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Summary
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 Substantive
requirement
- NYSE
and Nasdaq require their listed companies to have a code of business conduct and
ethics
- Applies to their directors, officers and employees
Disclosure
requirement
- S-K 406 requires disclosure about whether a company has a code of ethics for its
CEO and other senior financial officers
- Adopted by SEC per
SOX Act § 406
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Developments
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Nasdaq
proposes changes to Rule 4350(n) / IM-4350-7
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NYSE 303A.10
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Text of Rule Code
must address:
- Conflicts of interest
- Corporate opportunities
- Confidentiality
- Fair dealing
- Protection and proper use of company assets
- Compliance with law (including insider
trading)
- Encouraging "whistle blowing"
Any
waivers must be promptly disclosed
Code
must include compliance procedures
Annual
report must state that code is available:
- on company's website, and
- in print upon
shareholder request
 Applies
to:
Does
not apply to:
NYSE
FAQs
Archive
- Listed companies had until their next annual meeting after
1.15.04, but no later than 10.31.04, to comply
- SEC
approval order
- SEC summary of 303A.10
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NASD Rule 4350(n) / IM-4350(7)
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Text
of Rule
Requires Nadaq-listed
companies to adopt a code of conduct
for all directors, officers and employees Code
must satisfy the definitional requirements of
SOX Act § 406(c) and S-K 406 
- But apply to all employees,
not just directors and officers
- Issuers
can use more than one code to achieve this
Code
must provide for an enforcement mechanism
Waivers
for executive officers and directors
SEC_CODE_REF_0090001192884
- Must be approved by the Board
- Disclosed on Form 8-K within 5 days
- NASDAQ staff says this requirement applies to any and all waivers
- Even waivers of provisions that aren't required by
SOX Act § 406(c) / S-K
406
- Can't just use alternative of company
website disclosure
per Form 8-K Item 10(c)
Applies
to
- Foreign private issuers, unless
granted an exemption
- Business development companies, unless registered under 1940 Act
Does
not apply to
- Limited partnerships
- Registered management investment companies
- Passive entities
- Asset-backed issuers
Archive
- Became
effective on May 4, 2004
- SEC
approval order
- SEC summary
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SEC Disclosure Requirements
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S-K 406
S-B 406 S-K 406(b) defines
Code of ethics
- Required elements are listed
- Can be a separate code or incorporated in a
broader code (Instr. 1)
- Company has
some discretion to determine
"appropriate persons" to receive reports of
violations
S-K 406(a) requires disclosure in annual reports of whether issuer has adopted a written code of ethics for its:
- Principal executive officer
- Principal financial officer
- Principal accounting officer or controller
- Principal accounting officer or controller if not; why not
S-K 406(c) provides three choices to make code publicly available:
- File as an exhibit to annual report - per S-K
601(b)(14)
can be incorporated by reference from proxy statement
- Post on Company website;
include reference thereto in annual report
- Include undertaking in annual report
to deliver without charge
Applies
to
- SEC reporting companies,
generally -- S-K 406
- Small business issuers -- S-B 406
- Foreign private issuers - Item 16B of Form
20-F
- Canadian issuers - Instruction B.(9) to
Form 40-F
S-K
Index
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Other Items
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Receipt
of IPO shares
- NYSE / NASD IPO advisory committee report (May
2003)
Recommends that a listed companys code of business conduct and ethics
should include a policy regarding receipt of IPO shares by the companys
directors and executive officers
- See IPO issues (Recommendation #10)
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Practice Aids
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Sample
Codes of ethics Per NYSE 303A(10)
- Johnson & Johnson
Sample
Disclosures Per S-K Item 406
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Related Topics
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