[Federal Register Volume 65, Number 110 (Wednesday, June 7, 2000)]
[Notices]
[Pages 36198-36201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14280]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42876; File No. SR-NASD-99-69]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. 
Clarifying Certain Listing Standards of the Nasdaq Stock Market, Inc.

May 31, 2000.
    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 November 22, 1999, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') through its wholly owned subsidiary, 
The Nasdaq Stock Market, Inc. (``Nasdaq''), 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 Nasdaq. The Association submitted Amendments No. 1 \3\ 
and No. 2 \4\ to the proposed rule change on April 10, 2000, and April 
2000, respectively. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter to Jack Drogin, Senior Special Counsel, Division 
of Market Regulation, Commission, from Robert E. Aber, Senior Vice 
President and General Counsel, Nasdaq, dated April 7, 2000 
(``Amendment No. 1''). Amendment No. 1 clarifies that the proposed 
time frame for gaining compliance with the continued inclusion 
market capitalization standards applies to issuers listed on both 
the Nasdaq SmallCap Market and the Nasdaq National Market. In 
addition, Amendment No. 1 clarifies that the method for regaining 
compliance with the continued inclusion requirement for the number 
of market makers set forth in Rule 4310(c)(8)(A) applies to issuers 
listed on both The Nasdaq SmallCap Market and the Nasdaq National 
Market. Finally, Amendment No. 1 makes certain technical corrections 
to the proposed rule change.
    \4\ See Letter to Jack Drogin, Senior Special Counsel, Division 
of Market Regulation, Commission, from Robert E. Aber, Senior Vice 
President and General Counsel, Nasdaq, dated April 25, 2000 
(``Amendment No. 2''). Amendment No. 2 clarifies that Rule 
4310(c)(8)(C) is being amended to specify time frames for 
determining when an issuer is non-compliant or has regained 
compliance with the Association's market capitalization standards. 
Amendment No. 2 also clarifies that the NASD's Rule 4300 series 
contains the qualification requirements for all securities included 
in The Nasdaq Stock Market while the Rule 4400 Series sets forth 
additional requirements for those securities designated for the 
Nasdaq National Market.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq has filed with the Commission a proposed rule change to

[[Page 36199]]

clarify certain provisions of its listing standards. Below is the text 
of the proposed rule change. Proposed new language is italicized; 
proposed deletions are in brackets.
* * * * *

4200. DEFINITIONS

    (a) For purposes of the Rule 4000 Series, unless the context 
requires otherwise:
    (1)-(19) No change.
    (20) ``Market Capitalization'' means the closing bid price 
multiplied by total shares outstanding, including all common and 
convertible preferred shares (but excluding redeemable convertible 
preferred shares, other than preferred stock redeemable solely by the 
issuer).
    (20)-(36) renumbered as (21)-(37).
    (b) No change.

4310. Qualification Requirements for Domestic and Canadian 
Securities

    To qualify for inclusion in Nasdaq, a security of a domestic or 
Canadian issuer shall satisfy all applicable requirements contained in 
paragraphs (a) or (b), and (c) hereof.
    (a) No change.
    (b) No change.
    (c) In addition to the requirements contained in paragraph (a) or 
(b) above, and unless otherwise indicated, a security shall satisfy the 
following criteria for inclusion in Nasdaq:
    (1)-(7) No change.
    (8)(A) A failure to meet the continued inclusion requirements for a 
number of market makers shall be determined to exist only if the 
deficiency continues for a period of 10 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 30 calendar days from such notification to achieve compliance 
with the applicable continued inclusion standard.
    Compliance can be achieved by meeting the applicable standard for a 
minimum of 10 consecutive business days during the 30 day compliance 
period.
    (B) No change.
    (C) A failure to meet the continued inclusion requirements for 
market capitalization shall be determined to exist only if the 
deficiency continues for a period of 10 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 30 calendar days from such notification to achieve compliance 
with the applicable continued inclusion standard. Compliance can be 
achieved by meeting the applicable standard for a minimum of 10 
consecutive business days during the 30 day compliance period.
    (9)-(24) No change.
(25) Corporate Governance Requirements
* * * * *
    (A)-(G) No change.
(H) Shareholder Approval
    (i) Each issuer shall require shareholder approval of a plan or 
arrangement under subparagraph a. below, or prior to the issuance of 
designated securities under subparagraph b., c., or d. below:
    a. No change.
    b. When the issuance or potential issuance will result in a change 
of control of the issuer.
    c. No change.
    d. In connection with a transaction other than a public offering 
involving:
    1. the sale, [or] issuance or potential issuance by the issuer of 
common stock (or securities convertible into or exercisable for common 
stock) at a price less than the greater of book or market value which 
together with sales by officers, directors or substantial shareholders 
of the company equal 20% or more of common stock or 20% or more of the 
voting power outstanding before the issuance; or
    2. the sale, [or] issuance or potential issuance by the company of 
common stock (or securities convertible into or exercisable common 
stock) equal to 20% or more of the common stock or 20% or more of the 
voting power outstanding before the issuance for less than the greater 
of book or market value of the stock.
    (ii)-(vi) No change.
    (26)-(28) No change.
    (d) No change.

