[Federal Register Volume 66, Number 89 (Tuesday, May 8, 2001)]
[Notices]
[Pages 23285-23289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11473]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44243; File No. SR-NASD-2001-14]


Self-Regulatory Organizations; Notice of Filing and Order 
Accelerating Partial Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the National Association of Securities Dealers, Inc. To 
Modify Certain Initial and Continued Listing Standards on Nasdaq

May 1, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on March 8, 2001, the National Association of Securities Dealers, 
Inc. (``NASD''), through its 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. On April 26, 
2001, Nasdaq submitted Amendment No. 1 to the proposal.\3\ The proposal 
would modify certain initial and continued listing standards on Nasdaq. 
Nasdaq has also proposed a pilot program that would give immediate 
effectiveness to certain of the new listing standards. The Commission 
is publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to grant accelerated approval 
to that portion of the proposal relating to the pilot program.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Sara Nelson Bloom, Associate General 
Counsel, Nasdaq, to Katherine A. England, Assistant Director, 
Division of Market Regulation, Commission (April 25, 2001). In 
Amendment No. 1, Nasdaq provided a chart that clarifies the proposed 
schedule for implementing the new listing standards and made certain 
technical corrections to the proposal.
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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 proposal to amend NASD Rules 
4200, 4310, 4320, 4420, and 4450 and thereby modify certain 
quantitative initial and continued listing standards on Nasdaq. Nasdaq 
proposes to implement a pilot program that would allow issuers, with 
respect to certain of the new standards, to comply with either the 
existing standards or the proposed new standards. The pilot program is 
designed to ensure that issuers that meet the new standards but not the 
existing standards are not delisted before the Commission takes final 
action on the proposed rule change. The standards that would be 
included in the pilot are: (1) The new bid price requirement found in 
NASD Rule 4450(b)(4); and (2) the new equity standard, which replaces 
the old net tangible assets standard, found in NASD Rules 
4310(c)(2)(A)(i), 4310(c)(2)(B)(i), 4320(e)(2)(A)(i), 4320(e)(2)(B)(i), 
4420(a)(5), 4420(b)(1), and 4450(a)(3). Nasdaq has proposed that the 
pilot program would expire on July 1, 2001, or such earlier time as the 
Commission takes action on the overall proposal.
    Below is the text of the proposed rule change. Proposed new 
language is underlined; proposed deletions are in brackets.
* * * * *

4200. Definitions

    (a) For purposes of the Rule 4000 Series, unless the context 
requires otherwise:
    (1)-(27) No change.
    (28) Reserved [``Net Tangible Assets'' shall mean total assets 
(including the value of patents, copyrights and trade marks but 
excluding the value of goodwill) less total liabilities.]
    (29)-(36) 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)-(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) For initial inclusion, the issue shall have three registered 
and active market makers, and for continued inclusion, the issue shall 
have two registered and active market makers, one of which may be a 
market maker entering a stabilizing bid.
    (2) (A) For initial inclusion, the issuer shall have:
    (i) [net tangible assets of $4 million] stockholders' equity of $5 
million;
    (ii) market capitalization of $50 million (currently traded issuers 
must meet this requirement and the bid price requirement under Rule 
4310(c)(4) for 90 consecutive trading days prior to applying for 
listing); or
    (iii) net income of $750,000 (excluding extraordinary or non-
recurring items) in the most recently completed fiscal year or in two 
of the

[[Page 23286]]

