Discretionary Authority

Rule 5101:  Nasdaq has broad discretionary authority over the initial and continued listing of securities in Nasdaq in order to maintain the quality of and public confidence in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.

Issue:  Was the Hearings Panel correct to affirm delisting of the Company’s securities pursuant to discretionary authority under Rule 5101?

Determination:  Affirm the decision to delist the Company.

The Council agreed that resumption of trading in the Company’s securities poses a serious threat to U.S. investors given the Executive Order applicable to the Company’s securities, which prevents any U.S. investor from purchasing the securities.  The Council believed that by preventing prohibited purchases and avoiding violations of U.S. sanctions against Russia, delisting of the Company’s securities would further protection of investors and the public interest.

In addition, the Council noted that a long-term continuation of the trading halt could mislead the investing public by signaling a level of comfort with the Company despite the Exchange’s concerns about the Company’s deep-rooted ties with Russia, tradability of the Company’s securities, impact of the sanctions on the Company, and lack of a plan that would enable trading to resume. The Council agreed with the Panel and Staff that the listing of securities on an exchange is derivative of the ability to trade those securities and that maintaining a listing for a security for a long period in a trading halt, without the ability for purchasers and sellers to come together with respect to that security, where there is no identified solution to allow trading to resume, is inconsistent with the role of an exchange. The Council noted that there did not appear to be a clear end in sight in terms of the sanctions or conflict nor had the Company presented a plan that would enable trading to resume. The Company continued to have substantial and unmitigated ties to Russia.

The Council was not convinced by the Company’s argument that leaving the securities in a trading halt is more in line with U.S. policy goals, allowing investors more time to divest from the investment. The Council noted that U.S. policy goals favor disentangling with and exiting investments in Russia, which the Council believed would be furthered by delisting of the Company’s securities. Moreover, the SEC has held, that in connection with delisting decisions “[t]hough exclusion from [Nasdaq] may hurt existing investors, primary emphasis must be placed on the interests of prospective future investors.”

The Company asserted that there were no allegations of misconduct by the Company, its officers, directors and significant shareholders and that it is unaware of any company that met all listing requirements being delisted under Nasdaq Listing Rule 5101 in the absence of any allegations of misconduct. However, the Exchange’s broad discretionary authority under Nasdaq Listing Rule 5101 is not limited to circumstances involving misconduct by a company or individuals associated with a company. Nasdaq Listing Rule 5101 was drafted broadly to enable Nasdaq to address a variety of circumstances that may arise over time which counsel against continued listing. Certainly, it is reasonable to believe that one such circumstance would be the need for Nasdaq to comply with U.S. laws and policies that govern its activities, including sanctions laws and policies.

Together, the failure of the Company to develop a plan to mitigate public interest concerns related to its extensive ties with Russia, the lack of a clear end in sight regarding the sanctions and conflict, and Nasdaq’s role as an exchange all support affirmation of the decision. The Company failed to demonstrate that the delisting decision was based on the improper exercise of discretionary authority under Rule 5101. To the contrary, given the broad discretionary nature of Nasdaq Listing Rule 5101, the decision to delist the Company’s securities was a proper exercise of discretionary authority under Nasdaq Listing Rule 5101.