4320. Qualification Requirements for Non-Canadian Foreign 
Securities and American Depositary Receipts

    To qualify for inclusion in Nasdaq, a security of a non-Canadian 
foreign issuer, an American Depositary Receipt (ADR) or similar 
security issued in respect of a security of a foreign issuer shall 
satisfy the requirements of paragraphs (a), (b) or (c), and (d) and (e) 
of this Rule.
    (a)-(d) No change.
    (e) In addition to the requirements contained in paragraphs (a), 
(b) or (c), and (d), the security shall satisfy the following criteria 
for inclusion in Nasdaq:
    (1) No change.
    (2) (A) No change.
    (B) No change.
    (C) No change.
    (D) A failure to meet the continued inclusion requirements for 
market capitalization shall be determined to exist only if the 
deficiency continues for a period of 10 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 30 calendar days from such notification to achieve compliance 
with the applicable continued inclusion standard. Compliance can be 
achieved by meeting the applicable standard for a minimum of 10 
consecutive business days during the 30 day compliance period.
    (E) In the case of ADRs, the underlying security will be considered 
when determining the ADR's qualification for initial or continued 
inclusion on Nasdaq.
    (3)-(20) No change.
    (21) Corporate Governance Requirements.
* * * * *
    (A)-(G) No change.
(H) Shareholder Approval
    (i) Each issuer shall require shareholder approval of a plan or 
arrangement under subparagraph a. below, or prior to the issuance of 
designated securities under subparagraph b., c., or d. below:
    a. No change.
    b. When the issuance or potential issuance will result in a change 
of control of the issuer;
    c. No change.
    d. in connection with a transaction other than a public offering 
involving:
    1. The sale, [or] issuance or potential issuance by the issuer of 
common stock (or securities convertible into or exercisable for common 
stock) at a price less than the greater of book or market value which 
together with sales by officers, directors or substantial shareholders 
of the company equals 20% or more of common stock or 20% or more of the 
voting power outstanding before the issuance; or
    2. the sale, [or] issuance or potential issuance by the company of 
common stock (or securities convertible into or exercisable common 
stock) equal to 20% or more of the common stock for 20% or more of the 
voting power outstanding before the issuance for less than greater of 
book or market value of the stock.
    (ii)-(vi) No change.
    (22)-(24) No change.
    (f) No change.

4420. Quantitative Designation Criteria

    In order to be designated for the Nasdaq National Market, an issuer 
shall be required to substantially meet the criteria set forth in 
paragraphs (a), (b), (c), (d), (e), (f), or (g) below. Initial Public 
Offerings substantially meeting

[[Page 36200]]

such criteria are eligible for immediate inclusion in the Nasdaq 
National Market upon prior application and with the written consent of 
the managing underwriter that immediate inclusion is desired. All other 
qualifying issues, excepting special situations, are included on the 
next inclusion date established by Nasdaq.
    (a)-(c) No change.
(d) Rights and Warrants
    (1) Rights or warrants to purchase designated securities may be 
designated if [the warrants] they substantially meet the above 
criteria; provided, however, that they shall not be subject to the 
publicly held shares, market value of publicly held shares, or bid 
price requirements and shall not be required to meet the criteria set 
forth in paragraph (a)(2), (b)(2), or (c)(1) if immediately after the 
distribution, there are at least 450,000 rights or warrants 
outstanding.
    (2) No change.
(e) Computations
    The computations required by paragraph (a)(1), (a)(5), and (b)(1) 
shall be taken from the issuer's most recent financial information 
filed with Nasdaq. The computations required in paragraphs (a)(2), 
(a)(3), (b)(2), (b)(3), (c)(1), and (c)(2) shall be as of the date of 
application of the issuer. Determinations of beneficial ownership for 
purposes of paragraphs (a)(2), (b)(2), and (c)(1) shall be made in 
accordance with SEC Rule 13d-3. In the case of American Depositary 
Receipts, the computations required by paragraphs (a)(1), (a)(5), and 
(b)(1) shall relate to the foreign issuer and not to any depositary or 
any other person deemed to be an issuer for purposes of Form S-12 under 
the Securities Act of 1933. In the case of American Depositary 
Receipts, the underlying security will be considered when determining 
the computations required by paragraphs (a)(1), (a)(2), (a)(3), (a)(5), 
(a)(6), (b)(1), (b)(2), (b)(3), (b)(6), (b)(7), (c)(1), (c)(2), (c)(5), 
and (c)(6) of this rule.
    (f)-(g) No change.

