Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70735

22 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Amendment No. 2 made several technical 

corrections and modified the Market Transactions 

Exception contained in the proposed rule change.

4Amendment No. 3 corrected clerical and 

typographical errors contained in Amendment No. 

2.

numbers, identifying information and 

the time of formal award to dealers 

outside of the syndicate and selling 

group that may have ‘‘conditional 

trading commitments’’ in the new issue. 

The MSRB stated in the June 2004 

Notice that, if such a venue did not 

currently exist, or if there would be 

problems in making effective 

announcements through existing 

venues, the MSRB could offer to provide 

such a special-purpose solution. 

The BMA ‘‘strongly supports the use 

of current information service providers 

to carry this information, and feels that 

additional systems, emails, newsgroup 

postings, and processes should not be 

implemented.’’ In its comment letter, 

the BMA stated that it has set up a ‘‘G–

34 Task Force’’ to work with current 

information service providers ‘‘to: (a) 

Increase awareness about the need for 

quick and accurate dissemination of 

final CUSIP numbers, the ‘‘time of 

formal award’’ and the ‘‘time of first 

execution,’’ and (b) to include new 

fields in their systems, if necessary, to 

accommodate the dissemination of this 

information from underwriters to 

market participants on a real-time 

basis.’’ CUSIP stated that it would 

‘‘consider offering a new service 

whereby [CUSIP Service Bureau] 

communicates newly assigned 

municipal CUSIP numbers to all 

syndicate members and dealers outside 

of the syndicate group.’’

Based on the comments received 

indicating that existing industry systems 

can provide broad real-time 

dissemination of information to 

industry members, the MSRB has 

decided not to offer to provide a specialpurpose solution for making 

announcements to market participants. 

However, the MSRB will review the 

operation of industry systems for 

disseminating information and will 

readdress this issue if necessary in the 

future. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

A. By order approve such proposed 

rule change, or 

B. Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation Of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–MSRB–2004–08 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609. 

All submissions should refer to File 

Number SR–MSRB–2004–08. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the MSRB’s offices. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–MSRB–

2004–08 and should be submitted on or 

before December 28, 2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.22

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. E4–3514 Filed 12–6–04; 8:45 am] 

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50749; File No. SR–NASD–

2004–022] 

Self-Regulatory Organizations; Notice 

of Filing of Proposed Rule Change by 

the National Association of Securities 

Dealers, Inc. Relating to the Corporate 

Financing Rule and Shelf Offerings of 

Securities 

November 29, 2004. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

4, 2004, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’) filed 

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been prepared by NASD. On May 

4, 2004, NASD filed Amendment No. 1 

to its proposed rule change, which 

replaced and superseded the original 

rule filing in its entirety. On July 16, 

2004, NASD filed Amendment No. 2 to 

its proposed rule change.3 On October 

12, 2004, NASD filed Amendment No. 

3 to its proposed rule change.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD is proposing to amend NASD 

Rules 2710, 2810, IM–2440, and 

Schedule A to the NASD By-Laws to 

address the filing requirements and the 

regulation of public offerings of 

securities registered with the 

Commission and offered by members 

pursuant to SEC Rule 415 of Regulation 

C under the Securities Act of 1933 

(‘‘SEC Rule 415’’) (‘‘shelf offerings’’). 

Below is the text of the proposed rule 

change. Proposed new language is in 

italics; proposed deletions are in 

[brackets]. 

Schedule A to NASD By-Laws 

Assessments and fees pursuant to the 

provisions of Article VI of the By-Laws 

of NASD shall be determined on the 

following basis. 

Sections 1 through 6—No change. 

70736 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

Section 7—Fees for Filing Documents 

Pursuant to the Corporate Financing 

Rule 

(a) There shall be a fee imposed for 

the initial filing of [initial] documents 

and information relating to any offering 

filed with NASD pursuant to the 

Corporate Financing Rule equal to $500 

plus .01% of the proposed maximum 

aggregate offering price or other 

applicable value of all securities 

registered on an SEC registration 

statement or included on any other type 

of offering document (where not filed 

with the SEC), but shall not exceed 

$30,500. The amount of filing fee may 

be rounded to the nearest dollar. 

(b) There shall be an additional fee 

imposed for the filing of any 

amendment or other change to the 

documents and information initially 

filed with NASD pursuant to the 

Corporate Financing Rule equal to .01% 

of the net increase in the maximum 

aggregate offering price or other 

applicable value of all securities 

registered on an SEC registration 

statement, or any related Rule 462(b) 

registration statement, or reflected on 

any Rule 430A prospectus, or included 

on any other type of offering document. 

However, the aggregate of all filing fees 

paid in connection with an SEC 

registration statement or other type of 

offering document shall not exceed 

$30,500.

* * * * *

IM–2440. Mark-Up Policy 

The question of fair mark-ups or 

spreads is one which has been raised 

from the earliest days of the 

Association. No definitive answer can 

be given and no interpretation can be 

all-inclusive for the obvious reason that 

what might be considered fair in one 

transaction could be unfair in another 

transaction because of different 

circumstances. In 1943, the 

Association’s Board adopted what has 

become known as the ‘‘5% Policy’’ to be 

applied to transactions executed for 

customers. It was based upon studies 

demonstrating that the large majority of 

customer transactions were effected at a 

mark-up of 5% or less. The Policy has 

been reviewed by the Board of 

Governors on numerous occasions and 

each time the Board has reaffirmed the 

philosophy expressed in 1943. Pursuant 

thereto, and in accordance with Article 

VII, Section 1(a)(ii) of the By-Laws, the 

Board has adopted the following 

interpretation under Rule 2440. 

It shall be deemed a violation of Rule 

2110 and Rule 2440 for a member to 

enter into any transaction with a 

customer in any security at any price 

not reasonably related to the current 

market price of the security or to charge 

a commission which is not reasonable. 

(a) through (b) No change. 

(c) Transactions to Which the Policy is 

Applicable 

The Policy applies to all securities 

handled in the over-the-counter market, 

whether oil royalties or any other 

security, in the following types of 

transactions: 

(1) through (5) No change. 

(6) Transactions in which a member 

sells securities from an offering 

registered with the SEC pursuant to SEC 

Rule 415 that comply with the 

exemption from filing with NASD under 

Rule 2710(b)(10)(B) for Market 

Transactions.

(d) Transactions to Which the Policy is 

Not Applicable 

The Mark-Up Policy is not applicable 

to the sale of securities where a 

prospectus or offering circular is 

required to be delivered and the 

securities are sold at the specific public 

offering price[.], including any offering 

or transaction subject to the 

compensation limitations of Rule 2710 

or Rule 2810.

* * * * *

2710. Corporate Financing Rule—

Underwriting Terms and Arrangements 

(a) Definitions 

For purposes of this Rule, the 

following terms shall have the meanings 

stated below. The definitions in Rule 

2720 are incorporated herein by 

reference. 

(1) through (2) No Change. 

(3) Offering Proceeds 

The maximum [P]public offering 

price of all securities to be offered or 

that are sold in a public offering [to the 

public], not including securities subject 

to any overallotment option, securities 

to be received by the underwriter and 

related persons, or securities underlying 

other securities. 

(4) No Change. 

(5) Participation or Participating in a 

Public Offering 

Participation in the preparation of the 

offering or other documents, 

participation in the distribution of the 

offering on an underwritten, nonunderwritten, principal, agency or any 

other basis, participation in a shelf 

takedown that does not satisfy the 

requirements of the market transactions 

exemption; furnishing of customer and/

or broker lists for solicitation, or 

participation in any advisory or 

consulting capacity to the issuer related 

to the offering, but not the preparation 

of an appraisal in a savings and loan 

conversion or a bank offering or the 

preparation of a fairness opinion 

pursuant to SEC Rule 13e–3. 

(6) Underwriter and Related Persons 

Consists of underwriter’s counsel, 

financial consultants and advisors, 

finders, any participating member, and 

any other persons [related to any 

participating member] that receive any 

item of value that would be considered 

underwriting compensation.

(7) Listed Securities 

Securities meeting the listing 

standards to trade on the national 

securities exchanges identified in SEC 

Rule 146, markets registered with the 

SEC under Sections 6 or 11A of the 

[Exchange] Act, and any offshore market 

that is a ‘‘designated offshore securities 

market’’ under Rule 902(b) of SEC 

Regulation S. 

(8) through (9) No Change. 

(10) Required Filing Date 

The required filing date shall be the 

dates provided in subparagraph (b)(4), 

and for a public offering exempt from 

filing under subparagraph (b)(7), the 

required filing date for purposes of 

subparagraphs (d) and (g) shall be the 

date the public offering would have 

been [be] required to be filed with [the] 

NASD but for the exemption. 

(11) Securities Act 

The Securities Act of 1933, as 

amended. 

(12) Shelf Offering 

Any offering of securities registered 

with the SEC and offered pursuant to 

SEC Rule 415, under the Securities Act. 

(13) Takedown

In connection with a shelf offering, 

the securities purchased by a member in 

a principal transaction or the securities 

sold by a member in an agency 

transaction.

