Listings Compliance FAQs for Companies

Updated as of September 19, 2018

The Investors Exchange LLC (IEX) listing requirements are contained in Chapter 14 of the IEX Rule Book. This document provides FAQs on select aspects of IEX’s listing rules, including corporate governance requirements,1 that may be of interest to IEX listed companies and applicants. Responses are intended to provide guidance on these requirements, but do not supersede the relevant rules.

For further information contact: IEX Regulation at regulation@iextrading.com or 646.343.2160.

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Board of Director Requirements

IEX Rule 14.405(b)(1) requires that a majority of the directors on a listed company’s board of directors must be Independent Directors, except for a Controlled Company (see FAQ 9) or a Foreign Private Issuer (see FAQ 10). A listed company must also have at least three directors on its board in order to comply with the audit committee requirements of Rule 14.405(c)(2).

Pursuant to Rule 14.405(a)(2) an Independent Director “means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. For purposes of this IEX Rule, "Family Member" means a person's spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person's home.” Rule 14.405(a)(2) provides more specific guidance on persons who are not considered independent. Please also see Supplementary Material .01 to Rule 14.405(a) which provides additional information regarding the definition of independence.

Rule 14.405(c) specifies audit committee requirements in three key areas – composition, responsibilities and authority, and charter requirements, including specified requirements mandated by Exchange Act Rule 10A-3. The requirements are applicable to IEX listed companies, subject to a limited exception for a company with a class of equity securities listed on another national securities exchange or association.2 Please see Rule 14.405(c) for more detailed information.

Rule 14.405(e) specifies that director nominees must either be selected, or recommended for the Board’s selection, either by independent directors constituting a majority of the Board’s independent directors in a vote in which only independent directors participate, or a nominations committee comprised solely of independent directors. IEX rules provide for several exceptions to this requirement, including for controlled companies (see FAQ 9) and foreign private issuers (see FAQ 8). Additionally, independent director oversight of director nominations is not required in cases where the right to nominate a director legally belongs to a third party.

Rule 14.405(d) specifies compensation committee requirements in three key areas – composition, responsibilities and authority, and charter requirements, including specified requirements mandated by Exchange Act Rule 10C-1. Controlled companies and smaller reporting companies are not subject to these requirements (see FAQ 9 for more detailed information on controlled company exceptions). Please see Rule 14.405(d) for more detailed information. Please see FAQ 8 for information regarding additional exceptions.

There are no rule-based restrictions, but listed companies should consider whether a particular person’s overall commitments would enable him or her to devote adequate time and attention to its board.

Yes, Rule 14.405(b)(2) requires that the independent directors have regularly scheduled meetings at which only independent directors are present (i.e., executive sessions). Supplementary Material .03 to Rule 14.405(b)(2) provides that the executive sessions should occur at least twice a year.

Exemptions

Yes, IEX Rule 14.407 sets for the exemptions from the corporate governance requirements for certain types of companies, as well as the phase-in schedule for initial public offerings, companies emerging from bankruptcy, companies transferring from other markets and companies ceasing to be Smaller Reporting companies. Certain specified exemptions are provided for controlled companies, asset- backed issuers and other passive issuers, certain cooperatives, Foreign Private Issuers, limited partnerships and management investment companies (including business development companies). Please see Questions 9 and 10 for more detailed information on the exemptions available to controlled companies and Foreign Private Issuers.

A Controlled Company is a Company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. See IEX Rule 14.407(c).

A Controlled Company is exempt from the majority independent board requirement of IEX Rule 14.405(b), except for the requirements of subsection (b)(2), which pertain to executive sessions of independent directors, and from the requirement for independent director oversight of executive officer compensation and director nominations, as set forth in IEX Rules 14.405(d) and 14.405(e), respectively. Please see Supplementary Material .05 to IEX Rule 14.407(c) regarding the Controlled Company Exemption.

A Controlled Company, other than a Foreign Private Issuer, relying upon such exemptions must comply with the disclosure requirements set forth in Instruction 1 to Item 407(a) of Regulation S-K regarding reliance on such exemptions. A Foreign Private Issuer is required to disclose in its annual report on Form 20-F or Form 40-F that it is a Controlled Company and the basis for that determination.

A non-U.S. listed company that qualifies as a Foreign Private Issuer under Rule 3b-4 of the Securities Exchange Act of 1934 listed on IEX may follow the practice in such company's home country (as defined in General Instruction F of Form 20-F) in lieu of certain IEX corporate governance provisions. Please see IEX Rule 14.407(a)(3) and Supplementary Material .03 to IEX Rule 14.407(a) for more detailed information on exemptions available to Foreign Private Issuers.

Deficiency Cure Periods

If a company fails to comply with the independent audit and compensation committees or majority independent board requirement due to one vacancy, or because one director ceases to be independent due to circumstances beyond the director's reasonable control, the company is provided a cure period until the earlier of its next annual meeting or one year from the occurrence of the event that caused the failure to comply. However, a company is provided a 180-day cure period if the next annual meeting occurs less than 180 days after the event that caused the failure to comply. In the case of a nominating committee deficiency, a majority of the independent directors on the board can perform the committee’s functions in lieu of a committee. See IEX Rules 14.405(b)(1)(A), 14.405(c)(4), 14.405(d)(4), 14.405(d)(5) and 14.501(d)(3).

