Securities Law

Posted on Friday, May 17 2013 at 8:15 pm by The Kilpatrick Townsend Securities Team


As discussed in our March 14 entry, NASDAQ recently proposed a new rule that would require listed companies to establish and maintain an internal audit function, which would make the NASDAQ listing requirement similar to the NYSE in this regard.  However, after receiving comments from issuers and others, NASDAQ has opted to withdraw the proposed rule while it further considers the comments it received. 

In comments sent to NASDAQ, issuers complained primarily of the cost of complying with the new rule, particularly for small market cap issuers or for issuers that lack the complexity or volume of transactions to necessitate an internal audit function .  Additionally, NASDAQ received comments stating that the new rule was redundant with SOX rule 404 and would defeat the purpose of the exemption given to smaller reporting companies from SOX 404(b) compliance.  Some commenters also expressed concerns that the requirements under the proposed rule lacked appropriate flexibility.  

NASDAQ noted that it intends to revise and resubmit the proposed rule taking into account comments received.  NASDAQ stated that it is important for listed companies to have “appropriate mechanisms and processes in place to review risks and the system of internal controls.”  Based on this, when NASDAQ revises the rule there may be an exemption based on market cap or the complexity of the business, or an attempt to add flexibility to the compliance process.

We will continue to follow any new developments and will update you accordingly.

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