(b) Filing Requirements 

(1) through (3) No change 

(4) Requirement for Filing 

(A) Unless filed by the issuer, the 

managing underwriter, or another 

member, a member that anticipates 

participating in a public offering of 

securities subject to this Rule shall file 

with NASD the documents and 

information with respect to the offering 

specified in subparagraphs (5) and (6) 

below: 

(i) No Change. 

Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70737

(ii) if not filed with or submitted to 

any regulatory authority, at least fifteen 

business days prior to the anticipated 

date on which offers will commence[.]; 

or

(iii) in the case of a shelf offering, 

before the member sells securities in any 

takedown required to be filed.

(B) No [sales of securities subject to 

this Rule shall commence] member shall 

commence selling in any offering 

required to be filed by this Rule, Rule 

2720 or Rule 2810 unless: 

(i) No Change. 

(ii) NASD has provided an opinion to 

the member or that covers the member 

stating that it has no objections to the 

proposed underwriting and other terms 

and arrangements[or an opinion that the 

proposed underwriting and other terms 

and arrangements are unfair and 

unreasonable]. If NASD’s opinion states 

that the proposed underwriting and 

other terms and arrangements are unfair 

and unreasonable, the member may file 

modifications to the proposed 

underwriting and other terms and 

arrangements for further review. 

(C) Any member acting as a managing 

underwriter or in a similar capacity that 

has been informed of an opinion by 

NASD[,or a determination by the 

appropriate standing committee of the 

Board of Governors,] that the proposed 

underwriting terms and arrangements of 

a proposed offering are unfair or 

unreasonable, and the proposed terms 

and arrangements have not been 

modified to conform to the standards of 

fairness and reasonableness, shall notify 

all other members proposing to 

participate in the offering of that 

opinion or determination at a time 

sufficiently prior to the effective date of 

the offering or the commencement of 

sales so the other members will have an 

opportunity as a result of specific notice 

to comply with their obligation not to 

participate in any way in the 

distribution of a public offering 

containing arrangements, terms and 

conditions that are unfair or 

unreasonable. 

(5) through (6) No Change. 

(7) Offerings Exempt from Filing 

Notwithstanding the provisions of 

subparagraph (1) above, documents and 

information related to the following 

public offerings need not be filed with 

NASD for review, unless subject to the 

provisions of Rule 2720. However, it 

shall be deemed a violation of this Rule 

or Rule 2810, for a member to 

participate in any way in such public 

offerings if the underwriting or other 

arrangements in connection with the 

offering are not in compliance with this 

Rule or Rule 2810, as applicable: 

(A) securities offered by a corporate, 

foreign government or foreign 

government agency issuer which has 

unsecured non-convertible investment 

grade rated debt with a term of issue of 

at least four (4) years, or unsecured nonconvertible investment grade rated

preferred securities, [rated by a 

nationally recognized statistical rating 

organization in one of its four (4) 

highest generic rating categories,] except 

that the initial public offering of the 

equity of an issuer is required to be 

filed[;]. 

(B) investment grade rated nonconvertible debt securities and 

investment grade rated non-convertible 

preferred securities [rated by a 

nationally recognized statistical rating 

organization in one of its four (4) 

highest generic rating categories;].

[(C) offerings of securities:] 

[(i) registered with the Commission on 

registration statement Forms S–3 or F–

3 pursuant to the standards for those 

Forms prior to October 21, 1992 and 

offered pursuant to SEC Rule 415 

adopted under the Securities Act of 

1933, as amended; or] 

[(ii) of a foreign private issuer 

incorporated or organized under the 

laws of Canada or any Canadian 

province or territory, and is registered 

with the Commission on Form F–10 

pursuant to the standards for that Form 

approved in Securities Act Release No. 

6902 (June 21, 1991) and offered 

pursuant to Canadian shelf prospectus 

offering procedures;] 

[(D)] (C) securities offered pursuant to 

a redemption standby ‘‘firm 

commitment’’ underwriting 

arrangement registered with the 

Commission on Forms S–3, F–3 or F–10 

(only with respect to Canadian 

issuers)[;].

[(E)] (D) financing instrument-backed 

securities which are investment grade

rated [by a nationally recognized 

statistical rating organization in one of 

its four (4) highest generic rating 

categories]; and 

[(F)] (E) exchange offers of securities 

where: 

(i) No change. 

(ii) the company issuing securities 

qualifies to register securities with the 

Commission on registration statement 

Forms S–3, F–3, or F–10, pursuant to 

the standards for those Forms as set 

forth in [subparagraphs (C)(i) and (ii) of 

this paragraph; and] subparagraph 10(D) 

below; and

[(G)] (F) offerings of securities by a 

church or other charitable institution 

that is exempt from SEC registration 

pursuant to Section 3(a)(4) of the 

Securities Act. 

(8) No change. 

(9) Offerings Required To Be Filed 

Documents and information relating 

to all other public offerings including, 

but not limited to, the following must be 

filed with NASD for review: 

(A) through (H) No change.

(I) any exchange offer, merger and 

acquisition transaction, or other similar 

corporate reorganization involving an 

issuance of securities that results in the 

direct or indirect public ownership of 

the member; [and] 

(J) any offerings of a similar nature 

that are not exempt under subparagraph 

(7) or (8) above[.]; and

(K) shelf offerings pursuant to 

paragraph (10) below, and any shelf 

offering that is the initial public offering 

of the equity of an issuer.

(10) Shelf Offerings. 

(A) Filing Requirement: a member 

that is required under subparagraph (4) 

above to file with NASD documents and 

information required in subparagraphs 

(5) and (6) shall make an ‘‘Initial 

Member Filing’’ or, if another member 

has made the Initial Member Filing, a 

‘‘Subsequent Filing,’’ and shall receive a 

no-objections opinion pursuant to such 

filing prior to its participation in the 

shelf offering.

(i) Issuer Filing: Documents and 

information that are required to be filed 

by members under subparagraphs (5) 

and (6) may be filed by the issuer. The 

fees specified in Section 6 of Schedule 

A to the NASD By-Laws will be required 

in connection with such a filing;

(ii) Initial Member Filing: Unless 

made by another member, prior to 

participating in a shelf offering a 

member shall make an Initial Member 

Filing of the documents and information 

required under subparagraphs (5) and 

(6) and pay the filing fee specified in 

Section 6 of Schedule A to the NASD 

By-Laws prior to participating in a 

takedown. Documents and Information 

previously provided to NASD in an 

Issuer Filing may be incorporated in the 

Initial Member Filing and no additional 

filing fees will be required if the entire 

filing fee has been paid in connection 

with an Issuer Filing;

(iii) Subsequent Member Filing: if the 

Initial Member Filing has been made in 

connection with a shelf offering, a 

member that has not already received a 

‘‘no-objections’’ opinion under 

subparagraph (b)(4)(B) shall make a 

Subsequent Member Filing of the 

documents and information specified in 

subparagraphs (5) and (6) prior to its 

participation in a takedown. 

Information previously submitted in an 

Issuer Filing or Initial Member Filing 

may be incorporated into the 

70738 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

Subsequent Member Filing and no 

additional filing fees will be due if the 

entire fee due under Schedule A to the 

NASD By-Laws has already been paid in 

connection with an Issuer Filing or 

Initial Member Filing;

(iv) ‘‘Life of Shelf’’ Clearance: A 

member that has received a noobjections opinion in connection with a 

shelf registered offering shall not be 

required to make a Subsequent Member 

Filing in order to participate in future 

takedowns provided that:

a. the shelf registration statement 

discloses a maximum amount of 

underwriting compensation that will not 

be exceeded by participating members 

in takedowns; and

b. there is no material change to the 

information provided in the filing on 

which NASD relied in issuing the noobjections opinion.

(B) Market Transactions Exemption: a 

member may participate in a takedown 

of equity securities or convertible-toequity debt securities and be exempt 

from the filing requirement in 

subparagraphs (4) and (10)(A) above if 

the following conditions are met:

(i) the shelf offering is not the initial 

public offering of the issuer’s equity 

securities, and does not occur within 90 

days of the issuer’s initial public 

offering;

(ii) the security is listed on The 

Nasdaq Stock Market or a national 

securities exchange;

(iii) agency and principal transactions 

are unsolicited and do not exceed the 

greater of:

a. 2% of the average daily trading 

volume (ADTV) on the dates of the 

transactions, calculated in compliance 

with SEC Regulation M, or

b. 10,000 shares, or securities 

convertible or exercisable into such 

number of shares;

(iv) the participating member has not 

entered into any underwriting, 

distribution, equity line or other 

agreement with the issuer or any selling 

securityholder with respect to the sale of 

the securities offered;

(v) the participating member does not 

receive compensation (including the 

mark-up, mark-down, or commission) 

that exceeds the amount permitted 

under NASD IM–2440, the Mark-Up 

Policy;

(vi) the participating member has not 

acquired any item of value in 

connection with its participation in the 

shelf offering (excluding a mark-up, 

mark-down, or commission); and

(vii) the participating member is not 

an affiliate of the issuer and does not 

have a conflict of interest with the issuer 

under Rule 2720.

