GAO Recommends Twelve Actions For Exchange Listing Standards

Investors need timely and ongoing information on the listing status of issuers for use in making investment decisions.

The Government Accounting Office (GAO) was asked to discuss (1) the status of the Securities and Exchange Commission’s (SEC) recommendations to the three markets for improving their equity listing programs, (2) SEC’s oversight of NASDAQ’s moratorium on the enforcement of certain of its listing standards and the status of affected listed companies (issuers), and (3) actions the three largest markets have taken to strengthen corporate governance.

According to the report, in the absence of such information, investors might logically but incorrectly assume that all issuers comply with the listing standards of their markets. Although NYSE has taken steps to address the Office of Compliance Inspections and Examinations (OCIE’s) recommendation to provide early and ongoing public notification of issuers’ noncompliance with quantitative continued listing standards by introducing symbol indicators, investors may be unaware of the availability of the information transmitted by the indicators.

Existing plans for distributing the information to the print media have not been fully implemented and distribution to investors through the Internet is limited.

Further, although the indicator is displayed on NYSE’s Web site with the stock symbol, the indicator is not sufficiently visible to investors. As a result, investors that do not independently learn of the indicator’s availability may not become aware of its existence when they visit the Web site.

To restore investor confidence in the markets, further strengthen the listing standards of the SROs, and improve SEC listing program oversight, we recommend that the Chairman, SEC, take the following 12 actions:

  1. work with NYSE to ensure the distribution of NYSE’s indicator through the print media and the Internet and improve the visibility of the indicator on the NYSE Web site;

  2. work with NASDAQ and Amex to ensure that the public receives early and ongoing notification of issuers’ noncompliance with their markets’ quantitative continued listing standards—using issuer’s receipt of the initial deficiency notice as the reference point for determining when public notification should begin or, if approved in a manner consistent with our following recommendation, the filing of the revised Form 8-K;

  3. ensure that the Commission expeditiously finalizes the rule requiring that issuers file the Form 8-K after receiving notice of being deficient with their market’s listing standards and include a time frame for doing so that, consistent with its initial proposal, ensures early public notification of issuers’ noncompliant status;

  4. work with Amex, NASDAQ, and NYSE to assess the feasibility of providing early and ongoing public notification of issuers’
    noncompliance with qualitative listing standards;

  5. ensure the development and implementation of a policy requiring OCIE staff to routinely use SRO internal review reports in planning and conducting SRO inspections;

  6. work with Amex to ensure that issuers disclose the names of those directors that they have designated as independent;

  7. work with the SROs to further enhance board independence by giving serious consideration to requiring issuers, through listing standards, to establish a supermajority of independent directors and to separate the positions of CEO and chairman, recognizing that a reasonable period of time would be needed to make such changes effective;

  8. work with the SROs to ensure that they have established effective processes for ensuring issuers’ compliance with corporate governance listing standards;

  9. ensure that OCIE conducts timely inspections of the three largest SROs to assess their oversight of issuers’ compliance with corporate governance standards;

  10. ensure that Corporation Finance places a high priority on establishing and meeting time frames for completing its rulemaking related to shareholder access to the director nomination process and reviewing issuers’ qualitative disclosure requirements related to potential director and director nominee conflicts of interest;

  11. ensure that Market Regulation places a high priority on establishing and meeting time frames for completing its reviews of the SROs’ self evaluations of their governance, and works with Amex and, as appropriate, the other 16 SROs under review, to further enhance their own board independence by giving serious consideration to separating the positions of CEO and chairman; and

  12. ensure that OCIE conducts timely inspections of the three largest SROs to ensure that steps are taken to address any weaknesses identified in their self-evaluations and that new requirements governing SRO boards are effectively implemented.

A full copy of the GAO report can be accessed on their Web site.


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