last three most recently completed fiscal years.
    (B) For continued inclusion, the issuer shall maintain:
    (i) [net tangible assets of $2 million] stockholders' equity of 
$2.5 million;
    (ii) market capitalization of $35 million; or
    (iii) net income of $500,000 (excluding extraordinary or non-
recurring items) in the most recently completed fiscal year or in two 
of the last three most recently completed fiscal years.
    (3)-(29) 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) For initial inclusion, the issuer shall have:
    (i) [net tangible assets of U.S. $4 million] stockholders' equity 
of $5 million;
    (ii) market capitalization of U.S. $50 million (currently traded 
issuers must meet this requirement for 90 consecutive trading days 
prior to applying for listing;) or
    (iii) net income of U.S. $750,000 (excluding extraordinary or non-
recurring items) in the most recently completed fiscal year or in two 
of the last three most recently completed fiscal years.
    (B) For continued inclusion, the issuer shall maintain:
    (i) [net tangible assets of U.S. $2 million] stockholders' equity 
of $2.5 million;
    (ii) market capitalization of U.S. $35 million; or
    (iii) net income of U.S. $500,000 (excluding extraordinary or non-
recurring items) in the most recently completed fiscal year or in two 
of the last three most recently completed fiscal years.
    (C) An issuer's [net tangible assets] qualifications will be 
determined on the basis of [a balance sheet] financial statements 
prepared in accordance with U.S. generally accepted accounting 
principles or those accompanied by detailed schedules quantifying the 
differences between U.S. generally accepted accounting principles and 
those of the issuer's country of domicile.
    (D)-(E) No change.
    (3)-(25) 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 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) Entry Standard 1
    (1) The issuer of the security had annual pre-tax income of at 
least $1,000,000 (excluding extraordinary or non-recurring items) in 
the most recently completed fiscal year or in two of the last three 
most recently completed fiscal years.
    (2) There are at least 1,100,000 publicly held shares.
    (3) The market value of publicly held shares is at least $8 
million.
    (4) The bid price per share is $5 or more.
    (5) The issuer of the security has [net tangible assets of at least 
$6 million] stockholders' equity of $15 million.
    (6) The issuer has a minimum of 400 round lot stockholders.
    (7) There are at least three registered and active market makers 
with respect to the security.
(b) Entry Standard 2
    (1) The issuer of the security has [net tangible assets of at least 
$18 million] stockholders' equity of at least $30 million.
    (2) There are at least 1,100,000 publicly held shares.
    (3) The market value of publicly held shares is at least $18 
million.
    (4) The bid price per share is $5 or more.
    (5) There are at least three registered and active market makers 
with respect to the security.
    (6) The issuer has a two-year operating history.
    (7) The issuer has a minimum of 400 round lot stockholders.
(c) Entry Standard 3
    An issuer designated under this paragraph does not also need to be 
in compliance with the quantitative criteria for initial inclusion in 
the Rule 4300 series.
    (1) There are at least 1,100,000 publicly held shares.
    (2) The market value of publicly held shares is at least $20 
million.
    (3) The bid price per share is $5 or more.
    (4) There are at least four registered and active market makers 
with respect to the security.
    (5) The issuer has a minimum of 400 round lot stockholders.
    (6) The issuer has:
    (A) a market capitalization of $75 million (currently traded 
issuers must meet this requirement and the bid price requirement under 
Rule 4420(c)(3) for 90 consecutive trading days prior to applying for 
listing); or
    (B) total assets and total revenue of $75 million each for the most 
recently completed fiscal year or two of the last three most recently 
completed fiscal years.
    (d)-(h) 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) Maintenance Standard 1--Common Stock, Preferred Stock, Shares 
or Certificates of Beneficial Interest of Trusts and Limited 
Partnership Interests in Foreign or Domestic Issues
    (1) 750,000 shares publicly held;
    (2) Market value of publicly held shares of $5 million;
    (3) The issuer has [net tangible assets of at least $4 million] 
stockholders' equity of at least $10 million;
    (4) 400 stockholders of round lots; and
    (5) Minimum bid price per share of $1.
    (b) Maintenance Standard 2--Common Stock, Preferred Stock, Shares 
or Certificates of Beneficial Interest of Trusts and Limited 
Partnership Interests in Foreign or Domestic Issues
    (1) The issuer has:
    (A) a market capitalization of $50 million; or
    (B) total assets and total revenue of $50 million each for the most 
recently

[[Page 23287]]

completed fiscal year or two of the last three most recently completed 
fiscal years.
    (2) 1,100,000 shares publicly held;
    (3) Market value of publicly held shares of $15 million;
    (4) Minimum bid price per share of [$5] $3;
    (5) 400 stockholders of round lots; and
    (6) At least four registered and active market makers.

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
    The proposed rule change would: (1) Replace the net tangible assets 
standard with an equity standard; (2) require that currently trading 
issuers applying for initial listing under the market capitalization 
alternative demonstrate 90 days of sustained compliance with the bid 
price and market capitalization requirements before they are eligible 
to apply to become listed; (3) clarify the Nasdaq will exclude 
extraordinary or non-recurring items for purposes of determining 
compliance with the income standard; and (4) adjust the bid price 
requirement associated with continued listing on the Nasdaq National 
Market under the market capitalization standard from $5 or $3. Nasdaq 
states that these changes were designed to have minimal impact on 
issuers in the marketplace while providing greater transparency and 
consistency.
    In addition, Nasdaq has proposed a pilot program that will allow 
issuers that meet the new original listing and maintenance standards 
but not the old standards to remain listed on Nasdaq for a short period 
while the Commission considers the overall proposal.\4\
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    \4\ See infra Section V.
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The Equity Standard

