Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / Notices 67511 

9 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 superseded and replaced the 

filing in its entirety. 

4Amendment No. 2 superseded and replaced the 

amended filing in its entirety. 

performance, such ratings do not 

frequently change once they are issued. 

NASD will announce the effective 

date of the proposed rule change in a 

Notice to Members to be published no 

later than 30 days following 

Commission approval. If the 

Commission approves the proposed rule 

change without material amendment, 

NASD is proposing that the rule change 

become effective immediately upon 

Commission approval, since the 

proposed rule is already in effect on a 

pilot basis. If the proposed rule change 

is approved only after material 

amendment that would require 

members to substantially modify their 

compliance systems or procedures, 

NASD will propose a later effective date 

to provide adequate time for such 

modifications. 

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 

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. 

NASD believes that making IM–2210–5 

and Rule 2210(c)(3) effective on a 

permanent basis will allow members to 

continue to publish sales material that 

contains bond fund volatility ratings in 

a manner that will protect investors and 

serve the public interest. 

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 

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 such 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. The 

Commission particularly urges 

commenters to consider the proposed 

rule change in light of the specific 

comments that the NASD urged the 

Commission to seek. 

Specifically, the Commission requests 

comment on whether the timeliness 

requirements of IM–2210–5(b)(2) should 

be modified to mirror the requirements 

pursuant to Rule 482 under the 

Securities Act of 1933. In other words, 

should the rule require all supplemental 

sales literature that includes a bond 

fund volatility rating either to show a 

rating that is current to the most 

recently ended calendar quarter prior to 

use, and disclose where the reader may 

find the most recent month-end rating, 

or provide the most recent month-end 

rating in the sales literature? 

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–2005–117 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–NASD–2005–117. 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, 100 F Street, NE., Washington, 

DC 20549. Copies of such filing also will 

be available for inspection and copying 

at the principal office of NASD. 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 the File 

Number SR–NASD–2005–117 and 

should be submitted on or before 

November 28, 2005. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22178 Filed 11–4–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52712; File No. SR–NASD–

2004–162] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Order Approving 

Proposed Rule Change and 

Amendment Nos. 1 and 2 Thereto To 

Establish Fee and Notice 

Requirements for Substitution Listing 

Events and Other Corporate Changes 

November 1, 2005. 

I. Introduction 

On October 26, 2004, 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’’), pursuant 

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

Exchange Act of 1934 (‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposed rule 

change to establish fee and notice 

requirements for substitution listing 

events and to provide additional 

transparency for corporate changes 

requiring a record-keeping fee. Nasdaq 

amended the proposal on May 11, 

2005 3 and August 18, 2005.4 The 

proposed rule change, as amended, was 

67512 Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / Notices 

5See Securities Exchange Act Release No. 52430 

(September 14, 2005), 70 FR 55643. 

6 If a security is originally listed on an exchange 

and designated by the exchange as a national 

market system security under the exchange’s 

national market system plan, Nasdaq would not 

exercise its authority to later designate the security 

as a national market system security under its own 

national market system plan. This arrangement 

creates uniformity across all markets with respect 

to a dually listed security’s ticker symbol, trading 

halt declarations, trade reporting, and status under 

the trade-through provisions of the Intermarket 

Trading System Plan. See NASD IM–4400. 

7Nasdaq has stated that it provides advance 

notification of certain substitution listing events, 

such as reverse stock splits, to member firms, 

market data vendors, service bureaus, and other 

subscribers of its daily list service. Notification of 

the substitution listing event information on 

Nasdaq’s daily list service is subsequently provided 

to users of Nasdaq’s systems through a fifth letter 

identifier, such as a ‘‘D,’’ that is temporarily added 

to an issuer’s trading symbol. Re-incorporations or 

changes to the place of organization are recorded in 

Nasdaq’s internal database, but are not 

disseminated to market participants. 

