SEC Approves Nasdaq Board Diversity Rules

SEC Approves Nasdaq Board Diversity Rules

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On August 6, 2021, the United States Securities and Exchange Commission (“SEC”) approved Nasdaq Stock Market LLC (“Nasdaq”) Rules 5605(f) and 5606 (“New Rules”), two listing rules designed to advance board diversity in Nasdaq-listed firms. Nasdaq first proposed these New Rules in December 2020, and they are the first of their kind in the United States. A preliminary review found that more than three-quarters of Nasdaq-listed companies would not meet the proposed requirements of the New Rules.

As of August 2021, there are no indications that other key exchanges, such as the New York Stock Exchange (“NYSE”) will follow Nasdaq’s lead. However, the New Rules follow a shift among investment advisers towards an emphasis on environmental, social and governance (“ESG”) issues.

The New Rules require Nasdaq-listed companies to disclose statistical information on gender and racial characteristics, as well as LGBTQ+ status, of the directors of the company board. Disclosure will be required on an annual basis through a Board Diversity Matrix (template found here), and will cover the current year, as well as the prior year after the first year of disclosure. The disclosure will include information on at least two self-identified “diverse” directors (generally defined as women, persons of a racial minority or LGBTQ+ persons), or it must publicly disclose why their board does not include such diverse directors. As part of the New Rules, Nasdaq will also offer listed companies complimentary access to a board recruiting service that can assist in recruiting diverse board directors.

The required disclosures, including the Board Diversity Matrix, may be posted on the listed company’s website, in its proxy statements, information statements, Form 10-Ks, and/or Form 20-Fs. The disclosure must be published concurrently with an applicable SEC filing if it is disclosed by posting on the company’s website. The company must also submit a URL link to the disclosures through the Nasdaq Listing Center within one day after publishing.

The compliance date for the New Rules for most companies begins in August 2022, although there are certain phase-in periods for companies that are newly listed on Nasdaq. A company not in compliance with the New Rules will have 45 calendar days to submit a plan of compliance to Nasdaq. Upon review, Nasdaq may opt to provide the company with up to 180 days to regain compliance or it may delist the company.

If you have any questions on how this might affect your firm, reach out to your Greyline representative. The full SEC order approving the New Rules is here.

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Darren Mooney

Partner and Co-Head of Business Development

Darren Mooney is a Partner and the Co-Head of Business Development at Greyline. Before joining Greyline, Darren served as deputy chief compliance officer of Partner Fund Management where he held primary responsibility for the compliance program of the second-largest hedge fund in the Bay Area. Prior to that, Darren spent five years providing compliance consulting services at Cordium and then ACA Compliance Group, where he led the company’s San Francisco office and west coast operations. In addition to providing ongoing consulting services to a variety of investment managers, including hedge fund, private equity, venture capital, real estate, quantitative and other wealth managers, Darren also regularly guided clients through the SEC registration process, implemented tailored compliance programs, supported clients’ live SEC exams, and served as an SEC-mandated independent compliance consultant following an SEC enforcement action. Darren’s other experience includes serving as deputy chief compliance officer and associate counsel at F-Squared Investments where he directly supported the compliance program during the investigation and subsequent enforcement regarding historical advertising practices. Darren has a B.S. in Economics from the University of Delaware and a J.D. from Suffolk University Law School. He is a member of the Massachusetts bar.

Annie Kong

Partner and Head of Venture Capital
Annie Kong is a Partner and Head of the Venture Capital Division at Greyline. She provides ongoing compliance consulting to investment advisers and manages client relationships. Prior to joining Greyline, Annie was part of compliance and operations at a long-only manager-of-managers that advised pension fund clients. While there, she conducted compliance and operational due diligence on SEC-registered investment advisers on the platform. She also oversaw and counseled on various legal matters across the firm. Annie has a B.A. in Economics from the University of California, San Diego, and a J.D. from the University of San Diego School of Law. She is an active member of the State Bar of California.
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