    Companies may qualify for initial or continued inclusion on the 
Nasdaq National Market or the Nasdaq SmallCap Market based, in part, on 
their net tangible assets. Net tangible assets are defined as total 
assets less total liabilities less goodwill. Nasdaq proposes to change 
from this net tangible assets standard to an equity standard for 
several reasons. First, the equity standard is more transparent to 
investors, as it is reflected in issuer financial statements, as 
opposed to the net tangible assets standard which must be manually 
calculated. For this reason, the equity standard will also provide a 
better framework for complimentary standards in Nasdaq's developing 
international markets. Second, the change would respond to recent 
accounting developments which may tend to require an increase in the 
booking of goodwill. Finally, the use of an equity standard is 
consistent with listing standards on the New York Stock Exchange 
(``NYSE'') and the American Stock Exchange.\5\
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    \5\See NYSE Rules 102 and 103 (initial listing standards), 802 
(continued listing standards); Amex Listing Rules 102 (initial 
listing standards) and 1003 (continued listing standards.)
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    With respect to the Nasdaq National Market, the $6 million net 
tangible assets requirement for initial listing under Entry Standard 1 
(for companies with pre-tax income of at least $1 million in the latest 
fiscal year or two of the last three years) would be changed to a $15 
million stockholders' equity requirement, and the $18 million net 
tangible assets requirement under Entry Standard 2 (for companies 
without the above-referenced pre-tax income) would be changed to $30 
million in stockholders' equity. In addition, the $4 million net 
tangible assets continued listing requirement would be changed to $10 
million in stockholder's equity. With respect to the Small Cap Market, 
the $4 million net tangible assets initial inclusion requirement would 
be changed to $5 million in stockholders' equity, and the $2 million 
net tangible assets continued inclusion requirement would be changed to 
$2.5 million in stockholders' equity.

Seasoning Period for Applicants Relying on the Market Capitalization 
Standard

    Companies may qualify for listing on Nasdaq based, in part, on 
their market capitalization. The market capitalization listing 
standards were originally adopted in 1997 to permit the inclusion of 
certain financially sound issuers that could not qualify under the net 
tangible assets requirement as a result of accounting conventions such 
as the booking of goodwill associated with various merger and 
acquisition activities or significant depreciation charges.\6\ These 
standards permit an issuer to list with a bid price of $5 and a market 
capitalization of $75 million (in the case of the Nasdaq National 
Market) or a bid price of $4 and a market capitalization of $50 million 
(in the case of the Nasdaq SmallCap Market).
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    \6\ See Securities Exchange Act Release No. 38961 (August 22, 
1997), 62 FR 45895 (August 29, 1997) (approving SR-NASD-97-16).
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    Since the adoption of the rule, Nasdaq has noted certain instances 
where publicly traded companies (including companies quoted on the OTC 
Bulletin Board) have applied to list on Nasdaq based on the market 
capitalization listing standards. In these circumstances, companies may 
be able to evidence compliance based on short-term price reaction to 
favorable news, which price increase may not be sustainable over the 
long term. Accordingly, Nasdaq proposes a ``seasoning'' period of 90 
days of currently traded issuers, such that an issuer must maintain the 
required bid price and market capitalization for that period prior to 
applying for listing. Nasdaq believes that this seasoning period, 
especially when coupled with the time necessary to review and process 
any such application, would provide assurance that a company would be 
unable to secure a Nasdaq listing based on an unsustainable, short-term 
run-up in its stock price.\7\
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    \7\ Nasdaq has stated that this requirement would not apply to 
an issuer listing as part of its initial public offering, because 
the same concerns do not exist.
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Extraordinary and Non-Recurring Income Items

    The income standards for the Nasdaq Stock Market currently make no 
provision for the exclusion of extraordinary or non-recurring items 
when assessing an issuer's compliance with the income requirements for 
listing on Nasdaq. However, Nasdaq believes that it is appropriate to 
exclude extraordinary and non-recurring income items because they do 
not provide a continuing benchmark of the issuer's financial 
performance. Accordingly, Nasdaq proposes that the National Market and 
SmallCap Market rules relating to the income standards be amended to 
indicate that the income determination will exclude extraordinary and 
non-recurring items.