(C) Seasoned Issuer Exemption: 

notwithstanding subparagraphs (4) and 

(10)(A) above, documents and 

information related to the following 

shelf offerings need not be filed with 

NASD for review, unless the shelf 

offering is subject to the provisions of 

Rule 2720:

(i) offerings by a company that has 

been subject to the reporting 

requirements of Section 12 or 15(d) of 

the Act for at least 36 calendar months, 

is current in its reporting obligations, 

and at the time of the takedown, either:

a. has registered the offering with the 

Commission on registration statement 

Form S–3 and the aggregate market 

value of the company’s voting stock 

held by non-affiliates is at least $150 

million or, alternatively, at least $100 

million and the stock has had an annual 

trading volume of at least three million 

shares; or

b. has registered the offering with the 

Commission on registration statement 

Form F–3 and the aggregate market 

value worldwide of the company’s 

voting stock held by non-affiliates is the 

equivalent of at least $300 million;

(ii) offerings registered with the 

Commission on Form F–10 by a foreign 

private issuer incorporated or organized 

under the laws of Canada or any 

Canadian province or territory and 

offered pursuant to Canadian reporting 

requirements for at least 36 calendar 

months and at the time of the takedown, 

is current in its reporting obligations 

and the aggregate market value of the 

company’s outstanding equity is at least 

(CN) $360 million.

(10) and (11) renumbered as (11) and 

(12). 

(c) Underwriting Compensation and 

Arrangements 

(1) No change. 

(2) Amount of Underwriting 

Compensation 

(A) through (E) No change. 

(F) For purposes of determining the 

amount of underwriting compensation 

in a shelf offering, the discount or 

commission paid to participating 

members shall be aggregated with all 

other items of value received or to be 

received in connection with the 

takedown and shall consist of:

(i) in a transaction governed by an 

agreement, the discount from the public 

offering price, or the discount from a 

reasonable measure of the market price, 

or the commission specified by the 

agreement that governs the transaction;

(ii) in an agency transaction not 

governed by an agreement, the amount 

of the actual commission that is 

received or to be received in connection 

with the sale of the securities;

(iii) in a principal transaction when 

the discount from the public offering 

price is not specified in an agreement or 

the transaction is not governed by an 

agreement, the difference between the 

purchase price of the security and the 

sale price of the security. If there is a 

bona fide independent market for the 

security, or the security is an ActivelyTraded Security as defined in Rule 2720 

and SEC Regulation M, respectively, the 

discount or commission may be 

calculated as the difference between the 

purchase price and the:

a. ‘‘prevailing market price’’ in the 

principal market for the security at the 

time of purchase, as calculated by 

reference to IM–2440, the Mark-Up 

Policy; or

b. initial resale price of the security, 

so long as:

1. the purchase price of the takedown 

is of at least $10 million but no more 

than $50 million of securities and at 

least 50% of the securities are sold at 

the initial resale price or at lower prices; 

or

2. the purchase price of the takedown 

exceeds $50 million of securities and at 

least 25% of the securities are sold at 

the initial resale price or at lower prices.

(3) Items of Value 

(A) For purposes of determining the 

amount of underwriting compensation 

received or to be received by the 

underwriter and related persons 

pursuant to subparagraph (c)(2) above, 

the following items and all other items 

of value received or to be received by 

the underwriter and related persons in 

connection with or related to the 

distribution of the public offering, as 

determined pursuant to paragraph (d) 

below shall be included: 

(i) through (iv) No change. 

(v) wholesaler’s fees[;], whether in the 

form of cash, securities or any other 

item of value;

(vi) through (xiii) No Change. 

(B) No Change. 

(d) Determination of Whether Items of 

Value Are Included In Underwriting 

Compensation 

(1) Pre-Offering Compensation 

(A) All items of value received and all 

arrangements entered into for the future 

receipt of an item of value by the 

underwriter and related persons during 

the period commencing 180 days 

immediately preceding the required 

filing date of the registration statement 

or similar document pursuant to 

subparagraph (b)(4) above until the date 

of effectiveness or commencement of 

Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70739

5NASD Rule 2710 regulates the underwriting 

terms and arrangements of most public offerings of 

securities sold through NASD members. The 

Continued

sales of the public offering will be 

considered to be underwriting 

compensation in connection with the 

public offering. For a shelf offering that 

has been declared effective and for 

which sales have commenced, this 

period will be the 180 days immediately 

preceding the first takedown in which 

the member participates following the 

receipt of the item of value.

(2) through (5) No change. 

(e) Valuation of Non-Cash 

Compensation 

For purposes of determining the value 

to be assigned to securities received as 

underwriting compensation, the 

following criteria and procedures shall 

be applied. 

(1) Limitation on Securities Received 

Upon Exercise or Conversion of Another 

Security 

Neither [An] underwriter [and] nor

related person may [not] receive a 

security (including securities in a unit), 

a warrant for a security, or a security 

convertible into another security as 

underwriting compensation in 

connection with a public offering 

unless: 

(A) through (B) No Change. 

(2) through (3) No Change. 

(4) Valuation Discount For Securities 

With a Longer Resale Restriction 

A lower value equal to 10% of the 

calculated value shall be assigned

[deducted] for each 180-day period that 

the securities or underlying securities 

are restricted from sale or other 

disposition beyond the 180-day period 

of the lock-up restriction required by 

subparagraph (g)(1) below. The transfers 

permitted during the lock-up restriction 

by subparagraphs (g)(2)(A)(iii)–(iv) are 

not available for such securities. 

(5) Valuation of Items of Value Acquired 

in Connection with a Fair Price 

Derivative or Debt Transaction 

Any debt or derivative transaction 

acquired or entered into at a ‘‘fair price’’

as defined in subsection (a)(9) and any

item of value received in or receivable 

in the settlement, exercise or other 

terms of such debt or derivative 

transaction shall not have a 

compensation value for purposes of 

determining underwriting 

compensation. If the actual price for the 

debt or derivative security is not a fair 

price, compensation will be calculated 

pursuant to this subsection (e) or based 

on the difference between the fair price 

and the actual price. 

(f) No Change. 

(g) Lock-Up Restriction on Securities 

(1) Lock-Up Restriction 

In any public equity offering, other 

than a public equity offering by an 

issuer that can meet the requirements in 

subparagraphs (b)[(7)](10)(C)(i) or (ii) 

any common or preferred stock, options, 

warrants, and other equity securities of 

the issuer, including debt securities 

convertible to or exchangeable for 

equity securities of the issuer, that are 

unregistered and acquired by an 

underwriter and related person(s)

during 180 days prior to the required 

filing date, or acquired after the required 

filing date of the registration statement 

and deemed to be underwriting 

compensation by NASD, and securities 

excluded from underwriting 

compensation pursuant to subparagraph 

(d)(5) above, shall not be sold during the 

offering, or sold, transferred, assigned, 

pledged, or hypothecated, or be the 

subject of any hedging, short sale, 

derivative, put, or call transaction that 

would result in the effective economic 

disposition of the securities by any 

person for a period of 180 days 

immediately following the date of 

effectiveness or commencement of sales 

of the public offering, except as 

provided in subparagraph (g)(2) below. 

The ‘‘effective date of the offering’’ for 

purposes of a shelf-registered offering 

shall be the day following the last 

takedown for which the participating 

member received securities as 

compensation.

(2) Exceptions to Lock-Up Restriction 

Notwithstanding subparagraph (g)(1) 

above, the following shall not be 

prohibited: 

(A) the [transfer] disposition of any 

security: 

(i) No Change. 

(ii) to any member participating in the 

offering and the officers or partners 

thereof, if all of the securities [so 

transferred] remain subject to the lockup restriction in subparagraph (g)(1) 

above for the remainder of the time 

period; 

(iii) if the aggregate amount of 

securities of the issuer held by the 

underwriter [or] and related person do 

not exceed 1% of the securities being 

offered; 

(iv) through (viii) No Change. 

(B) No Change. 

(h) Proceeds Directed to a Member 

(1) through (2) No Change. 

(3) Exception From Compliance 

The provisions of subparagraphs 

(h)(1) and (2) shall not apply to: 

(A) No Change. 

(B) an offering of securities exempt 

from registration with the Commission 

under Section 3(a)(4) of the Securities 

Act [of 1933]; 

(C) through (D) No Change.

(i) through (j) No change.

* * * * *

2810. Direct Participation Programs 

(a) through (b) No change. 

(c) Filing Requirements: Coordination 

with Rule 2710. 

All offerings of securities included 

within the scope of this Rule shall be 

subject to the provisions of Rule 2710, 

and documents and filing fees relating 

to such offerings shall be filed with 

NASD pursuant to the provisions of that 

Rule and Section 6 of Schedule A to the 

NASD By-Laws.

(c) renumbered as (d). 

(d) renumbered as (e).

* * * * *

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NASD included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. NASD has prepared 

summaries, set forth in Sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASD is proposing to amend NASD 

Rules 2710, 2810, IM–2440, and 

Schedule A to the NASD By-Laws to 

address the filing requirements and the 

regulation of public offerings of 

securities registered with the 

Commission and offered by members 

pursuant to SEC Rule 415 (‘‘shelf 

offerings’’). NASD Rules 2710, 2720 and 

2810 (collectively, the ‘‘Corporate 

Financing Rules’’) require NASD 

members that anticipate participating in 

a public offering of securities, including 

shelf offerings, to make a filing with 

NASD’s Corporate Financing 

Department (‘‘Department’’). The 

Department reviews the proposed 

underwriting terms and other required 

information submitted by members.5

70740 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

underwriting terms and arrangements of Direct 

Participation Program (DPP) offerings are regulated 

by NASD Rule 2810. NASD Rule 2720 regulates 

public offerings when the securities offered are 

those of a member, the member’s parent company, 

an affiliate of the member, or a company with 

which a member has a conflict of interest.

