SEC Approves NASDAQ and NYSE Corporate Governance Rules

The Securities and Exchange Commission has approved new rules proposed and adopted by the New York Stock Exchange and the NASDAQ Stock Market requiring widespread strengthening of corporate governance standards for listed companies.

SEC Chairman William Donaldson said, "These rule changes are at the core of a broad movement by our markets to enhance the corporate governance practices of the companies traded on them and I congratulate the NYSE and the NASD for their efforts. Investors will recognize significant benefits from these actions today and long into the future."

"Adopting significant changes that are both clear and objective is part of NASDAQ's continuous commitment to increase confidence in the markets," said NASDAQ President and CEO Robert Greifeld. "In addition to enhancing disclosure and transparency, these changes will empower shareholders, independent directors and audit committees."

Key changes approved by the SEC include:

  • Strengthening the definition of who is considered an independent director;
  • Requiring a majority of each issuer's board to be comprised of independent directors;
  • Requiring independent directors to approve director nominations and executive officer compensation, either through an independent committee or through a majority of the independent directors;
  • Requiring independent directors to meet in executive sessions;
  • Strengthening audit committee standards and expanding their responsibilities;
  • Requiring the audit committee, or a comparable body, to review and approve all related-party transactions;
  • Requiring companies to establish a publicly available code of conduct for all employees and directors. This code must contain the elements necessary to meet the "code of ethics" requirements, as defined in item 406 of SEC Regulation S-K; and
  • Requiring non-U.S. companies listed on NASDAQ to comply with heightened disclosure standards.

These new rules will generally take effect with a company's first annual meeting occurring after January 15, 2004, but no later than October 31, 2004.

The code of conduct requirement will be effective beginning May 2004. Further details about the rules are available on the Web at: In addition, the SEC's approval order will be available at:

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