Foreign Private Issuer Exemptions: NASDAQ Rule 5615(a)(3)

Founded in 1971, the NASDAQ stock exchange currently lists approximately 3,200 domestic and foreign companies.  Domestic issuers must comply with the corporate governance standards set forth in the NASDAQ 5600 rule series.  Foreign issuers may deviate from NASDAQ’s corporate governance standards under Rule 5615(a)(3).  Rule 5615(a)(3) provides:

A Foreign Private Issuer may follow its home country practice in lieu of the requirements of the Rule 5600 Series, the requirement to distribute annual and interim reports set forth in Rule 5250(d), and the Direct Registration Program requirement set forth in Rules 5210(c) and 5255, provided, however, that such a Company shall: comply with the Notification of Material Noncompliance requirement ( Rule 5625), the Voting Rights requirement ( Rule 5640), have an audit committee that satisfies Rule 5605(c)(3), and ensure that such audit committee's members meet the independence requirement in Rule 5605(c)(2)(A)(ii). Except as provided in this paragraph, a Foreign Private Issuer must comply with the requirements of the Rule 5000 Series, including the going concern disclosure requirement in Rule 5250(b)(2), and the listing agreement requirement in Rule 5205(a).

Although foreign issuers can elect to follow home country corporate governance standards, NASDAQ has to grant the exemption.  For NASDAQ to grant the exception under Rule 5615(a)(3), a foreign issuer has to provide a letter from an attorney in its home country stating the practice is legal and an accepted business practice. 

Based on a sampling of equities traded on NASDAQ, we will post a three part series that explores the corporate governance standards of the three largest countries that utilize Rule 5615(a)(3):  Canada, China, & Israel.