6Comment letters were received from the 

Committee on Securities Regulation of the New 

York State Bar Association, the Capital Markets 

Committee of the Securities Industry Association, 

and from the law firms of Fried, Frank, Harris, 

Shriver & Jacobson, Simpson Thacher & Bartlett, 

Sullivan and Cromwell, and Shearman and Sterling.

7Rule 2710(b)(4)(A) requires a member that 

anticipates participating in a public offering of 

securities subject to the Rule to make a filing with 

NASD. ‘‘Participation in a public offering’’ is 

defined in Rule 2710(a)(4) as ‘‘* * * participation 

in the distribution of the offering on an 

underwritten, non-underwritten, or any other basis 

* * *.’’ Rule 2720 contains a definition of ‘‘public 

offering’’ that is incorporated by reference in Rule 

2710. That definition broadly defines the term as 

‘‘any primary or secondary distribution of securities 

made pursuant to a registration statement or 

offering circular * * * and all other securities 

distributions of any kind whatsoever * * *.’’ NASD 

does not define the term ‘‘distribution’’ and uses 

this term in the general sense.

8 In addition, issuers may file shelf-registered 

offerings on behalf of selling securityholders, in 

anticipation of member participation in the sale of 

the registered securities. Because the timing and 

amount of securities sold off the shelf will be under 

the control of the securityholders, the issuer may 

have little or no information regarding the selling 

arrangements between the securityholders and 

members. In response to these uncertainties, 

NASD’s proposed rule change would provide clearcut filing responsibilities to all members or exempt 

them from filing under the proposed market 

transactions exception.

Members are required to receive the 

Department’s opinion of ‘‘noobjections’’ to the offering terms prior to 

participating in the offering.

In September 2001, NASD published 

Notice to Members 01–59 requesting 

comment on proposed amendments to 

the Corporate Financing Rules to 

modernize and improve the regulation 

of shelf offerings. NASD received six 

comment letters that generally 

supported the proposal and the need to 

amend the rules.6 However, several 

commenters also were concerned that 

the new approach, with its emphasis on 

‘‘Notice Filings’’ after each takedown off 

the shelf, might prove more burdensome 

and expensive than the current rules. 

The Corporate Financing Committee 

also considered the proposal at several 

meetings. At its May 2002 meeting, the 

Committee also expressed concern that 

the Notice Filing approach may not be 

as efficient and yield the benefits it was 

designed to provide.

In response to the comments received, 

NASD staff revised the proposal. In the 

proposed rule change, NASD has 

retained beneficial aspects of the 

original proposal (e.g., the new 

calculation methodologies for 

determining underwriting 

compensation, the Market Transactions 

Exception), and eliminated those other 

aspects that raised legitimate concerns 

(e.g., Notice Filings, special filing 

requirements for Thinly Traded Issuers). 

In addition, NASD staff modified and 

clarified the filing requirements. 

a. Background. When a member 

anticipates participating in a shelf 

offering, the Corporate Financing Rules 

generally require the member to file the 

shelf offering with the Department. 

Many shelf offerings are not 

underwritten, however, and members 

have requested guidance in the past 

concerning their filing obligations in 

shelf offerings. In 1988, NASD 

published Notice to Members 88–101 

(‘‘NtM 88–101’’) to clarify the filing 

requirements that apply to shelf 

offerings. The Notice states that the 

participation of a member in any 

offering of securities distributed 

pursuant to SEC Rule 415 constitutes 

participation in a public offering. The 

Notice also states that any member who 

is named as a potential distribution 

participant in the registration statement 

or who participates in any transaction 

that takes securities off the shelf is 

responsible for ensuring that a timely 

filing is made with the Department. 

Notice to Members 01–59 reiterated this 

position: ‘‘Accordingly, NASD 

Regulation considers shelf offerings to 

be public offerings within the scope of 

the Corporate Financing Rules, and 

members that take securities off a shelf 

and sell them to the public must file 

information about the offering with the 

Department.’’

While these Notices indicate that 

shelf offerings are public offerings that 

must be filed with the Department, the 

requirement to file as currently drafted 

also undermines some of the flexibility 

intended by the shelf offering process 

and has created some practical issues 

and uncertainties for members that sell 

shelf-registered securities: 

• Members have been unclear at 

times whether the sale by a member of 

a small amount of shelf-registered 

securities offered by an issuer or a 

selling security holder triggers a filing 

obligation, and if so, at what point 

should the member make a filing. 

Members have questioned whether the 

execution of unsolicited transactions 

would constitute ‘‘participation in a 

public offering’’ for purposes of the 

Corporate Financing Rules.7

• When several members acting 

independently sell securities, it may be 

unclear which member must make the 

requisite filing with the Department. 

• Many shelf offerings are initially 

filed with the SEC by issuers before they 

enter into underwriting agreements with 

members. Because the NASD filing 

requirements are the responsibility of 

members rather than issuers, few issuers 

file the offering with the Department. 

Those issuers that do file with the 

Department often cannot identify, at the 

time of filing, the members that will be 

engaged in sales, nor will they have 

information regarding underwriting 

discounts, commissions or other terms 

and arrangements.8

• The Department’s review processes 

could delay the offering, thus affecting 

the registrant’s ability to take advantage 

of market opportunities that shelf 

registration is designed to provide. This 

can occur when members do not 

promptly file shelf-registered offerings 

when they anticipate they will 

participate in a takedown, when 

information required by the rules is not 

readily available, or due to mistakes in 

the filing process or transmission of 

filing fees.

The proposed rule change addresses 

these issues by clearly delineating the 

filing responsibility for members that 

participate in shelf offerings and 

providing a streamlined, more 

automated process for all filers, 

including issuers. In addition, the 

proposed rule change provides a 

specific filing exemption for members 

that engage in occasional unsolicited 

takedown transactions, and thus 

members would not have to file when 

they participate in shelf takedowns that 

meet the criteria in the exemption. The 

proposed rule change is intended to 

provide clear guidance to members with 

regard to their filing obligations. 

The proposed rule change also 

addresses the determination of 

underwriting compensation in shelf 

offerings. From time to time members 

have requested guidance on the 

appropriate calculation of underwriting 

compensation in shelf takedown 

transactions. The calculation 

methodology to apply to a particular 

takedown transaction can vary because 

of the many kinds of transactions in 

which shelf-registered securities are 

distributed. For example, shelf 

takedowns can be principal or agency 

transactions, may be sold to investors at 

a fixed price or at a discount to the 

market price, or sold at prevailing 

market prices. Shelf takedowns may 

also be made pursuant to an 

underwriting agreement or without any 

written agreement, and the agreements 

may involve complex formulas, such as 

those found in equity line transactions. 

In the proposed rule change, NASD 

proposes alternative methods to 

Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70741

9The proposed amendments to IM–2440, the 

Mark-Up Policy, clarify that Rule 2710 will govern 

member compensation in all shelf takedowns with 

the exception of those that comply with the 

requirements of the Market Transactions Exemption 

(MTE). Members will not be required to file 

takedowns that comply with the MTE, and member 

compensation in such takedowns will be subject to 

the Mark-Up Policy instead of Rule 2710. These 

clarifications are particularly significant in light of 

the decision on November 14, 2003 by NASD’s 

National Adjudicatory Council (NAC) in the Matter 

of Department of Enforcement v. Walsh Manning 

Securities, LLC et. al. (NASD Complaint No. 

CAF000013), in which the NAC stated in dicta that 

certain shelf offerings were not subject to Rule 2710 

and were instead subject to the Mark-Up Policy. 

Although the complaint alleged violations of the 

Mark-Up Policy, Walsh Manning’s participation in 

takedowns from a selling securityholder shelf 

offering would have triggered a filing requirement 

under the proposed rule change. This is because, 

among other things, Walsh Manning engaged in 

solicited transactions and sold securities in an 

amount that would have exceeded the parameters 

of the MTE. Therefore, Walsh Manning would have 

had to file the offering for review under Rule 2710 

if the proposed rule change had been in effect at 

the time.

10This is consistent with current procedures. 

Members from time to time request that they be able 

to pay filing fees only with regard to the value of 

securities the particular member takes off the shelf, 

but that is not permitted under the current rules, 

and would require members and issuers to pay 

multiple filing fees per shelf offering, creating 

administrative problems and delaying takedowns. 

In addition, if an issuer files documents and 

information with NASD, the filing fee paid by the 

issuer would satisfy the member’s obligation to pay 

the filing fee.

11Rule 2710 requires the disclosure of all 

underwriting compensation in the prospectus. As 

part of its review of a filing, NASD would require 

the maximum compensation to be received by 

members be disclosed before issuing an opinion of 

no-objections regarding the offering.