Code of Conduct Requirements

IEX Rule 14.406 requires each listed company to adopt a code of conduct applicable to all directors, officers and employees, which complies with the definition of a "code of ethics" set out in Section 406(c) of the Sarbanes-Oxley Act of 2002 and any regulations promulgated thereunder. Please see IEX Rule 14.406 for more detailed information regarding the Code of Conduct requirements.

Key Disclosure Obligations

Listed companies must make prompt public disclosure of any material information that would reasonably be expected to affect the value of the company’s securities or influence investors’ decisions through a Regulation FD compliant method, except in unusual circumstances. Listed companies must also provide notice to IEX Regulation at least 10 minutes prior to disclosure if made between 8 am and 5:30 pm (eastern time), or by 7:50 am (eastern time) if disclosure is at other times.

Under unusual circumstances a listed company may not be required to make public disclosure of material events; for example, where it is possible to maintain confidentiality of those events and immediate public disclosure would prejudice the ability of the company to pursue its legitimate corporate objectives. However, under such circumstances, the company is obligated to disclose this information to the Exchange upon request pursuant to IEX Rule 14.207(a).

See IEX Rule 14.207(b) and Supplementary Material .01 to IEX Rule 14.207 for detailed information regarding obligations related to disclosure of material information.

Pursuant to IEX Rule 14.411, a listed company shall conduct an appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company’s audit committee or another independent body of the board or directors.

Annual Meetings and Proxies

Pursuant to IEX Rule 14.408(a), each listed company (other than a limited partnership) listing common stock or voting preferred stock (or their equivalents), must hold an annual meeting of shareholders no later than one year after the end of the company’s fiscal year-end. Pursuant to IEX Rule 14.407(a)(4)(D), limited partnerships are not required to hold an annual meeting unless required by statute or regulation in the state in which the limited partnership is formed or doing business or by the terms of the partnership's limited partnership agreement.

Pursuant to IEX Rule 14.408(b), each listed company that is not a limited partnership must solicit proxies and provide proxy statement for all meetings of shareholders. Pursuant to IEX Rule 14.407(a)(4)(F) limited partnerships that are required to hold annual meetings must provide all limited partners with proxy or information statements and if a vote is required, shall solicit proxies thereon.

Shareholder Approval

IEX Rule 14.412 specifies the circumstances under which shareholder approval is required prior to the issuance of securities in connection with:

  1. the issuance of listed company securities in connection with acquisition of the stock or assets of another company if the present or potential issuance of the listed company’s securities has or will have voting power in excess of 20% of the pre-transaction voting power or the number of shares to be issued will be 20% or more of the listed company’s pre-transaction common stock outstanding; or
  2. the issuance or potential issuance will result in a change of control of the company; or
  3. establishment or material amendment to an equity-based compensation plan for officers, directors, employees, or consultants; or
  4. a private placement involving the sale, issuance or potential issuance of common stock (or securities convertible or exercisable into common stock) (i) at a price less than the greater of book or market value which together with sales by officers, directors or substantial shareholders of the company equals 20% or more of the common stock or voting power outstanding before the issuance; or (ii) equal to 20% or more of the common stock or voting power outstanding before the issuance.

Additional provisions relating to shareholder approval are set forth in IEX Rule 14.412(e), and the financial viability exception to the shareholder approval requirement is set forth in IEX Rule 14.412(f). Listed companies and their representatives are encouraged to use the interpretative letter process described in IEX Rule 14.401(c) for questions regarding potential transactions that could require shareholder approval.

Shareholder Voting Rights

Yes. IEX Rule 14.413 is substantially identical to rules of other U.S. listing exchanges and provides that a company cannot disparately reduce or restrict existing shareholders' voting rights. Examples of such corporate action or issuance include the adoption of "time-phased" or "capped" voting rights plans, the creation of a new class of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer. Listed companies and their representatives are encouraged to use the interpretative letter process described in IEX Rule 14.401(c) for questions regarding potential transactions that could implicate the voting rights rule.

Internal Audit Function

IEX Rule 14.414 requires each listed company to establish and maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management process and system of internal control. The internal audit function can be outsourced to a third-party service provider other than its independent auditor. IEX Rule 14.414(b) specifies certain transition periods for initial public offerings and a company transferring from an exchange that does not have the same requirement.

Notification of Noncompliance

Yes. IEX Rule 14.410 requires each listed company to provide the Exchange with prompt notification after an Executive Officer of the Company becomes aware of any noncompliance by the company with the IEX corporate governance requirements.

1 The corporate governance requirements are set forth in the Rule Series 14.400. These FAQs are provided in part pursuant to Rule 14.401(b).

2 See Rule 14.405(c)(5).