8For example, Nasdaq stated that it uses 

electronic reports from the New York Stock 

Exchange (‘‘NYSE’’) to verify the details of the 

substitution listing events for NYSE-listed securities 

that are subsequently also listed on Nasdaq but are 

still designated by the NYSE as national market 

system securities pursuant to the NYSE’s national 

market system plan. The consolidated reports from 

the NYSE contain information regarding reverse 

stock splits, the substitution of a previously listed 

class of securities for another class, the creation of 

a holding company, and the reincorporation or 

change to the place of organization of an issuer. 

9Nasdaq has represented that the lack of such 

fees from these issuers would not impair Nasdaq’s 

ability to fulfill its regulatory responsibilities and 

enforce its rules. Furthermore, although Nasdaq 

relies on consolidated reports in managing the 

substitution listing events process for these issuers, 

Nasdaq has represented that its rules must be 

‘‘designed to produce fair and informative 

quotations, to prevent fictitious or misleading 

quotations, and promote orderly produces for 

collecting, distributing, and publishing quotations’

pursuant to Section 15A(b)(11) of the Act, 15 U.S.C. 

78o–3(b)(11). 

10See NYSE Listed Company Manual Section 

902.02. The $15,000 fee applies only if the change 

in the company’s status is technical in nature and 

the shareholders of the original company receive a 

share-for-share interest in the new company 

without any change in their equity position or 

rights. If the substitution event does not comply 

with these requirements, the full initial listing fees 

would apply. 

11See Amex Company Guide Sections 142 and 

305. For Amex issuers, a substitution listing fee 

applies in cases where, after the original listing, a 

change is made by charter amendment or otherwise 

by which shares listed on Amex are reclassified, or 

changed into or exchanged for another security, 

either with or without a change in par value. Amex 

also charges a substitution listing fee whenever a 

company implements a reverse stock split, reincorporates, lists a new class of securities in 

substitution of a previously listed class of 

securities, or otherwise engages in a transaction 

which would require the company to file a new 

Form 8–A with the Commission in regard to the 

previously listed security. 

published for notice and comment in 

the Federal Register on September 22, 

2005.5 The Commission did not receive 

comments on the proposal. This order 

approves the proposed rule change, as 

amended. 

II. Description of the Proposal 

Nasdaq proposes to amend NASD 

Rules 4200(a), 4310, 4320, 4510, and 

4520 to establish fee and notice 

requirements for each ‘‘substitution 

listing event.’’ The term ‘‘substitution 

listing event’’ would include: (1) The 

implementation of a reverse stock split; 

(2) an issuer’s re-incorporation or a 

change in the issuer’s place of 

organization (including a change in the 

issuer’s state of incorporation); (3) 

formation of a holding company that 

replaces a listed company; (4) the 

reclassification or exchange of an 

issuer’s listed shares for another 

security; (5) the listing of a new class of 

securities in substitution for a 

previously listed class of securities; and 

(6) any technical change whereby the 

shareholders of the original company 

receive a share-for-share interest in the 

new company without a change in their 

equity position or rights. 

Nasdaq-listed securities may be 

divided into two groups: (1) Nasdaqlisted securities that Nasdaq designates 

as Nasdaq national market system 

securities, pursuant to NASD Rule 4400 

Series (‘‘Nasdaq designated securities’’); 

and (2) all securities that are listed on 

a national securities exchange and 

subsequently listed on Nasdaq but not 

designated by Nasdaq as Nasdaq 

national market system securities 

(‘‘Nasdaq non-designated securities’’).6

For Nasdaq designated securities, the 

proposed notice requirement and fee 

would apply. For Nasdaq nondesignated securities, only the proposed 

notice requirement, and not the 

proposed fee, would apply. 