12For example, NASD would consider changes 

such as the following to be material: the receipt of 

additional items of value by the underwriter and 

related persons that would be deemed underwriting 

compensation and would require an amendment to 

the offering documents, a modification to 

compensation arrangements already reviewed and 

approved and the existence or development of a 

potential conflict of interest that was not reviewed. 

A subsequent filing would be required in these 

instances.

calculate the discount or commission 

received by members that participate in 

shelf offerings. The alternatives are 

intended to take into account the 

different ways members sell securities 

in shelf offerings and to recognize the 

effect of transaction size and whether 

the security has an actively traded 

market. 

The proposed rule change would also 

make several conforming and clarifying 

amendments to the Corporate Financing 

Rules. NASD proposes to amend Rule 

2710 to clarify how to apply the review 

period for underwriting compensation 

when shelf takedowns occur long after 

a shelf registration statement has been 

declared effective, and to clarify the 

application of the lock-up provisions in 

shelf offerings. We also propose to 

amend Rule 2810 so that DPP offerings 

that are registered pursuant to SEC Rule 

415 qualify for the new regulatory 

treatment of shelf offerings under Rule 

2710. The proposed rule change also 

modifies NASD’s Mark-Up Policy in 

IM–2440 to more specifically delineate 

those shelf offerings that are subject to 

the Policy.9

b. Filing Process. Under the proposed 

rule change, the general filing 

requirement for shelf offerings would be 

the same as that for all other public 

offerings, i.e., a member that anticipates 

participating in a shelf offering in any 

capacity shall file required information 

with the Department, unless a filing 

exemption is available. Unlike the 

current system, however, the 

information required in a filing would 

differ depending on whether a filing is 

an ‘‘initial filing’’ or a ‘‘subsequent 

filing’’ of a shelf offering. Because 

members would be able to rely on 

information contained in the initial 

filing, generally less information will be 

required in a subsequent filing. In 

addition, if an issuer makes a filing 

before the initial filing by a member, the 

information and documents filed by the 

issuer (‘‘issuer filing’’) would be 

incorporated into the member’s initial 

filing, further reducing the filing 

obligation of the member. In keeping 

with current practice, if the full filing 

fee has already been paid by the issuer, 

no filing fee would be required of the 

member making the initial filing. As 

with other filings made under Rule 

2710, members would be required to file 

shelf offerings with the Department 

electronically through the COBRADesk 

system. 

Initial Member Filings: Under the 

proposed rule change, before a member 

participates in a shelf offering subject to 

a filing requirement, the member would 

be required to review a COBRADesk 

screen to see if an initial filing has 

already been made on web COBRADesk. 

If the initial filing has not already been 

made, the member will be required to 

make the initial filing with the 

Department and pay the filing fee based 

on the aggregate value of the securities 

registered on the registration 

statement.10 The Department will 

review the filing and issue a noobjections letter with regard to the 

member’s participation in the offering. If 

the maximum amount of compensation 

that the issuer or selling securityholders 

will pay the member in connection with 

takedowns off the shelf is approved and 

disclosed in the registration statement 

or in an amendment or supplement to 

the registration statement, the member 

will be able to rely on the no-objections 

opinion for ‘‘the life of the shelf,’’ as 

long as there are no material changes 

that would affect the Department’s 

review and clearance.11 If more than one 

member has entered into an 

underwriting agreement at the time the 

initial filing is made, the Department 

will issue a no-objections opinion that 

applies to every member disclosed in 

the initial filing or that executes the 

underwriting agreements that were 

reviewed in connection with the filing. 

If the maximum amount of 

compensation that any member will 

receive for selling the securities offered 

by the issuer or selling securityholders 

in takedowns off the shelf is disclosed 

in the registration statement or in an 

amendment or supplement to the 

registration statement, every member 

covered by the no-objections opinion 

will be able to rely on the no-objections 

opinion for ‘‘the life of the shelf,’’

subject to there being no material 

change to the terms and conditions of 

the Department’s review and 

clearance.12

After it issues a no-objections 

opinion, the Department intends to post 

on a screen in COBRADesk the name of 

the issuer, the SEC Accession number of 

the base prospectus in EDGAR, and the 

identity of all members who have 

received no-objections clearance with 

regard to takedowns off that shelf. 

NASD intends to require and maintain 

information identifying each member 

that will participate in an offering in the 

COBRA database. All registered users of 

COBRAdesk will have access to the 

‘‘cleared members’’ screen. 

Subsequent Filings: A member that 

was not cleared to participate in the 

initial member filing but that wants to 

participate in a subsequent takedown 

would have to make a ‘‘subsequent 

filing.’’ In that case, a member that 

wants to participate in a shelf takedown 

first would check web COBRADesk to 

see if the offering has been filed with 

NASD. If the offering has been filed, the 

member would check the ‘‘cleared 

members’’ screen to see if an initial 

member filing has been made. If the 

initial member filing was made and one 

or more members were issued a noobjections opinion, these members 

would be identified. If the member that 

wants to participate in the takedown is 

not in the ‘‘cleared members’’ screen, 

such member would have to make a 

subsequent filing with regard to its 

proposed takedown from the shelf 

registration. If, on the other hand, the 

member has already received a ‘‘life of 

shelf’’ clearance, it would be listed on 

the ‘‘cleared members’’ screen and no 

further filing would be required, unless 

70742 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

13An initial COBRADesk filing cannot be 

submitted unless the required filing fee is 

transmitted. Therefore, a fee based on the aggregate 

amount of securities registered would have already 

been paid in connection with the initial filing. After 

the fee for all of the securities registered for sale is 

paid, no further filing fees would be required. If, 

however, a subsequent filing includes an 

amendment that increases the size of the offering 

or if there is otherwise a balance due, such fees 

would be required in connection with the 

subsequent filing.

14A market maker that engages in solicited 

transactions involving securities offered by means 

of a shelf registration statement may have to file. 

For example, if a market maker engaged in solicited 

purchases of securities from selling securityholders 

who were offering their securities pursuant to a 

prospectus, or that engaged in the solicitation of 

retail investors to purchase such securities may 

incur a filing obligation. Market makers that engage 

in such transactions may in fact be participating in 

the distribution of a public offering, and may have 

to comply with the requirements of SEC Regulation 

M.15 In response to comments from SEC staff, NASD 

has narrowed the MTE to exclude securities quoted 

on the OTC Bulletin Board. The change was made 

in recognition that the NASD has a significant 

regulatory interest in the public distribution of shelf 

registered securities of thinly traded issuers quoted 

on the OTC Markets. Securities quoted on the 

OTCBB are generally less liquid and more volatile 

than those traded on the national securities 

exchanges and the Nasdaq Stock Market, and are 

not subject to the corporate governance and other 

qualification requirements of those markets. 16NASD is proposing to amend its Mark-Up 

Policy, IM–2440, to clarify that shelf takedown 

transactions that come within the parameters of the 

MTE will be subject to the Mark-Up Policy, instead 

of the generally higher compensation limits 

available under Rule 2710. NASD is also amending 

the Mark-Up Policy to specifically exclude shelf 

offerings that are subject to the compensation limits 

in Rule 2710, so that a takedown transaction by a 

member will either be subject to IM–2440 because 

it complies with the MTE, or it will be subject to 

the compensation limitations of Rule 2710. This is 

significant in light of the decision by NASD’s 

National Adjudicatory Council (NAC) in 

Department of Enforcement v. Walsh Manning LLC 

et al. (November, 2003), in which the NAC stated 

in dicta that certain shelf offerings are not subject 

to Rule 2710 and affirmed that the takedowns in 

which Walsh Manning participated were subject to 

NASD’s Mark-Up Policy instead of Rule 2710. 

Under the proposed rule change, Walsh Manning 

would have had to make a filing and its 

compensation would have been subject to Rule 

2710, as the takedowns in which the firm 

participated would not have complied with the 

requirements of the MTE (see also footnote No. 5).

a material change takes place in the 

future that would require additional 

review or another subsequent filing. 

Members are obligated under the 

Corporate Financing Rules to submit 

modifications to underwriting 

compensation or new items of 

compensation for review after the 

issuance of a no-objections opinion, and 

similarly, if a conflict of interest 

developed, this would be deemed a 

material change in the terms of the 

approval. Therefore, ‘‘life of shelf’’

clearance means that if a member 

remains in compliance with the terms of 

its clearance then it would not need to 

file again concerning any takedown 

from a shelf offering for which the 

member appears in the ‘‘cleared 

members’’ screen.

If an initial member filing has been 

made, but a particular member is not 

listed on the cleared members screen, 

then that member would have to make 

a subsequent filing. No fee would be 

charged in connection with such a 

filing, however.13 The member making 

the subsequent filing would be required 

to provide certain summary information 

and representations through web 

COBRADesk, and receive a noobjections opinion prior to participating 

in the offering.

Expedited Reviews: In response to 

comments requesting expedited 

treatment for shelf offerings, NASD 

proposes to develop an automated 

review and clearance (ARC) process for 

Subsequent Member Filings of shelf 

offerings that meet eligibility criteria. 

Although certain offerings, such as 

those that require a qualified 

independent underwriter to resolve 

conflicts of interest, would not be 

eligible for an automated clearance 

generated by web COBRADesk, the staff 

anticipates that ARC would expedite a 

majority of Subsequent Member Filings. 

