39642 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Notices

36See May 15, 2000 letter from Suzanne E.

Rothwell, Chief Counsel, Corporate Financing,

NASD Regulation to Katherine A. England,

Assistant Director, Division, SEC (‘‘NASD

Regulation Letter’’).

37 Id.

38 Id.

39 Id.

40 15 U.S.C. 78o–3(b)(6).

41 Id.

42 17 CFR 270.23c–3(b).

43 17 CFR 230.415(a)(1)(xi).

44 15 U.S.C. 77a et seq.

45See NASD Regulation Letter at page 2.

46 15 U.S.C. 78s(b)(2).

47 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

would be more similar to the manner of

financing the distribution of shares of

mutual funds that offer shares on a

continuous basis.36 Additionally, NASD

Regulation noted that closed-end funds

that offer their shares on a periodic basis

may decide to finance the distribution

in a manner more similar to corporate

offerings than the broker/dealer

compensation methods used by mutual

funds.37 For these reasons, NASD

Regulation does not believe that the

ICI’s suggested expansion of the scope

of the proposal is warranted.

Additionally, NASD Regulation noted

that, although some tender offer funds

offer their shares continuously and

periodically self-tender, these funds do

not, as a matter of fundamental policy,

establish that they will make periodic

repurchases.38 NASD Regulation

explained that the discretion whether to

make periodic repurchases allows a

tender offer fund the flexibility to

determine if it needs to continuously

offer shares to replenish fund assets.

Were a tender offer fund to decide to

offer shares periodically, however,

NASD Regulation notes that such a fund

could compensate broker/dealers in the

same manner as corporate issuers.39 For

these reasons, NASD Regulation doe not

propose to amend the proposal to

extend the exemption to tender offer

funds.

IV. Discussion

The Commission has reviewed

carefully the NASD’s proposed rule

change and finds, for the reasons set

forth below, the proposal is consistent

with the requirements of the Exchange

Act and the rules and regulations

thereunder applicable to a registered

securities association, and in particular,

with the requirements of Section

15A(b)(6) of the Exchange Act.40

Section 15A(b)(6) of the Exchange

Act 41 requires that rules of a registered

securities association be designed to

prevent fraudulent and manipulative

acts and practices, promote just and

equitable principles of trade, and, in

general, protect investors and the public

interest. The proposal would require

that certain closed-end funds known as

‘‘interval funds’’ be regulated by NASD

Conduct Rule 2830(d), rather than by

the limitations on underwriting

compensation in the Corporate

Financing Rule. The Commission agrees

that interval funds, because their

manner of financing the distribution of

shares are more similar to that of openend funds, are more properly regulated

by NASD Conduct Rule 2830, which

regulates the distribution and sales

charges of open-end funds. The

proposal is narrowly construed, in that

the amendment to subparagraph

(b)(8)(C) of the Corporate Financing

Rule would restricted to closed-end

funds that make periodic repurchase

offers pursuant to Rule 23c–3(b) 42 and

offer shares on a continuous basis

pursuant to Rule 415(a)(1)(xi) 43 under

the Securities Act of 1933.44 Closed-end

funds that do not meet these

requirements will continue to be subject

to the Corporate Financing Rule. The

Commission finds that allowing the

requested exemption for funds that meet

these limited criteria is consistent with

the public interest and beneficial to

investors because the distribution of

interval fund shares is conducted and

financed in a manner more similar to

that used by open-end management

investment companies, which are

regulated by NASD Conduct Rule

2830(d).

The Commission has considered

carefully the comments raised by the

ICI, and is not persuaded that the scope

of the proposal should be expanded to

include interval funds that offer their

shares on a periodic basis, nor that the

proposed exemption should be made

available to closed-end funds that

operate as tender offer funds. The

Commission finds that the proposal is

reasonably designed to ensure that the

exemption applies only to funds whose

manner of financing the distribution of

shares is more similar to that of mutual

funds that offer shares on a continuous

basis. The Commission is concerned

that tender offer funds and interval

funds that offer their shares periodically

are marketed, and their distribution

financed, in a manner more akin to

corporate issuers that are subject to the

Corporate Financing Rule. The

Commission therefore believes that the

exemption should not be expanded at

this time to exempt these funds from the

requirements of this rule. The

Commission notes, however, that NASD

Regulation stated that it prefers to gain

experience regarding the financing

structures of tender offer funds through

the exemptive process under the Rule

9600 series, and therefore it will

consider individual requests for

exemption from the requirements of the

Corporate Financing Rule for these

types of funds.45

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,46 that the

proposed rule change (SR–NASD–99–

74), as amended, is hereby approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.47