[[Page 23288]]

Bid Price Standard for Issuers Qualifying Under the Market 
Capitalization Standard

    Issuers that seek to qualify for the Nasdaq National Market 
pursuant to the market capitalization alternative \8\ must demonstrate 
a $5 bid price for both initial and continued inclusion. Nasdaq 
proposes to adjust the continued inclusion standard, applicable to 
Nasdaq National Market companies qualifying under the market 
capitalization standard, from $5 to $3. This would harmonize this 
standard with other standards by providing a differential between the 
initial inclusion and continued inclusion requirements.
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    \8\ See NASD Rules 4420(c) and 4450(j).
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Implementation

    To minimize disruption to existing issuers and to allow adequate 
time for necessary corporate action to comply with the stockholders' 
equity standard, Nasdaq proposes to provide its issuers with 18 months 
following Commission approval of the proposed pilot to come into 
compliance with the new standard. During this time, issuers that do not 
meet the new stockholders' equity standard could qualify for continued 
listing under the net tangible assets standard.
    Similarly, for issuers that applied for listing prior to the 
effective date of the rule, Nasdaq proposes that they continue to be 
able to qualify for listing under the listing standards in force at the 
time of their application for a period of 90 days from the effective 
date of the proposed rule change, and thereafter receive the same grace 
periods provided to current issuers to come into compliance with the 
new equity test. Alternatively, such issuers may qualify for listing 
under the new stockholders' equity test for initial inclusion.
    The graph below illustrates the proposed schedule for 
implementation of the new listing standards.\9\ The pilot program is 
effective as of the date of this release and will terminate upon the 
earlier of July 1, 2001, or such time that the Commission takes action 
on the overall proposal. Implementation will be complete 18 months 
following the date of the Commission's approval of the pilot program.
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    \9\ This table sets forth an implementation schedule proposed by 
Nasdaq. It should not be interpreted as suggesting that the 
Commission is predisposed to approving the new standards on a 
permanent basis.

                              Proposed Implementation Schedule for SR-NASD-2001-14
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                                                                                               At expiration of
                                                       90 Days following   During 18 months        18 months
     Qualification standards         Pilot program    SEC approval order     following SEC       following SEC
                                                       of permanent rule   approval order of   approval order of
                                                                           the pilot program   the pilot program
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Initial Listing Criteria:           ................    ................    ................
    Original Standards..........  Available (for net  Available (for net  Not available.....  Not available.
                                   tangible assets     tangible assets
                                   requirement only).  requirement only).
    New Standards...............  Available.........  Available.........  Available.........  Available.
Continued Listing Criteria:         ................    ................    ................
    Original Standards..........  Available (for net  Available (for net  Not available.....
                                   tangible assets     tangible assets
                                   requirement only).  requirement only).
    New Standards...............  Available.........  Available.........  Available.........  Available.
----------------------------------------------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \10\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest. As noted above, Nasdaq 
states that the proposed rule change is designed to have minimal impact 
on issuers in the marketplace while providing greater transparency and 
consistency in its listing standards.
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    \10\ 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 would 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 reason for so finding, or (ii) as to 
which the Nasdaq 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 and Amendment No. 1 thereto are 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 File No. SR-NASD-2001-14 and should be 
submitted by May 29, 2001.

V. Accelerated Approval for Pilot Program

    Nasdaq has proposed a pilot program that will operate for a short 
period while the Commission considers the overall proposal. During the 
pilot period, currently listed issuers on Nasdaq that might have 
difficulty meeting the old maintenance standards would have the

[[Page 23289]]

