Document ID: SEC-2007-1219-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-08-30T04:00Z

[Federal Register: August 30, 2007 (Volume 72, Number 168)]
[Notices]               
[Page 50149-50151]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30au07-66]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56319; File No. SR-NASDAQ-2006-045]

 
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2, and Order Granting Accelerated 
Approval of Proposed Rule Change as Modified by Amendment Nos. 1 and 2, 
To Allow the Use of a Company's Web Site To Distribute an Annual Report 
and Meet Other Nasdaq Listing Requirements

August 24, 2007

I. Introduction

    On October 31, 2006, the Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') 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 allow the use of a Nasdaq-listed company's Web 
site to distribute its annual report and meet other Nasdaq listing 
requirements. On April 25, 2007, Nasdaq filed Amendment No. 1 to the 
proposed rule change.\3\ The proposed rule change was published for 
comment in the Federal Register on June 12, 2007.\4\ The Commission did 
not receive any comment letters on the proposal. On August 24, 2007, 
the Exchange filed Amendment No. 2 to the proposed rule change.\5\ This 
order approves the proposed rule change, as amended by Amendment Nos. 1 
and 2, provides notice of Amendment No. 2, and solicits comments from 
interested persons on Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Amendment No. 1 dated April 25, 2007.
    \4\ See Securities Exchange Act Release No. 55854 (June 4, 
2007), 72 FR 32384.
    \5\ See Amendment No. 2 dated August 24, 2007 (``Amendment No. 
2'').
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II. Description of the Proposal

    Nasdaq proposes to make changes to its rules to facilitate the use 
of technology to satisfy Nasdaq listing requirements and to make 
certain clarifying and technical corrections.

Annual Reports

    Pursuant to Nasdaq Rule 4350(b)(1)(A), each Nasdaq issuer is 
currently required to distribute to shareholders a copy of an annual 
report containing audited financial statements.\6\ Nasdaq proposes to 
modify its rules to permit a company to distribute its annual report by 
posting it on a Web site and issuing a press release stating that the 
annual report has been filed with the Commission (or other appropriate 
regulatory authority), that such annual report is available on the 
company's publicly available Web site, and that shareholders can 
receive a hard copy free of charge upon request.\7\ The proposal 
requires that the hard copy be provided within a reasonable time period 
following the request. Nasdaq notes that this proposal is most 
meaningful to foreign private issuers because they are exempt from the 
Commission's proxy solicitation rules under Rule 3a12-3(b) of the 
Act.\8\
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    \6\ A foreign private issuer can follow its home country 
practice regarding distribution of annual reports instead of 
Nasdaq's rule, if it follows the procedures set forth in Rule 
4350(a) regarding disclosure of this non-conforming practice.
    \7\ This proposal is similar to a recent change by the New York 
Stock Exchange LLC to Section 203.01 of its Listed Company Manual. 
See Securities Exchange Act Release No. 54344 (August 21, 2006), 71 
FR 51260 (August 29, 2006) (approving SR-NYSE-2005-68).
    \8\ 17 CFR 240.3a12-3(b).
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    In the initial version of the rule change, Nasdaq proposed that the 
annual report requirement is applicable only to issuers of common stock 
and voting preferred stock (and their equivalents).\9\ In Amendment No. 
2, Nasdaq decided to retain the current formulation of Rule 
4350(b)(1)(A), so it will apply to all Nasdaq issuers and not just 
issuers of common stock and voting preferred stock (and their 
equivalents).\10\ The proposed rule change also provides that the 
annual report requirement can be satisfied by making available to 
shareholders the company's annual filing with the Commission, including 
but not limited to Forms 10-K, 20-F, 40-F, or N-CSR.\11\ Further, 
Nasdaq proposes to remove a provision related to the timing for 
delivery of the annual report, because the Exchange notes that the 
Commission's proxy rules already require that such information be 
provided before the annual meeting.\12\ Nasdaq is also removing the 
rule provision that the annual report be filed with Nasdaq at the same 
time that it is made available to shareholders. According to the 
Exchange, it does not require a copy of the company's annual report 
with audited financial statements to be filed with it because it has 
access to company filings through the Commission's EDGAR database. 
Nasdaq obtains access to these filings through an online vendor 
subscription service. The vendor receives all electronically-filed 
documents within seconds of their submission to the EDGAR system and 
provides Nasdaq staff immediate access to these filings through the 
Internet.\13\
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    \9\ Common stock equivalents include, but are not limited to: 
Ordinary shares, shares or certificates of beneficial interest of 
Trust, American depositary receipts and American depositary shares.
    \10\ See Amendment No. 2, supra note 5.
    \11\ In Amendment No. 2, Nasdaq modified the proposed rule 
language to make it clear that the aforementioned forms are not an 
exhaustive list. For example, the rule can be satisfied by making 
available other forms, such as the 10-KSB. See Amendment No. 2, 
supra note 5.
    \12\ Pursuant to Rule 14a-3(b), 17 CFR 240.14a-3(b), the proxy 
statement for a company's annual meeting at which directors are to 
be elected must be accompanied or preceded by an annual report. 
State law requirements also govern the amount of notice that must be 
provided for a meeting. See, e.g., Section 222(b) of the Delaware 
General Corporation Law, which requires notice of a meeting not less 
than 10 nor more than 60 days prior to the meeting.
    \13\ See e-mail from Arnold Golub, Associate General Counsel, 
Nasdaq, to Sharon Lawson, Senior Special Counsel, Division, 
Commission, on August 23, 2007.
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    In addition, Nasdaq proposes to make a technical correction to Rule 
4350(b)(1)(B), relating to the disclosure required when the audit 
opinion of a company's annual financial statements contains a ``going 
concern qualification.'' The proposed change removes the term ``going 
concern qualification,'' which is undefined in the accounting 
literature, and replaces it with language from Statement on Auditing 
Standard Number 59, which relates to the auditor's consideration of an 
entity's ability to continue as a going concern.

