SEC Approves Tougher Listing Standards

The exchange further clarified some of its standards for independent directors. Such directors can't be employed by a listed company's internal or external auditors. They also cannot serve as chief executive of a company that pays or receives payments from the listed company greater than $1 million, or 2%, of the listed company's revenue.

The SEC approved similar guidelines at the Nasdaq. The Nasdaq will allow its listed companies to have nonindependent directors on their compensation and nominating committees. But decisions made by those committees concerning executive pay or nominations to the board must be approved by a majority of the independent directors serving on them.

For Nasdaq companies, directors no longer would be independent if they serve as a partner, executive or controlling shareholder of an organization that conducted significant business with the listed company. The Nasdaq will consider the organization to have a significant business relationship with the listed company if the amount of money exchanged between the two exceeds 5% of the recipient's gross revenue or $200,000, whichever is greater.

At both exchanges, the primary exception to the new rules is for so-called controlled companies. At such companies, more than half of the voting power is controlled by an individual, group or another company.

Both exchanges expect their listed companies to begin moving toward compliance with the new rules by January. Both require all affected companies to be in compliance with the new standards by the end of 2005.

At the NYSE, the rules are less strict than originally planned. In that proposal, for instance, it didn't make an exception for controlled companies.

Under the adopted proposal, the exchange will look back three years to see if directors have any qualifications that jeopardize their independence. The original proposal would have called on the exchange to look back five years.