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–16208 Filed 6–26–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42970; File No. SR–NASD–

00–31]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. to Apply Nasdaq’s

Recently Amended Independent

Director and Audit Committee Listing

Requirements to Limited Partnerships

June 21, 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 May 26,

2000, 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

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by Nasdaq. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

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

apply its recently amended independent

director and audit committee listing

requirements to limited partnerships.

Below is the text of the proposed rule

change. Proposed new language is

italicized and proposed deletions are in

[brackets].

* * * * *

Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Notices 39643

3See Securities Exchange Act Release No. 42231

(December 14, 1999), 64 FR 71523 (December 21,

1999). 4 15 U.S.C. 78o(b)(6).

Rule 4470. Non-Quantitative

Designation Criteria for Issuers That

Are Limited Partnerships

(a) No change.

(b) No change.

(c) Corporate General Partner/

Independent Directors.

Each [NNM] issuer that is a limited

partnership shall maintain a corporate

general partner or co-general partner,

which shall have the authority to

manage the day-to-day affairs of the

partnership. Such corporate general or

co-partner shall maintain [two

independent directors on its board of

directors] a sufficient number of

independent director son its board of

directors to satisfy the audit committee

requirements set forth in Rule

4460(d)(2). [An issuer that is a limited

partnership may be designated for

inclusion in the Nasdaq National market

upon demonstrating that it has one

independent director and undertaking

to elect a second such director within 12

month of designation. For purposes of

this section, ‘‘independent director’’

shall mean a person other than an

officer or employee of the company or

its subsidiaries or any other individual

having a relationship which, in the

opinion of the board of directors, would

interfere with the exercise of

independent judgment in carrying out

the responsibilities of a director.]

(d) Audit Committee.

The corporate general partner or cogeneral partner of each [NNM] issuer

that is a limited partnership [shall

establish and maintain an Audit

Committee, a majority of the members of

which shall be independent directors.]

must satisfy the audit committee

requirements set forth in Rule 4460(d).

(e)–(i) 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

In 1993, Nasdaq established corporate

governance standards, including

independent director and audit

committee requirements, for limited

partnerships that were similar to those

for other issuers. Last year, the

Commission approved amendments to

the independent director and audit

committee listing requirements for

corporations quoted on Nasdaq.3

Nasdaq believes that although there are

few limited partnerships currently

quoted on Nasdaq, the new independent

director and audit committee

requirements should also be applied to

limited partnerships to provide

investors with the same protections

enjoyed by the shareholders of other

issuers. Therefore, Nasdaq is proposing

this rule change to extend the recent

amendments to its independent director

and audit committee listing standards

for corporations to limited partnerships.

Implementation. In order to minimize

disruption to existing limited

partnership audit committees, to permit

current audit committee members to

serve out their terms, and to allow

adequate time for the recruitment of the

requisite members, Nasdaq proposes to

provide limited partnerships eighteen

months after the proposed rule change

is approved by the Commission to meet

the audit committee structure and

membership requirements.

Additionally, Nasdaq proposes that

limited partnerships listed on the

effective date of the rule be provided

within six months following the date

the proposed rule change is approved by

the Commission to adopt a formal

written audit committee charter.

Further, for limited partnerships that

applied for listing prior to the effective

date of the rule, Nasdaq proposes that

they be able to qualify for listing under

the listing standards in force at the time

of their application, and receive the

same grace periods provided to current

limited partnerships. Also, in order to

avoid prejudicing limited partnerships

that transfer to Nasdaq from the

American Stock Exchange LLC and the

New York Stock Exchange, it is

proposed that these limited partnerships

be afforded the same grace periods they

would have received under their

previous market’s implementation

schedule.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act 4 because the proposal is designed

to prevent fraudulent and manipulative

acts and practices, to protect investors

and the public interest. As noted above,

Nasdaq’s proposed rule change is aimed

at improving the effectiveness of audit

committees of limited partnerships

quoted on Nasdaq, which, Nasdaq

believes, is consistent with these goals.