Nasdaq has stated that, when it learns 

about a substitution listing event for a 

Nasdaq-listed security, it must 

implement technical changes to its 

trading, market data, and internal 

monitoring systems. In addition, Nasdaq 

would disseminate certain substitution 

listing event information about the 

issuer of a Nasdaq-listed security to 

other markets and market participants 

through a subscription service.7 For a 

substitution listing event relating to a 

Nasdaq designated security, Nasdaq 

would directly contact the issuer to 

verify the details of the event. For a 

substitution listing event relating to a 

Nasdaq non-designated security, 

however, Nasdaq would not contact the 

issuer directly to verify the details of the 

event; instead, Nasdaq would receive an 

electronic consolidated report from the 

national securities exchange that has 

designated the security as a national 

market system security under that 

market’s national market system plan. 

The exchange would disseminate 

information on the substitution listing 

event for that security. Nasdaq would 

use this electronic consolidated report 

to make the necessary changes to its 

systems.8

Nasdaq has represented that it has 

dedicated specific resources to manage 

the process for collecting and verifying 

information for substitution listing 

events and for implementing the related 

changes for its issuers so that such 

changes are accurately and promptly 

reflected in its trading, market data, and 

internal monitoring systems. To support 

these activities, Nasdaq proposes to 

establish a fee of $7,500 per substitution 

listing event for issuers of Nasdaq 

designated securities. Nasdaq has stated 

that, since the costs associated with 

managing the information for 

substitution listing events for issuers of 

Nasdaq non-designated securities are 

reduced through Nasdaq’s use of 

electronic consolidated reports from 

other markets, it would waive the 

substitution listing event fee for these 

issuers.9 Waiving these fees also would 

eliminate the possibility that these 

issuers would be charged twice for the 

same substitution listing event, since 

other markets charge these issuers a fee 

for substitution listing events. For 

example, both NYSE and the American 

Stock Exchange LLC (‘‘Amex’’) charge a 

fee for substitution listing events. NYSE 

charges a ‘‘Reduced Initial Fee’’ of 

$15,000 for a substitution listing 

event 10 and Amex charges $5,000 for a 

substitution listing event.11

Under the amended proposal, issuers 

of both Nasdaq designated securities 

and Nasdaq non-designated securities 

would be required to notify Nasdaq 

about a substitution listing event no 

later than 15 days prior to the 

implementation of the substitution 

listing event so that Nasdaq would have 

sufficient time to implement the 

technical changes into its systems. For 

a re-incorporation or a change to an 

issuer’s place of organization, however, 

Nasdaq would require an issuer to 

notify Nasdaq as soon as practicable 

after the event has been implemented, 

since such an event may be contingent 

on shareholder approval and would not 

require immediate changes to Nasdaq’s 

systems. 

Finally, the proposal would require 

an issuer to notify Nasdaq of a corporate 

action that would require the payment 

of a record-keeping fee. Specifically, 

Nasdaq proposes to amend NASD Rules 

4310(c)(20), 4320(e)(18), 4510(e), and 

Federal Register / Vol. 70, No. 214 / Monday, November 7, 2005 / Notices 67513 

12The Commission has considered the proposed 

rule’s impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

13 15 U.S.C. 78o–3(b)(6). 

14 15 U.S.C. 78o–3(b)(5). 

15See Securities Exchange Act Release No. 51005 

(January 10, 2005), 70 FR 2917 (January 18, 2005) 

(approving, among other things, the waiver of entry 

fees, application fees, and additional shares listing 

fees for securities that are originally listed on a 

national securities exchange but later dually listed 

on Nasdaq). 

16 15 U.S.C. 78s(b)(2). 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

4520(d) to clarify that an issuer of a 

Nasdaq-listed security that is subject to 

a record-keeping fee must submit the 

appropriate form to Nasdaq within ten 

days after a change that requires 

payment of a record-keeping fee. Nasdaq 

has represented that this proposed 

change reflects the current practice of 

Nasdaq issuers. 