4450. Quantitative Maintenance Criteria

    After designation as a Nasdaq National Market security, a security 
must substantially meet the criteria set forth in paragraphs (a) or 
(b), and (c), (d), (e), and (f) below to continue to be designated as a 
national market system security. A security maintaining its designation 
under paragraph (b) need not also be in compliance with the 
quantitative maintenance criteria in the Rule 4300 series.
    (a)-(f) No change.

(g) American Depositary Receipts

    In the case of American Depositary Receipts, the underlying 
security will be considered when determining the ADR's qualification 
for continued inclusion on Nasdaq under paragraphs (a)(1), (a)(2), 
(a)(3), (a)(4), (b)(1), (b)(2), (b)(3), and (b)(5) of this rule.

4460. Non-Quantitative Designation Criteria for Issuers Excepting 
Limited Partnerships

    (a)-(h) No change.
(i) Shareholder Approval
    (1) Each NNM issuer shall require shareholder approval of a plan or 
arrangement under subparagraph (A) below, or prior to the issuance of 
designated securities under subparagraph (B), (C), or (D) below:
    (A) No change.
    (B) when the issuance or potential issuance will result in a change 
of control of the issuer;
    (C) No change.
    (D) in connection with a transaction other than a public offering 
involving:
    (i) the sale, [or] issuance or potential issuance by the issuer of 
common stock (or securities convertible into or exercisable for common 
stock) at a price less than the greater of book or market value which 
together with sales by officers, directors or substantial shareholders 
of the company equals 20% or more of common stock or 20% or more of the 
voting power outstanding before the issuance; or
    (ii) the sale, [or] issuance or potential issuance by the company 
of common stock (or securities convertible into or exercisable common 
stock) equal to 20% or more of the common stock or 20% or more of the 
voting power outstanding before the issuance for less than the greater 
of book or market value of the stock.
    (2)-(6) No change.
    (j)-(n) No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq 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
    Nasdaq is proposing certain clarifying, non-substantive amendments 
to certain provisions of its listing standards. Specifically, the 
proposed changes will: (1) Define market capitalization; (2) codify the 
time frames for determining compliance with the continued inclusion 
requirements for market capitalization and number of market makers; (3) 
clarify the need for shareholder approval for a transaction in which 
the potential issuance of shares could exceed the applicable threshold; 
(4) codify the method used to determine whether an American Depositary 
Receipt complies with the listing standards; and (5) clarify the non-
application of the publicly held shares, market value of publicly held 
shares, and bid price initial inclusion requirements to rights and 
warrants to be listed on the National Market.
    Rules 4310(c)(2)(B)(ii) and 4450(b)(1)(A) set forth the market 
capitalization standards for continued inclusion on The Nasdaq SmallCap 
Market and the Nasdaq National Market, respectively. These rules, 
however, unlike the bid price requirement, do not provide time frames 
for determining when an issuer is non-complaint or when it has regained 
compliance with these standards. Accordingly, Nasdaq proposes to amend 
Rule 4310(c)(8)(C) \5\ to clarify that a failure to meet the market 
capitalization continued inclusion requirement shall result if the 
deficiency continues for a period of ten consecutive business days and 
that compliance may be regained by meeting the applicable standard for 
a minimum of ten consecutive business days.\6\ Furthermore, NASD rules 
do not define

[[Page 36201]]