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 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.

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

39644 Federal Register / Vol. 65, No. 124 / Tuesday, June 27, 2000 / Notices

5 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

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 File No.

SR–NASD–00–31 and should be

submitted by July 18, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–16209 Filed 6–26–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42971; File No. SR–NYSE–

00–24]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Revisions to the

Exchange’s FORM AP–1 Application

June 21, 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 May 25,

2000, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposed to revise its

FORM AP–1 (Approved Person

Application Form). The text of the

proposed rule change is available upon

request from the Office of the Secretary,

the Commission or the NYSE.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange 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. The

Exchange 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

NYSE Rule 304(h) requires that ‘‘[a]ny

person who controls a member or

member organization, or who engages in

a securities or kindred business and is

controlled by or under common control

with a member or member organization

but is not a member or allied member

or an employee of a member

organization shall apply for approval by

the Exchange as an approved person.

* * *’’ The approval process requires

that certain pertinent information about

the approved person Applicant be

provided to the Exchange for review.

FORM AP–1 is used by Applicants who

are entities and FORM U–4 is completed

by natural person Applicants.

The Exchange is proposing several

revisions to FORM AP–1, which will

require additional information and

otherwise enhance its effectiveness for

reviewing, approving, and monitoring

Approved Persons.

The proposed substantive revisions to

FORM AP–1:

• Require greater detail regarding

both the nature of an Applicant’s

business and the Applicant’s

relationship with the member

organization (items 7A and 9A–C of the

Form);

• Require the Applicant, promptly

upon request, to provide the Exchange

with updated financial and other

information (Instruction Sheet, No. 12);

• Require the Applicant, if a

registered broker/dealer, to submit a

copy of its most recent FOCUS Report

(Instruction Sheet, No. 10);

• Continue the effectiveness of the

Applicant’s FORM AP–1 agreements

with the Exchange notwithstanding that

the named member or member

organization has changed its name or

legal form (p. 4 of the Form, 5th

paragraph); and

• Require that a copy of a complete

organization chart of Applicant and its

affiliates be provided Instruction Sheet,

No. 9).

The proposed revisions (Form items

7A and 9A–C) will provide Exchange

staff with more detailed information

regarding the relationship between the

member organization and approved

person, enabling a more thorough

evaluation of the Applicant (e.g., the

Form asks for a general description of

the Applicant’s business and requires

Applicant to indicate specifically how it

controls, is controlled by or under

common control with the member or

member organization).

The proposed revisions clarify

circumstances under which an

Applicant must file financial statements

Instruction Sheet, No. 8). Item 12 of the

Form asks the Applicant to submit to

the Exchange its most recent balance

sheet and income or profit and loss

statement if the Applicant: (a) Controls

the member organization; (b) is a

subsidiary of the member organization

for purposes of NYSE Rule 321 or its

obligations or liabilities are guaranteed,

endorsed or assumed by the member

organization (under NYSE Rule 322); or

(c) is a ‘‘Material Associated Person’’ as

the term is used in Rule 17h–1T under

the Act. The Exchange believes that in

most cases there is no regulatory

purpose served by requiring submission

of financial statements of persons under

common control unless, as previously

indicated, the person is a ‘‘Material

Associated Person.’’ The Exchange,

however, reserves the right to request

current financial statements from

applicants under common control. The

Form also provides clarification that

when financial statements are required

to be submitted, they must be current,

and clarification of the Exchange’s right

to request updated financial and other

information. Approved person

Applicants that are registered brokerdealers must submit copies of their most

recent FOCUS report (Instruction Sheet,

No. 10).

The revised Form contains a new

provision which states that the

Applicant agrees that the statements,

warranties, representations and

undertakings [in the Form] will

continue to apply notwithstanding a

change to the member organization’s

name, form of organization, or legal

status (but retains same SEC B/D

number). This will eliminate the need

for more frequent refilings of FORM

AP–1 (see page 4 of the Form, 5th

paragraph).

To clarify the relationship between

the Applicant and the member

organization, a complete organization

chart of the Applicant and its affiliates

must be submitted with the Form

(Instruction Sheet, No. 9). An

organization chart may also identify

other entities which should be approved

persons.