III. Discussion and Commission 

Findings 

After careful review of the proposal, 

the Commission finds that the proposed 

rule change, as amended, is consistent 

with the requirements of the Act and the 

rules and regulations applicable to a 

national securities association.12

The Commission believes that the 

proposed notice requirement for a 

substitution listing event is consistent 

with Section 15A(b)(6) of the Act,13

which requires that the rules of a 

national securities association be 

designed to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities; 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. Nasdaq is requiring all 

of its issuers to provide notice of 

substitution listing events for the 

purposes of maintaining up-to-date 

corporate information and 

disseminating accurate information 

about its listed securities. This 

requirement should better enable 

Nasdaq to perform its essential 

monitoring functions and enhance the 

flow of accurate market data. 

In addition, the Commission believes 

that the fee for a substitution listing 

event is consistent with Section 

15A(b)(5) of the Act,14 which requires 

that the rules of a national securities 

association provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among members and 

issuers and other persons using any 

facility or system which the association 

operates or controls. The fee is designed 

to offset the costs associated with 

collecting and verifying information 

related to substitution listing events and 

for implementing requisite systems 

changes. The Commission believes that 

it is reasonable for a listing market to 

assess fees on its issuers that will enable 

the listing market to make necessary 

systems changes and to carry out its 

regulatory responsibilities. With respect 

to the fee waiver for issuers of Nasdaq 

non-designated securities, the 

Commission notes that it has previously 

approved a waiver of fees based on a 

security’s dually listed status.15 Nasdaq 

has represented that its costs for 

processing substitution listing events of 

Nasdaq non-designated securities are 

significantly reduced on account of 

Nasdaq’s reliance on electronic 

consolidated reports received from the 

listing market for such securities. On 

this basis, the Commission believes that 

the proposed fee for Nasdaq designated 

securities and the proposed fee waiver 

for substitution listing event fee for 

Nasdaq non-designated securities are a 

reasonable allocation of fees among 

issuers. 

Finally, the Commission believes that 

codifying a requirement for an issuer to 

notify Nasdaq of the payment of a 

corporate record-keeping fee is 

reasonable and consistent with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,16 that the 

proposed rule change (SR–NASD–2004–

162), as amended, is approved. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.17

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–22181 Filed 11–4–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52723; File No. SR–NASD–

2005–128] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing of 

Proposed Rule Change To Establish 

Rules Governing the Operation of the 

INET System 

November 2, 2005. 

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 

1, 2005, 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. 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 the Substance 

of the Proposed Rule Change 

Nasdaq intends to purchase INET 

ATS, Inc. (‘‘INET’’), operator of the 

INET ECN (the ‘‘INET System’’ or 

‘‘System’’). Nasdaq proposes to establish 

rules governing the operation of the 

INET System and fees for System 

services. Below is the text of the 

proposed rule change. Proposed new 

language is italicized. 

* * * * * 

4950. INET SYSTEM 

4951. Definitions 

Unless stated otherwise, the terms 

described below shall have the following 

meaning: 

(a) The terms ‘‘The INET ECN 

System,’’ ‘‘INET System,’’ or ‘‘System,’’

shall mean the automated system 

owned and operated by INET, which is 

owned and operated by The Nasdaq 

Stock Market, Inc., which enables 

Participants to execute transactions in 

System securities, to have reports of the 

transactions automatically forwarded to 

the appropriate National Market Trade 

Reporting System for dissemination to 

the public and the industry, to ‘‘lock in’’

these trades by sending both sides to the 

applicable clearing corporation(s) 

designated by the System Participant(s) 

for clearance and settlement, and to 

provide System Participants with 

sufficient monitoring and updating 

capability to participate in an 

automated execution environment. 

(b) The term ‘‘System Securities’’ shall 

mean Nasdaq Market Center eligible 

securities as that term is defined in 

NASD Rule 4701(s) and ITS Securities 

securities as defined in NASD Rule 

5210(c). 

(c) The term ‘‘Participant’’ shall mean 

an entity that fulfills the obligations 

contained in NASD Rule 4952 regarding 

participation in the System. 

(d) The term ‘‘Nasdaq Market Center’’

shall mean the automated system 

owned and operated by The Nasdaq 

Stock Market, Inc. pursuant to NASD 

Rule 4700 Series.