SEC Lacks Authority to Approve Board Diversity Rules by Nasdaq, Says Lawsuit

The U.S. Securities and Exchange Commission (SEC) is receiving pushback over its recent approval of Nasdaq’s Board Diversity Rules, which require all companies listed on the exchange to not only publicly disclose board diversity statistics but also explain failures to meet new diversity requirements. NCLA filed an opening brief in the U.S. Court of Appeals for the Fifth Circuit on behalf of the National Center for Public Policy Research. NCLA’s client, which owns shares in many Nasdaq companies, argues that SEC has no power to regulate in this field because the rules have nothing to do with fraud or honest markets.

The diversity rules fall outside of SEC’s regulatory authority under the Securities Exchange Act of 1934, which empowered SEC to regulate securities to ensure honest markets and enforce federal laws that punish fraud. These longstanding laws are being misinterpreted today by SEC to allow the agency, working with Nasdaq, to impose a “meet quota, explain why, or get delisted” regime.

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