[Federal Register Volume 65, Number 223 (Friday, November 17, 2000)]
[Notices]
[Pages 69595-69596]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29466]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43549; File No. SR-NASD-00-50]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Definition of ``Public Offering'' for Purposes of Nasdaq's 
Shareholder Approval Rules

November 13, 2000.
    On August 11, 2000, The National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its wholly owned 
subsidiary, The Nasdaq Stock Marker, Inc. (``Nasdaq'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ a proposed rule change regarding the adoption of interpretive 
material defining ``Public Offering'' for purposes of Nasdaq's 
shareholder approval rules.\2\ On October 4, 2000, the Nasdaq filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change was noticed in the Federal Register.\4\ On October 13, 2000, the 
NASD filed Amendment No. 2 to the proposed rule change.\5\ No comments 
were submitted on the proposed rule change. This order approves the 
proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ The American Stock Exchange, Inc. filed a similar proposed 
rule change SR-Amex-00-46. See Securities Exchange Act Release No. 
43419 (Oct. 6, 2000), 65 FR 61206 (Oct. 16, 2000).
    \3\ Amendment No. 1 changed the section under which the proposed 
rule change was filed from Section 19(b)(3) to Section 19(b)(2) of 
the Act and made other technical changes. See Letter from Edward 
Knight, Executive Vice President and Chief Legal Officer, Nasdaq, to 
Katherine A. England, Assistant Director, Division of Market 
Regulation (``Division''), SEC (Oct. 2, 2000).
    \4\ Securities Exchange Act Release No. 43420 (Oct. 6, 2000), 65 
FR 61011 (Oct. 13, 2000).
    \5\ Amendment No. 2 made a minor technical change to the 
interpretation. See Letter from Arnold P. Golub, Senior Attorney, 
Nasdaq, to Katherine A. England, Assistant Director, Division, SEC 
(Oct. 11, 2000). Because the amendment is technical, it does not 
need to be published for comment.
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I. Background

    Nasdaq rules require shareholder approval for stock issuances of 20 
percent or more of an issuer's total shares outstanding, offered at 
less than the greater of book or market value. The applicable rules 
further provide, however, that shareholder approval is not required for 
a ``public offering,'' although that term is not defined in the rules. 
Recently, a number of issuers have inquired as to whether certain 
large, below-market offerings were

[[Page 69596]]

``public offerings'' because the transactions, which were initiated 
pursuant to exceptions to the registration requirements, were 
registered with the Commission prior to closing the transactions.\6\ 
Historically, for purposes of assessing the applicability of the 
shareholder approval rules, Nasdaq staff has interpreted ``public 
offering'' as a broadly distributed, registered offering based on a 
firm commitment underwriting. Conversely, Nasdaq staff does not 
consider a transaction to be a ``public offering'' for these purposes 
when the transaction is of limited distribution and/or is not based on 
a firm commitment underwriting, even if the offering was registered. 
Because the offerings described had limited distributions and, in some 
cases, the offerees were pre-determined by the issuer, Nasdaq believed 
that these transactions were not ``public offerings'' for purposes of 
the shareholder approval rules.
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    \6\ The Commission believes that this activity is not 
appropriate under Section 5 of the Securities Act of 1933. See 15 
U.S.C. 77e.
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    To help to ensure that all issuers understand how Nasdaq will 
determine whether a transaction is a ``public offering'' for purposes 
of the shareholder approval rules, Nasdaq has prepared the proposed 
Interpretative Material. Determinations as to whether a transaction is 
a ``public offering'' for purposes of these rules will be made based on 
the facts and circumstances surrounding each particular transaction. 
The proposed Interpretative Material identifies a number of factors 
that will be considered when determining whether an offering is a 
``public offering,'' including the type of offering; the marketing of 
the offering; the extent of the offering's distribution; the offering 
price; and the extent to which the issuer controls the offering and its 
distribution.

II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) \7\ of the Act, which 
requires, among other things, that the Association's rules 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.\8\ The Commission believes the 
Interpretative Material is designed to educate issuers and other 
interested parties as to how Nasdaq defines a ``public offering'' in 
order to ensure that issuers are aware as to which transactions require 
shareholder approval under the NASD's rules, thus promoting just and 
equitable principles of trade and protecting investors and the public 
interest.
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    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    It Is Therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposal, SR-NASD-00-50, as amended, be and hereby is 
approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    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. 00-29466 Filed 11-16-00; 8:45 am]
BILLING CODE 8010-01-M