO, there will not be a closing price for the prior day and, thus, the Short Sale prohibition will not apply until the second day of trading.

How Does Nasdaq monitor for short sale violations?

Nasdaq MarketWatch monitors all trading that takes place on the Nasdaq exchanges. MarketWatch reviews stocks that are subject to short sale restrictions to establish that the restriction was triggered correctly and to investigate the reason for the decline in the stock. MarketWatch may contact the company for assistance in this investigation. If a company receives a call from Nasdaq MarketWatch, the company can always call MarketWatch back at the published phone number available on to verify that the call came from Nasdaq.

Who can I talk to about short selling restrictions?

Companies with questions about short selling in their securities can contact Nasdaq MarketWatch at +1 800 537 3929 or at +1 301 978 8500. In appropriate situations, MarketWatch will work with FINRA to review short selling activity.

Where can I obtain more information about Regulation SHO?

More information about Regulation SHO is available at:

Publication Date*: 11/18/2015 Mailto Link Identification Number: 1191
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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