The system generated no-objections 

letter would be automatic, if all of the 

required information is provided and 

there are no review issues such as 

proposed compensation that exceeds the 

maximum allowable amount. The 

system would recognize when a 

Subsequent Member Filing satisfies 

these criteria and the member would be 

displayed in the ‘‘cleared member’’

screen automatically. ARC would 

permit filers to expedite their own 

reviews, as the system would issue the 

no-objections opinion to the members 

on a 24-hour basis as soon as the 

requirements for clearance are satisfied. 

Such approvals would generally be 

subject to spot checks and the routine 

member examination process with 

regard to the veracity of undertakings 

and information provided to NASD. 

c. Market Transactions Exception 

(MTE). The MTE was designed to 

provide an exception from the filing 

requirements under the Corporate 

Financing Rules for members that 

participate in takedown transactions 

that are more like ordinary trading 

transactions than public offerings. The 

original proposal published in 2001 was 

well received by the commenters and 

the Committee, although many believed 

that it was too complex and that it 

lacked predictability as it exempted 

some, but not all transactions governed 

by underwriting agreements. 

Accordingly, NASD has simplified the 

MTE by excluding underwritten 

transactions and deleting some of the 

volume limitations published in Notice 

to Members 01–59, and clarified that 

agency and principal transactions must 

be unsolicited and may not exceed the 

greater of 2% of the ADTV for the 

security (calculated in accordance with 

SEC Regulation M) or 10,000 shares, on 

any given trading day. 

The requirement that transactions be 

unsolicited applies to both sides of a 

securities transaction. For example, in a 

principal transaction, the member could 

neither solicit a selling securityholder to 

sell shelf-registered securities to it nor 

solicit a purchaser for such securities. 

Similarly, in an agency transaction, a 

member could not solicit an issuer or 

selling securityholder to sell, nor could 

it solicit an investor to purchase such 

securities. The MTE provides an 

exemption to members that engage in a 

variety of takedown transactions such as 

unsolicited brokerage transactions, 

principal transactions as a result of 

unsolicited customer orders and 

transactions in member proprietary 

accounts, subject to the 2% or 10,000 

share daily limit. 

Market making transactions in a 

security for which a member is a 

registered market maker would 

generally not constitute participation in 

a public offering, and NASD would not 

consider a posted bid or offer by a 

market maker in the ordinary course of 

its business to constitute solicitation for 

purposes of the MTE.14

With one exception, the remaining 

MTE requirements contained in the 

proposed rule change were published in 

Notice to Members 01–59, and include 

the following:15

• The shelf offering or takedown 

cannot be the initial public offering of 

the issuer’s equity securities, and cannot 

occur within 90 days of the issuer’s 

initial public offering; 

• The security must be listed on The 

Nasdaq Stock Market or a national 

securities exchange; 

• The participating member cannot be 

an affiliate of the issuer nor have a 

conflict of interest with the issuer; 

• The transactions are subject to the 

5% limitation under the Mark-Up Policy 

rather than the compensation 

limitations under the Corporate 

Financing Rule;16 and

• The participating member and its 

associated persons have not acquired an 

item of value in connection with their 

participation in the shelf offering that 

would be considered underwriting 

compensation (excluding a discount or 

commission that complies with the 

Mark-Up Policy). 

Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70743

17The prevailing market price would be 

determined pursuant to IM–2440, the Mark-Up 

Policy, and Notice to Members 92–16. Because this 

methodology would not work in a dominated or 

controlled market, we propose not to make it 

available for offerings of securities of thinly-traded 

issuers. The proposed rule change would require 

that the takedown security be an Actively Traded 

Security under Regulation M, or a security with a 

bona fide independent market, as defined in NASD 

Rule 2720(b) to qualify for the use of the Prevailing 

Market Price Method.

18Telephone conversation between NASD and 

Commission Staff on November 22, 2004.

19See note 6, supra.

Based on these restrictions, members 

that anticipate selling shelf registered 

securities in non-underwritten 

transactions would be required to assess 

their intended participation level to 

determine whether the MTE (or other 

filing exemption) is available or whether 

an initial or subsequent filing should be 

made. Under the proposed rule change, 

a member that only intends to 

participate in transactions that satisfy 

the MTE requirements would not be 

required to make a filing. On the other 

hand, if a member anticipates that its 

level of participation would exceed the 

MTE parameters, the member should 

make a filing in advance of participation 

so that it can sell the securities in its 

accounts or the accounts of its 

associated persons or affiliates, taking 

advantage of market conditions without 

having to monitor compliance with 

various restrictions in the MTE or be 

subject to the delay of having to make 

a filing later. For example, a member 

should anticipate participating in a shelf 

offering by selling security holders if a 

substantial percentage of the securities 

offered by the selling security holders 

are held in the member’s proprietary or 

customer accounts, such that it would 

be likely that proprietary transactions or 

transactions with its customers or 

affiliates would exceed 2% of the ADTV 

for the security on a given trading day.

The proposed rule change would 

require each member that anticipates 

participating in a shelf offering 

takedown to determine whether a filing 

exemption or the MTE is available, and 

if not, whether its participation would 

require an initial filing, subsequent 

filing, or no filing at all, because the 

member is already included in the 

‘‘cleared members’’ COBRADesk screen 

for that shelf offering and has ‘‘life of 

shelf’’ clearance. 

d. Underwriting Compensation. Under 

the proposed rule change, the amount of 

underwriting compensation in a shelf 

takedown governed by an underwriting, 

equity line, private investments in 

public equity (PIPE), or similar 

agreement between the issuer and any 

selling member would generally be 

based on the commission or discount set 

forth in the agreement. Such agreements 

may be firm commitment underwriting 

agreements, best-efforts underwriting 

agreements, equity lines of credit 

agreements, purchase agreements, or 

some other form of agreement for the 

sale of securities from a shelf 

registration. Where there may be some 

question concerning the appropriate 

valuation of a discount that is governed 

by a market-based formula or other more 

complex compensation arrangement, 

NASD intends to value the 

compensation based on its analysis of 

the arrangement, establishing an 

appropriate valuation through the 

review process. 

In the absence of an agreement 

governing a member’s participation in a 

takedown of securities from a shelf 

registration, the proposed rule change 

provides alternative methods of 

calculation depending on whether a 

transaction was an agency or principal 

transaction. In an agency transaction, 

the underwriting compensation would 

be the amount of the commission that is 

added to the sale price of the securities 

paid by investors. In a principal 

transaction where the discount or 

commission is not specified by an 

agreement, NASD proposes three 

methodologies that members could 

utilize to determine compensation 

amounts: (1) The Resale Spread Method, 

in which the discount would be 

calculated as the difference between the 

purchase price of the securities off the 

shelf and their resale price; (2) the 

Prevailing Market Price Method, in 

which the discount would be calculated 

as the difference between the purchase 

price of the securities off the shelf and 

the ‘‘prevailing market price’’ of the 

security at the time of purchase; 17 and 

(3) the Initial Resale Price Method, in 

which the discount would be calculated 

as the difference between the purchase 

price of the securities off the shelf and 

the price at which the first significant 

amount of sales after the takedown were 

executed. This third methodology 

would take into account market price 

movements that occur subsequent to a 

member’s acquisition of the shelfregistered securities that could affect the 

discount, while ensuring that enough 

securities are sold to establish a 

reasonable, bona fide compensation 

calculation.

In a principal transaction, NASD 

anticipates that the Resale Spread 

method would be the primary method of 

calculating underwriting compensation, 

due to the market and transaction size 

requirements of the other methods. The 

Resale Price Method would generally be 

the most accurate measure of 

compensation regardless of the type of 

security or manner of distribution. The 

Prevailing Market Price and Initial 

Resale Price Methods would be 

available when members are subject to 

significant market risk due to the size of 

a takedown transaction or due to 

changes in market conditions (in an 

actively traded or bona fide 

independent 18 market) during the 

distribution of a shelf takedown. NASD 

solicits comment on whether the 

eligibility criteria for these alternative 

calculation methodologies should be 

expanded from those currently 

proposed.

NASD believes that these calculation 

methodologies will provide greater 

certainty to members and aid them in 

complying with the underwriting 

compensation requirements in 

connection with their participation in 

shelf offerings of securities. 

2. Statutory Basis 

NASD believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act, which 

requires, among other things, that 

NASD’s rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. Specifically, we believe 

that the proposed rule change amends 

NASD’s Corporate Financing Rule to 

provide greater clarity regarding when 

to make filings for shelf offerings while 

also ensuring that such filing 

requirements do not undermine the 

flexibility intended by the shelf 

registration process. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASD does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The proposed rule change was 

published for comment in NASD Notice 

to Members 01–59 (September 2001). 

NASD received six comment letters 19

that generally supported the proposal 

and the need to amend the rules. 

However, several commenters also were 

concerned that the new approach might 

prove more burdensome and expensive 

than the current rules. Of the six 

comment letters received, three were in 

favor of the proposed rule change and 

70744 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

20NASD is proposing to rescind an interpretation 

included in Notice to Members 93–88 (December 

1993) that stated the filing exemption for S–3/F–3 

shelf offerings was not available if the shelfregistered securities were sold in a conventional 

underwritten offering within a few days following 

the effective date of the registration statement. This 

change will liberalize the filing exemption and 

allow more offerings to be exempt from filing. 