Disclosure of Non-Conforming Governance Practices

    Nasdaq requires that foreign private issuers disclose all non-
conforming governance practices in their Form F-1,

[[Page 50150]]

20-F, or 40-F.\14\ Nasdaq proposes to expand the existing Nasdaq rule 
to allow this disclosure to be made either in the Form F-1, 20-F, or 
40-F, as applicable, or, in the alternative, the foreign private issuer 
may provide these disclosures in English on its Web site. If, however, 
the disclosure is only available on the foreign private issuer's Web 
site, the proposal requires that the issuer's annual report and 
registration statement should state this fact and provide the Web 
address at which the information may be obtained.
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    \14\ Nasdaq Rule 4350(a)(1) and IM-4350-6.
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission believes that it is consistent with Section 
6(b)(5) of the Act,\16\ which requires, among other things, that the 
rules of a national securities exchange be designed 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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    \15\ The Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange has proposed to amend Nasdaq Rule 4350 to permit a 
company to distribute its annual report by posting it on a Web site and 
issuing a press release stating that the annual report has been filed 
with the Commission (or other appropriate regulatory authority), that 
such annual report is available on the company's publicly available Web 
site, and that shareholders can receive a hard-copy free of charge upon 
request. Nasdaq's proposal also states that the annual report 
requirement is applicable only to issuers of common stock, voting 
preferred stock, and their equivalents, and that the annual report 
requirement can be satisfied by providing the company's annual filing 
with the Commission. The Commission believes that the proposed changes 
are reasonable because electronic delivery may offer shareholders 
immediate access to financial information and greater ability to search 
such information. The Commission also believes that the proposed rule 
change may lead to significant cost savings for Nasdaq-listed 
companies, savings that will ultimately accrue to those companies' 
shareholders.\17\
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    \17\ The Commission adopted new Rule 14a-16, 17 CFR 240.14a-16, 
to facilitate the electronic furnishing of proxy materials to 
shareholders, including the annual report required by Rule 14a-3(b), 
17 CFR 240.14a-3(b). One of the requirements in Rule 14a-16 is that 
the company must send a Notice of Internet Availability of Proxy 
Materials to shareholders. See Securities Exchange Act Release Nos. 
34-55746 (January 22, 2007) and 34-56135 (July 26, 2007).
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    The Commission also notes that the proposed rule change requires 
the listed company to issue a press release simultaneously with the 
posting of the annual report, stating that the annual report is 
available, listing the Web site where the annual report may be 
accessed, and requiring the listed company to send paper copies to 
those shareholders that request one within a reasonable time at no 
charge. The Commission believes that these steps provide reasonable 
assurance that stockholders will either be able to access the Web site 
of the listed company to access the annual report or request a free 
paper copy.
    Nasdaq also proposes to remove a provision related to the timing 
for delivery of the annual report, because the Exchange notes that the 
Commission's proxy rules already require that such information be 
provided before the annual meeting. The Commission believes that this 
proposal is reasonable, given that state corporate law and Commission 
rules operate together to determine the timetable for the delivery of 
annual reports to shareholders.\18\
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    \18\ Pursuant to Rule 14a-3(b), 17 CFR 240.14a-3(b), the proxy 
statement for a company's annual meeting at which directors are to 
be elected must be accompanied or preceded by an annual report. 
State law requirements also govern the timing that notice of the 
meeting must be provided. See, e.g., Section 222(b) of the Delaware 
General Corporation Law, which requires notice of a meeting not less 
than 10 nor more than 60 days prior to the meeting.
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    Nasdaq is also removing the rule provision that the annual report 
be filed with Nasdaq at the same time that it is made available to 
shareholders. As noted earlier, the Exchange receives immediate 
notification of listed issuers' filings, and the Commission believes 
that the proposed change to eliminate this particular filing 
requirement is reasonable.\19\
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    \19\ See supra note 13 and accompanying text.
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    Further, Nasdaq proposes to make a technical correction to Rule 
4350(b)(1)(B), by removing the term ``going concern qualification,'' 
which is undefined in the accounting literature, and replacing it with 
language from Statement on Auditing Standard Number 59, which relates 
to the auditor's consideration of an entity's ability to continue as a 
going concern. The Commission agrees with Nasdaq that this change is 
reasonable because it will remove confusion as to when the rule will 
apply.
    Pursuant to Exchange Rule 4350(a) and IM-4350-6, Nasdaq requires 
that foreign private issuers disclose all non-conforming governance 
practices in their Form F-1, 20-F, or 40-F. Nasdaq proposes to expand 
the existing Nasdaq rule to allow this disclosure to be made either in 
the Form F-1, 20-F, or 40-F, as applicable, or, in the alternative, the 
foreign private issuer may provide these disclosures in English on its 
Web site. If, however, the disclosure is only available on the foreign 
private issuer's Web site, the proposal requires that the issuer's 
annual report and registration statement should state this fact and 
provide the Web address at which the information may be obtained. The 
Commission believes this proposed change is also reasonable because it 
will permit investors to utilize the Web to quickly determine if a 
foreign private issue has any non-conforming corporate governance 
practices. The Commission also expects that foreign private issuers 
would update these disclosures to keep them current and accurate.

