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Federal appeals court to rehear Nasdaq diversity rule challenge

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Nasdaq diversity rule (PHOTO: Shutterstock)
  • Nasdaq diversity rule is challenged.
  • A federal appeals court has agreed to rehear the case.
  • Conservatives push back against quotas.

A U.S. appeals court will review the new Nasdaq diversity rule.

The rule requires publicly traded companies to meet quotas on their boards to include women, minorities and members of the the LGBTQ+ community.

Nasdaq began partially implementing the rule at the end of 2023, more than two years after it was approved.

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Throughout the process the Nasdaq diversity rule has faced opposition from conservative activists.

President of the Alliance for Fair Board Recruitment, Edward Blum has worked for years to overturn affirmative action in the U.S.

The Fifth Circuit Court of Appeals announced Monday night that it will rehear a challenge to the rule.

This is in response to a petition led by Blum and others, according to CNBC.

Nasdaq approved the diversity rule in 2021

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In addition to ordering the review, the court reversed a previous decision by a panel of three judges from a lower court, which upheld the validity of the rule.

In an unusual move, all judges on the court, who are mostly Republican, will review the case en banc, tentatively scheduled for May 13.

In 2021 the Securities and Exchange Commission (SEC) gave the green light for Nasdaq to require its listed companies to disclose the composition of their boards of directors.

They are required to have at least two diverse members: one woman and another who identifies as an ethnic minority or part of the LGBTQ+ community.

Companies must explain why they aren’t complying with the new rule

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Finally, companies that do not meet these quotas must provide an explanation to Nasdaq, according to EFE.

Initially, it was thought that not complying with the rule could lead to the company being removed from the index.

However Nasdaq appears to rule out this extreme in an explanatory document dated February 2023.

It emphasizes that it is not a «mandate» and that it will not assess the «merits of the explanation» of those who do not meet the quotas.

What is Nasdaq?

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After it was announced that a U.S. court will review the Nasdaq diversity rule there are more questions than answers.

Nasdaq is an acronym for the National Association of Securities Dealers Automated Quotation.

It is the second-largest automated stock exchange in the United States and is known for comprising high-tech companies.

These include electronics, computing, telecommunications and biotechnology, according to Banco Santander.

It has its own indices

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Nasdaq is not located in a physical place but is instead found in a telecommunications network, according to Banco Santander.

It has its own indices, including the Nasdaq 100, which includes one hundred of the largest companies listed on this stock exchange.

The Nasdaq Composite includes more than 3,000 companies regardless of the sector. Financial and investment companies are included.

In addition, Nasdaq Biotechnology includes companies in this sector as well as pharmaceuticals. They must have trading volume exceeding 100,000 shares.

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