NASD also proposed to rescind this policy in Notice 

to Members 01–59 (September 2001).

21These cases involve allegations of undisclosed 

underwriting compensation, conflicts of interest, 

failure to file, violations of SEC Regulation M, and 

other charges. In addition, shelf-registered equity 

line financings have raised significant issues 

regarding compliance with NASD Conduct Rules 

and the federal securities laws.

22Large publicly-traded Canadian issuers 

registering non-convertible investment grade 

securities may use Form F–9.

23Based on the results of a database search, no 

recent filings on Form F–9 were identified.

24Schedule B is the Registration Statement used 

by foreign governments (or political subdivisions of 

foreign governments) to register securities. If the 

distribution involves a shelf offering, language 

appearing on a Schedule B Registration Statement 

would be similar to the following: ‘‘The securities 

being registered hereby are to be offered on a 

delayed or continuous basis pursuant to Releases 

No. 33–6248 and 33–6424 under the Securities Act 

of 1933.’’ Therefore, a Schedule B filer is not 

technically making its shelf offering pursuant to 

SEC Rule 415, but through other provisions 

afforded foreign governments.

three viewed portions of the proposal 

unfavorably. NASD notes that the 

proposed rule change has undergone 

significant revisions since the 

publication of Notice to Members 01–59 

and the comment letters were sent in 

response to the original proposal.

In general, the commenters suggested 

further reductions in members’

regulatory burdens and additional 

exemptions from the filing requirement. 

NASD does not believe that the more 

comprehensive exemptions suggested 

by some commenters, such as 

exemptions for all Form S–3 filings or 

all shelf offerings, is warranted. In 

addition, several commenters 

apparently misunderstood some aspects 

of the proposal. We describe the 

comments received and the way that the 

proposal was modified in response. We 

also describe several suggestions made 

by the commenters that NASD does not 

support because they would not 

improve the Corporate Financing Rules 

or would be inconsistent with their 

purpose. 

Filing Exemptions for Shelf Offerings:

The proposed rule change eliminates 

the explicit references to ‘‘pre-1992’’

Form S–3 eligibility requirements in the 

filing exemption for securities registered 

on Forms S–3 (and F–3) offered 

pursuant to SEC Rule 415 while 

preserving the current filing 

requirements. This change adds clarity 

and simplicity as members or their 

counsel will no longer need to 

determine what eligibility criteria for 

those forms were in effect prior to 

October 1992.

Some commenters requested that 

NASD reduce the S–3/F–3 exemption 

requirements to 12 months reporting 

history and $75 million in public float, 

in line with the current eligibility 

requirements for those forms. NASD 

believes there are important regulatory 

purposes for the current filing 

requirements and accordingly, we do 

not propose to expand the S–3/F–3 

exemption in response to the comments 

for the reasons described below: 

First, the 12-month reporting and $75 

million float requirements currently in 

effect are criteria that determine 

whether an issuer is eligible for a 

particular type of registration form. The 

Commission does not exempt the 

companies that meet these eligibility 

requirements from filing a registration 

statement. Accordingly, the argument 

that NASD should exempt such 

offerings from filing, and that the 

Corporate Financing Rule’s filing 

exemption should automatically track a 

registration form eligibility requirement 

is not persuasive. Second, SEC 

Regulation M requires a $150 million 

public float as a condition for 

exemption from trading restrictions 

during secondary distributions. This 

requirement supports NASD’s position 

that issuers with less than a $150 

million float are more prone to abusive 

or fraudulent trading and distribution 

activity. The SEC adopted SEC 

Regulation M in 1997, five years after 

the requirements for Forms S–3/F–3 

were relaxed. 

Third, in Notice to Members 93–88, 

the NASD stated that competitive 

market forces and an active following in 

the investment community were 

important factors in its decision to 

exempt S–3/F–3 shelf offerings.20 When 

compared to issuers that are larger and 

have been reporting companies for a 

longer period, S–3/F–3 filers with only 

a 12-month reporting history and a $75 

million float would be less likely to be 

followed by investment professionals 

and investors, and would be more likely 

to have thinly-traded markets for their 

equity securities. Accordingly, we 

believe that such companies would be 

more likely to be subjected to 

unreasonable underwriting provisions. 

NASD has ongoing investigations that 

involve securities registered on Form S–

3.21 The float and reporting history 

requirements in the Corporate Financing 

Rule provide the NASD with an 

opportunity to review these offerings 

prior to effectiveness and uncover 

problems with the compensation 

structure and other potential violations 

before members can sell the securities to 

the public.

One commenter suggests that the 

provision in Forms S–3 and F–3 that 

permits a successor entity to tack on the 

reporting period of a predecessor 

organization should be incorporated 

into the Form S–3/F–3 exception in the 

Corporate Financing Rule. We agree that 

a successor registrant should be eligible 

to tack the reporting history of its 

predecessor in order to meet the 36-

month reporting history requirement in 

the Corporate Financing Rule. The 

requirements for tacking are narrowly 

drawn and ensure that the assets, 

liabilities and public information 

regarding the successor are equivalent to 

those of other issuers whose shelfregistered offerings are eligible for the 

S–3/F–3 exemption. 

One commenter recommends that the 

Rule be amended to provide an 

additional exemption for offerings by 

issuers filing on Form F–9.22 The 

Department rarely, if ever, receives 

offerings registered on Form F–9.23

Form F–9 permits registration of nonconvertible debt rated investment grade 

by an NRSRO or an ‘‘Approved Rating 

Organization.’’ Due to the fact that there 

is already an exemption in the 

Corporate Financing Rule for offerings 

of securities rated investment grade and 

the lack of filings on Form F–9, we do 

not find this request for a filing 

exemption necessary at this time.

Schedule B Issuers Exemption: Two 

commenters recommend that NASD 

amend the proposal to include an 

exemption from filing for Schedule B 

issuers.24 They state that foreign 

sovereigns offering debt securities in the 

U.S. use Schedule B rather than the 

Forms F–3 or F–10. Currently, there is 

no exemption from NASD filing 

requirements for these offerings. We 

disagree that foreign governments or 

their political subdivisions that are 

eligible under SEC rules to use Schedule 

B are not likely to need NASD review 

of the underwriting terms and 

arrangements with U.S. underwriters. 

NASD believes such an exemption 

would be inappropriate in light of 

recent concerns related to inequitable 

practices of members in such offerings. 

These recent investigations call into 

question the assumptions that 

commenters have made concerning the 

ability of Schedule B issuers to negotiate 

on an even footing with global 

investment banking firms to whom the 

issuer depends on for advice and 

funding. Accordingly, NASD has not 

included such an exemption in the 

proposed rule change.

Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 70745

Multi-Issuer (Trust) Exemptions: One 

commenter noted an increase in the 

number of ‘‘multi-issuer’’ shelf offerings 

by individual corporate groups. The 

commenter explained that these 

transactions involve multiple offerings 

of debt and equity securities by a parent 

or operating entity and offerings of trust 

preferred or pass-through securities 

(‘‘Trust Preferred’’) by special purpose 

vehicles created by the parent or 

operating entity. The commenter 

suggested that offerings of Trust 

Preferred securities should be exempt 

from filing when the parent or operating 

entity satisfies the criteria for the S–3/

F–3 exemption or the exemption for 

issuers with investment grade rated 

debt. 

NASD does not agree that the 

proposal should be amended to include 

an exemption for Trust Preferred 

securities due to problems recently 

uncovered in investigations that have 

involved securities issued from trusts 

formed as special purpose financing 

vehicles. The Department generally 

reviews Trust Preferred securities as 

DPP offerings under Rule 2810 because 

of their pass through features. The 

Department has recently encountered 

regulatory problems with a variety of 

DPP offering structures, terms and 

compensation arrangements, and does 

not believe it would be appropriate to 

exempt as a class such offerings from 

review. 

Expedited Reviews: Several 

commenters suggested that the 15-

business day review period should be 

shortened in light of the market timing 

and competitive environment associated 

with shelf offerings. In most cases, the 

Department believes it can complete its 

review in far fewer than 15 days. The 

Department is generally attentive to 

requests for expedited reviews and 

prioritizes the review of offerings to 

address the timing concerns of 

members, and the staff has developed 

procedures for expedited reviews and 

would give priority to meeting the 

timing needs of members that must 

receive a no-objections letter prior to 

participating in a shelf offering. 

In addition, Subsequent Member 

Filings of shelf takedowns that meet 

certain criteria would be eligible for 

expedited reviews through an 

automated review and clearance (ARC) 

process. For certain takedown 

transactions, such as those that do not 

require a qualified independent 

underwriter due to conflicts of interest, 

members would be eligible for an 

automatic clearance generated by web 

COBRADesk for any filings that follow 

the Initial Member Filing. The system 

generated no-objections letter would be 

automatic, if all of the required 

information is provided and there are no 

review issues such as proposed 

compensation that exceeds the 

maximum allowable amount. The 

system would recognize when a 

Subsequent Member Filing satisfies 

these criteria and the member would be 

displayed in the ‘‘cleared member’’

screen automatically. ARC would 

permit filers to expedite their own 

reviews, as the system would issue the 

no-objections opinion to the member(s) 

on a 24-hour basis as soon as the 

requirements for clearance are satisfied.