option instead of meeting the new maintenance standards. Similarly, 
issuers that are applying for listing could, during the pilot period, 
choose to meet the proposed original listing standards rather than the 
existing original listing standards. The standards that would be 
included in the pilot are: (1) The new bid price requirement found in 
NASD Rule 4450(b)(4); and (2) the new stockholders' equity standard, 
which replaces the old net tangible assets standard, found in NASD 
Rules 4310(c)(2)(A)(i), 4310(c)(2)(B)(i), 4320(e)(2)(A)(i), 
4320(e)(2)(B)(i), 4420(a)(5), 4420(b)(1), and 4450(a)(3). Nasdaq has 
proposed that the pilot program would operate until July 1, 2001, or 
such earlier time as the Commission acts on Nasdaq's request for 
permanent approval of the proposal.\11\
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    \11\ By approving the pilot, the Commission permits Nasdaq, for 
the duration of the pilot period, to replace the existing bid price 
and net tangible assets standards with the new proposed standards. 
However, if the pilot expires before the Commission takes action on 
the proposed rule change, the old standards would have to be 
reinstated because Nasdaq would no longer have authority for the new 
standards.
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    The Commission finds that the proposed pilot program is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD.\12\ In particular, the Commission 
believes that the proposal is consistent with Section 15A(b)(6) of the 
Act.\13\ Section 15A(b)(6) requires, among other things, that the rules 
of a national securities association be designed to prevent fraudulent 
and manipulative acts and practices; to promote just and equitable 
principles of trade; to remove impediments to and perfect the mechanism 
of a free and open market and a national market system; and, in 
general, to protect investors and the public interest.
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    \12\ For purposes of approving the pilot program on an 
accelerated basis, the Commission has considered the proposal's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \13\ 15 U.S.C. 78o-3(b)(6).
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    With respect to the pilot proposal to lower the bid price 
requirement in Maintenance Standard 2 of NASD rule 4450 from $5 to $3, 
the Commission notes that the bid price requirement for initial listing 
will remain $5.\14\ Nasdaq's listing rules generally establish a higher 
initial requirement and a somewhat lower continued requirement to allow 
for market fluctuations.\15\ Establishing a new bid price requirement 
of $3 for continued listing would make this standard similar to other 
existing standards that require issuers to comply with maintenance 
requirements that are more flexible than the original listing 
requirements. Accordingly, the Commission believes it is reasonable and 
consistent with the Act to approve this aspect of the pilot program 
while the Commission continues to study the overall proposal by, among 
other things, considering any public comments that may be submitted.
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    \14\ See NASD Rules 4420(a)(5), 4420(b)(4), and 4420(c)(3).
    \15\ Compare NASD Rule 4420 (giving issuers of Nasdaq National 
Market securities the option of meeting one of three entry standards 
which include requirements that the market value of publicly held 
shares be at least $8 million, $18 million, or $20 million, 
respectively) with NASD Rule 4450 (giving issuers of Nasdaq national 
Market securities the option of meeting one of two maintenance 
standards which include requirements that the market value of 
publicly held shares be at least $5 million or $15 million, 
respectively).
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    With respect to the pilot proposal to replace the net tangible 
assets standard with a stockers' equity standard, the Commission notes 
that it has previously approved a similar proposal to institute market 
capitalization and stockholders' equity requirements on the NYSE.\16\ 
In that case, the Commission stated that the amount of stockholders' 
equity is not an inappropriate measure of a company's suitability for 
listing on an exchange.\17\ Accordingly, the Commission believes it is 
reasonable and consistent with the Act to approve this aspect of the 
pilot program while the Commission continues to study the overall 
proposal by, among other things, considering any public comments that 
may be submitted.
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    \16\ See Securities Exchange Act Release No. 42194 (December 1, 
1999), 64 FR 69311 (December 10, 1999) approving SR-NYSE-99-29).
    \17\ See id., 64 FR at 69314.
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    Pursuant to Section 19(b)(2) of the Act,\18\ the Commission finds 
good cause for approving the pilot program prior to the thirtieth day 
after publication of the filing of this proposal in the Federal 
Register. The Commission believes that accelerated approval of the 
pilot will enable the Commission and Nasdaq to gain experience with the 
new standards before the Commission considers granting them permanent 
approval. Furthermore, the Commission notes that accelerated approval 
of the pilot program will allow certain issuers that meet the proposed 
standards to remain listed even if they might fail to meet the existing 
standards. These companies, in the absence of the pilot, would 
immediately be subject to delisting as required by the existing 
maintenance criteria. If the Commission were subsequently to approve 
the proposal on a permanent basis, these companies would be eligible to 
relist under the new standards but only after delisting had disrupted 
trading in their securities. However, if the Commission were to approve 
the pilot but not permanently approve the proposal, these companies 
would still have to be delisted, but the timing of their delisting 
would have far less potential for market disruption. In the interests 
of reducing market disruption, the Commission believes that the better 
course of action would be to approve the pilot program on an 
accelerated basis. The Commission also notes that it has approved 
similar pilot programs on the NYSE relating to the implementation of 
new listing standards.\19\ Finally, the Commission notes that the pilot 
will be of only short duration, and the public will have an opportunity 
to offer comments on all aspects of the overall proposal.
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    \18\ 15 U.S.C. 78s(b)(2).
    \19\ See Securities Exchange Act Release No. 41648 (July 26, 
1999), 64 FR 41986 (August 2, 1999) (publishing notice of SR-NYSE-
99-29 and approving on an accelerated basis a pilot program relating 
to continued listing criteria); Securities Exchange Act Release No. 
41459 (May 27, 1999), 64 FR 30088 (June 4, 1999) (publishing notice 
of SR-NYSE-99-17 and approving on an accelerated basis a pilot 
program relating to original listing criteria).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NASD-2001-14) is partially 
approved with respect to the pilot program which will bend on the 
earlier of July 1, 2001, or when the Commission takes final action on 
the overall proposal.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-11473 Filed 5-7-01; 8:45am]
BILLING CODE 8010-01-M