IV. Notice of Filing of Amendment No. 2, and Order Granting Accelerated 
Approval to the Proposed Rule Change as Amended by Amendments Nos. 1 
and 2

    In Amendment No. 2, the Exchange modified the proposal to retain 
the current formulation of Rule 4350(b)(1)(A), so it will apply to all 
Nasdaq issuers and not just issuers of common stock and voting 
preferred stock (and their equivalents).\20\ In Amendment No. 2, the 
Exchange also clarified that the new annual report requirement can be 
satisfied by making available to shareholders the company's annual 
filing with the Commission, including but not limited to Forms 10-K, 
20-F, 40-F, or N-CSR.\21\ The Exchange's decision to revert to the 
rule's original language raises no regulatory issues, as does the 
Exchange's change to clarify that the Nasdaq-listed issuer can satisfy 
the new requirement by making clear that the proposed rule text's 
mentioning of some forms and not others, such as Form 10-KSB, was 
merely for purposes of illustration and not limitation. Therefore, the 
Commission finds good cause, consistent with Section 19(b) and 6(b)(5) 
of the Act, to approve the proposed rule change, as modified by

[[Page 50151]]

Amendment Nos. 1 and 2, prior to the 30th day after the amendment is 
published for comment in the Federal Register.
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    \20\ See Amendment No. 2, supra note 5.
    \21\ See id.
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether the proposed 
changes in Amendment No. 2 are consistent with the Act. 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 rule-comments@sec.gov. Please include 

File Number SR-NASDAQ-2006-045 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2006-045. 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 between the hours 
of 10 a.m. and 3 p.m.. Copies of such filing also will be available for 
inspection and copying at the principal office of the Exchange. 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 publicly available. All 
submissions should refer to File Number SR-NASDAQ-2006-045 and should 
be submitted on or before September 20, 2007.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NASDAQ-2006-045), as 
modified by Amendment Nos. 1 and 2, be, and hereby is, approved on an 
accelerated basis.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E7-17174 Filed 8-29-07; 8:45 am]

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