Notice Filing Requirements: Notice 

Filings were proposed in Notice to 

Members 01–59 (September, 2001) in 

order to provide members with 

increased flexibility to quickly take 

advantage of market opportunities. For 

certain offerings, members could file 

after they participated in a takedown 

and would not need a no-objections 

opinion prior to such participation in 

the offering. Many commenters 

suggested that Notice Filings would not 

result in the efficiencies envisioned by 

the staff. Some commenters suggested 

that Notice Filings would create risks 

for members as the regulatory review 

would shift to an examination function 

as opposed to the pre-effective review 

and comment process that is currently 

in effect. Members expressed concern 

that the filing process and fees did not 

provide any benefit to members and that 

members would prefer to manage their 

regulatory risk in a different manner. 

Four commenters contend that since the 

NASD will not render an opinion in 

connection with these filings, then there 

would be reason to make a filing, as 

NASD rules generally do not require 

members to make filings for the purpose 

of confirming their compliance with the 

rules. Commenters also expressed 

concern that the Notice Filing deadlines 

within 3 and 10 business days of a 

takedown could cause confusion. To 

address these concerns, the staff has 

eliminated the Notice Filing proposal. 

Coordination of Rule 2710 and Rule 

2810: Two commenters were concerned 

that the proposal makes offerings 

subject to Rule 2810 (direct 

participation programs) subject to the 

provision of the Corporate Financing 

Rule. They recommend that the 

proposed rule change should not be 

made without further review of each of 

the provisions of the Corporate 

Financing Rule, as it would apply to 

offerings subject to Rule 2810. 

The proposed amendments only 

apply to the filing requirements of Rule 

2810 and conform these requirements 

and the filing fee requirements with the 

requirements in the Corporate Financing 

Rule. The Department would not review 

DPPs for compliance with the 

substantive provisions in the Corporate 

Financing Rule. 

Mark-Up Policy: One commenter 

opposed amending IM–2440 since the 

amendment targets shelf offerings 

exempt under the Market Transaction 

Exception. The commenter claims that 

shelf offerings exempt under MTE are 

only exempt from the filing requirement 

of Rule 2710, yet still subject to the 

compensation limits of Rule 2710 and 

Rule 2810. 

The commenter misunderstands the 

purpose of the exemption. We do not 

anticipate that the Market Transaction 

Exception will apply to most shelf 

offerings. The exception is designed to 

be narrow and cover securities sold on 

an agency basis in an ordinary market 

transaction that does not rise to the level 

of a ‘‘distribution.’’ Because such trades 

are not distributions, the generally 

higher compensation limits available 

under the Corporate Financing Rule for 

members engaged in a distribution 

would not be available. Instead, the 

transaction would be governed by the 

NASD’s Mark-Up Policy. 

The Acquisition of Unregistered 

Securities and Rule 144A: Two 

commenters state that, in their 

experience, securities acquired by 

members and their associated persons 

from issuers before a shelf offering are 

not compensatory and do not represent 

an opportunity to provide underwriting 

compensation to NASD members for a 

subsequent offering. The commenters 

state that members and their affiliates 

frequently hold securities of issuers sold 

in Rule 144A offerings, which may have 

been acquired as an unsold allotment by 

a dealer acting as an initial purchaser, 

from other dealers acting as initial 

purchasers, or from third parties in the 

private secondary resale market. These 

commenters claim that if a member 

purchased securities of the issuer’s 

securities pursuant to Rule 144A, the 

member could not underwrite a shelf 

tranche within 180-days of the 

takedown, as the acquisitions would 

make the member ineligible for a Notice 

Filing. One commenter notes that this 

may have a negative effect upon issuers 

because they may be prohibited from 

using the investment bankers with 

whom they are most familiar and would 

create an unlevel playing field among 

members and reduce competitive 

choices for issuers. 

NASD staff notes that these comments 

were generated as a result of the Notice 

Filing proposal, which was eliminated. 

Under the proposed rule change, 

members that anticipate participation in 

a shelf offering, subject to available 

70746 Federal Register / Vol. 69, No. 234 / Tuesday, December 7, 2004 / Notices 

25Section 2(a)(11) of the Securities Act provide 

that the term underwriter ‘‘shall not include a 

person whose interest is limited to a commission 

from an underwriter or dealer not in excess of the 

usual and customary distributors’ or sellers’

commission.’’

26Selected Dealers are typically covered by the 

filing made by a managing underwriter.

27NASD has consented to an extension of time for 

the Commission to take action on this proposed rule 

change.

28 17 CFR 200.30–3(a)(12).

filing exemptions and the Market 

Transactions Exception, will make 

either an initial or a subsequent filing. 

Unregistered securities that constitute 

items of value that were acquired by 

such members, or their affiliates and 

associated persons within 180 days of 

the filing would be reviewed by NASD 

and would only be deemed 

underwriting compensation if 

appropriate, and subjected to the 

applicable compensation limitations 

and disclosure requirements of the 

Corporate Financing Rules. 

Selected Dealers: One commenter 

suggested that compensation to selected 

dealers is not relevant to underwriting 

compensation. Another commenter 

wrote that selected dealers are not 

underwriters for purposes of the 

Securities Act.25 These commenters 

claim that selected dealers should be 

excepted from the information required 

by the NASD concerning participating 

members, and unregistered securities 

and items of value received by selected 

dealers should not be included in the 

calculation of underwriting 

compensation. They also claim that 

selected dealers should not have an 

obligation to make filings under the 

Corporate Financing Rule.26

The basic premise for including 

selected dealers’ compensation as 

underwriting compensation is that such 

members are participating in the 

distribution of an offering. The 

definition of ‘‘participation in a public 

offering’’ in the Corporate Financing 

Rules, includes participating on ‘‘* * * 

an underwritten, non-underwritten, or 

any other basis * * *’’ and therefore 

includes selected dealers. Moreover, the 

rule specifically requires that selected 

dealer agreements be filed for review. 

The staff has reviewed offerings in 

which a selected dealer was allocated a 

substantial portion of the underwritten 

securities due to its relationship with 

the issuer and the managing 

underwriter. NASD Notice to Members

88–101 states that the ‘‘participation of 

a member in any offering of securities 

distributed pursuant to Rule 415 

constitutes participation in a public 

offering.’’ Excluding selected dealers 

would create loopholes in the treatment 

of underwriting compensation and 

conflicts of interest. NASD views 

selected dealers as members 

participating in public offerings. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

A. By order approve such proposed 

rule change, or 

B. Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASD–2004–022 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

450 Fifth Street, NW., Washington, DC 

20549–0609. 

All submissions should refer to File 

No. SR–NASD–2004–022. This file 

number should be included on the 

subject line if e-mail is used. To help us 

process and review comments more 

efficiently, comments should be sent in 

hardcopy or by e-mail but not by both 

methods. The Commission will post all 

comments on the Commission’s Internet 

Web site (http://www.sec.gov/rules/

sro.shtml). Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing will also be 

available for inspection and copying at 

the principal office of NASD. All 

submissions should refer to file number 

SR–NASD–2004–022 and should be 

submitted by January 21, 2005.27

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.28

Jill M. Peterson, 

Assistant Secretary.

[FR Doc. 04–26809 Filed 12–6–04; 8:45 am] 

BILLING CODE 8010–01–P

DEPARTMENT OF STATE

[Public Notice 4917] 

Culturally Significant Object Imported 

for Exhibition Determinations: ‘‘Andre ́

Kerte ́sz’’

SUMMARY: Notice is hereby given of the 

following determinations: Pursuant to 

the authority vested in me by the Act of 

October 19, 1965 (79 Stat. 985; 22 U.S.C. 

2459), Executive Order 12047 of March 

27, 1978, the Foreign Affairs Reform and 

Restructuring Act of 1998 (112 Stat. 

2681, et seq.; 22 U.S.C. 6501 note, et 

seq.), Delegation of Authority No. 234 of 

October 1, 1999, and Delegation of 

Authority No. 236 of October 19, 1999, 

as amended, and Delegation of 

Authority No. 257 of April 15, 2003 [68 

FR 19875], I hereby determine that the 

object to be included in the exhibition 

‘‘Andre ́ Kerte ́sz,’’ imported from abroad 

for temporary exhibition within the 

United States, is of cultural significance. 

The object is imported pursuant to a 

loan agreement with the foreign owner. 

I also determine that the exhibition or 

display of the exhibit object at the 

National Gallery of Art, Washington, DC 

from on or about January 30, 2005 to on 

or about May 1, 2005, the J. Paul Getty 

Museum, Los Angeles, CA from on or 

about June 7, 2005, to on or about 

August 28, 2005, and at possible 

additional venues yet to be determined, 

is in the national interest. Public Notice 

of these determinations is ordered to be 

published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: For 

further information, including a list of 

the exhibit object, contact Carol B. 

Epstein, Attorney-Adviser, Office of the 

Legal Adviser, Department of State, 

(telephone: 202/453–8048). The address 

is Department of State, SA–44, 301 4th 

Street, SW., Room 700, Washington, DC 

20547–0001.