Friday, July 13, 2012

Commission Publishes Listing Standards Guidance for Small Entities

The SEC has issued guidance for small entities complying with the newly adopted compensation committee independence standards. Exchange Act Rule 10C-1, adopted June 20, 2012, implements Dodd-Frank Act Section 952, which required the Commission to adopt rules directing the national securities exchanges and associations to adopt or amend their listing standards to mandate that a listed issuer’s compensation committee members be directors and independent. The listing standards release also amended Item 407(e)(3) of Regulation S-K to require listed issuers to make disclosures about compensation consultant conflicts of interest.

The SEC’s guidance reiterates that small entities that do not fall within the definition of smaller reporting company, and whose equity securities are listed on an exchange, generally must comply with the listing standards in Exchange Act Rule 10C-1. Compliance with the listing standards would be required to maintain an exchange listing.

Rule 10C-1 exempts smaller reporting companies (as defined in Exchange Act Rule 12b-2) as well as limited partnerships, firms in bankruptcy proceedings, registered open-end management investment companies, and foreign private issuers that disclose the reasons for lacking an independent compensation committee in their annual reports. The exchanges may exempt other categories of issuers. In creating these additional exemptions, the exchanges must consider relevant factors, including the potential impact of the requirements on smaller reporting issuers.

Rule 10C-1 and related amendments are effective July 27, 2012 (the guidance says July 28, 2012, but Release 33-9330 says July 27, 2012, See 77 FR 38422). Exchanges must propose new or amended listing standards by September 25, 2012. Final listing standards adopted by the exchanges must be approved by the Commission by June 27, 2013 (Release 33-9330 originally said June 27, 2012, but the Federal Register later corrected the date to read June 27, 2013, See 77 FR 39390). Companies must comply with amended Item 407(e)(3) of Regulation S-K in any proxy or information statement for an annual shareholders’ meeting (or special meeting) to elect directors that occurs on or after January 1, 2013.