market capitalization. In making this calculation, Nasdaq has 
traditionally considered the market value of all common and convertible 
preferred stock (excluding redeemable convertible preferred shares 
other than preferred stock redeemable solely by the issuer). As such, 
Nasdaq proposes to codify this definition is proposed Rule 4200(a)(20).
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    \5\ Although the time frames regarding compliance with the 
continued inclusion market capitalization standards are proposed to 
be set forth only in Rule 4310(c)(8)(A), these time frames, like 
those for the minimum bid price and market value of public float, 
are applicable to issuers listed on both The Nasdaq SmallCap Market 
and the Nasdaq National Market. Specifically, the Rule 4300 Series 
contains the qualification requirements for all securities included 
in The Nasdaq Stock Market while the Rule 4400 Series sets forth 
additional requirements for those securities designated for the 
Nasdaq National Market. See Amendments No. 1 and 2, supra notes 3 
and 4.
    \6\ Although this proposed rule, like the minimum bid price 
requirement, states that compliance may be regained by meeting the 
applicable standard for a minimum of ten consecutive business days, 
issuers are also required to demonstrate more than mere temporary 
compliance in order to protect the interests of prospective 
investors. See, e.g., Ryan-Murphy, Inc., Securities Exchange Act 
Rel. No. 38999 (Sept. 2, 1997).
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    Rule 4310(c)(8)(A) provides that an issuer that fails to meet the 
continued inclusion requirements for the number of market makers has 30 
calendar days to regain compliance. The rule, however, does not 
indicate how the issuer can regain compliance. Consequently, Nasdaq 
proposes to amend this rule to provide that compliance is achieved by 
meeting the applicable standard for a minimum of ten consecutive 
business days, which is similar to the method for determining 
compliance with the bid price requirement.\7\
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    \7\ Although the method of regaining compliance with the 
continued inclusion requirement for the number of market makers is 
proposed to be set forth only in Rule 4310(c)(8)(A), the method for 
regaining compliance is applicable to issuers listed on both The 
Nasdaq SmallCap Market and the Nasdaq National Market. As stated 
previously, the Rule 4300 Series contains the qualification 
requirements for all securities included in The Nasdaq Stock Market 
while the Rule 4400 Series sets additional requirements for those 
securities designated for the Nasdaq National Market. See Amendments 
No. 1 and 2, supra notes 3 and 4.
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    Rules 4310(c)(25)(H)(i)(b) and (d), 4320(e)(21)(H)(i)(b) and (d), 
and 4460(i)(1)(B) and (D) refer only to the issuance of shares in 
conjunction with the requirement for shareholder approval, while Rules 
4310(c)(25)(H)(i)(c)(2), 4320(e)(21)(H)(i)(c)(2), and 
4460(i)(1)(C)(ii), require shareholder approval based on the present or 
potential issuance of shares. Nevertheless, Nasdaq has consistently 
interpreted the former shareholder approval rules as including 
potential issuances in order to protect shareholders' right to vote on 
significant corporate transactions. The proposed rule changes would 
therefore conform the language of these rules.
    Historically, Nasdaq has looked to the underlying security of an 
American Depositary Receipt (ADR) for determining compliance with 
certain standards (e.g., round lot shareholders, number of shares in 
the public float, market value of public float, and market 
capitalization). Rule 4320 provides the initial and continued listing 
standards for ADRs, but does not make clear whether the underlying 
security should be considered when determining compliance. The proposed 
rule change would clarify the continued inclusion time frame 
requirements for market capitalization purposes, and the fact that the 
underlying security should be considered when determining compliance in 
the case of ADRs.
    Rule 4420(d)(1) does not currently reference the initial listing of 
rights on the Nasdaq National Market. Specifically, although the Nasdaq 
National Market continued listing standards address both warrants and 
rights, the initial listing standards mention only warrants. This Rule 
also states that warrants to purchase designated securities may be 
listed on the Nasdaq National Market provided that they substantially 
meet the initial inclusion requirements applicable to common stock. 
Consistent with the industry practices for pricing this type of 
security, Nasdaq has not historically required issuers to satisfy the 
publicly held shares, market value of publicly held shares, or bid 
price initial inclusion standards. As such, Nasdaq proposes to amend 
this rule to clarify the initial inclusion rules apply to rights as 
well as warrants and that issuers are not required to satisfy the 
publicly held shares, market value of publicly held shares, or bid 
price initial inclusion standards with respect to rights or 
warrants.\8\
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    \8\ Issuers, however, must continue to comply with the 
requirement that there be at least 450,000 warrants outstanding 
immediately after the public distribution as set forth in existing 
NASD Rule 4420(d)(1). This rule is also being amended to clarify 
existing Nasdaq policy that there must be 450,000 rights outstanding 
immediately after the public distribution.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \9\ which requires, 
among other things, the Association's rules to be designed to prevent 
fraudulent and manipulative acts and practices and, in general, to 
protect investors and the public interest. As noted above, Nasdaq's 
proposed rule changes are aimed at clarifying certain listing 
standards, thus providing greater transparency in the rules for issuers 
and investors.
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    \9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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 Association 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
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 the 
NASD. All submissions should refer to the File No. SR-NASD-99-69 and 
should be submitted by June 28, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14280 Filed 6-6-00; 8:45 am]
BILLING CODE 8010-01-M