Document ID: SEC-2007-0962-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-07-17T04:00Z

[Federal Register: July 17, 2007 (Volume 72, Number 136)]
[Notices]               
[Page 39108-39110]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jy07-82]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56044; File No. SR-NASDAQ-2007-024]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Provide Additional Transparency To How Nasdaq Applies Its Public 
Interest Authority

July 11, 2007.
    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 March 16, 2007, The NASDAQ Stock Market LLC (``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 substantially prepared by Nasdaq. On June 26, 2007, Nasdaq 
filed Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify Nasdaq IM-4300 to provide additional 
transparency to how Nasdaq applies its public interest authority. 
Nasdaq will implement the proposed rule upon approval. The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in brackets.\3\
---------------------------------------------------------------------------

    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://www.complinet.com/nasdaq
.

---------------------------------------------------------------------------

* * * * *
IM-4300. Use of Discretionary Authority
    In order to further issuers' understanding of Rule 4300, Nasdaq is 
adopting this Interpretive Material as a non-exclusive description of 
the circumstances in which the Rule is generally invoked.
    Nasdaq may use its authority under Rule 4300 to deny initial or 
continued listing to an issuer when an individual with a history of 
regulatory misconduct is associated with the issuer. Such individuals 
are typically an officer, director, substantial security holder (as 
defined in Rule 4350(i)(5)), or consultant to the issuer. In making 
this determination, Nasdaq [shall] will consider a variety of factors, 
including: [the severity of the violation; whether it involved fraud or 
dishonesty; whether it was securities-related; whether the investing 
public was involved; when the violation occurred; how the individual 
has been employed since the violation; whether there are continuing 
sanctions against the individual; whether the individual made 
restitution; whether the issuer has taken effective remedial action; 
and the totality of the individual's relationship to the issuer.]
     The nature and severity of the conduct, taken in 
conjunction with the length of time since the conduct occurred;
     whether the conduct involved fraud or dishonesty;
     whether the conduct was securities-related;
     whether the investing public was involved;
     how the individual has been employed since the violative 
conduct;
     whether there are continuing sanctions (either criminal or 
civil) against the individual;
     whether the individual made restitution;
     whether the issuer has taken effective remedial action; 
and
     the totality of the individual's relationship to the 
issuer, giving consideration to:
    [cir] the individual's current or proposed position;
    [cir] o the individual's current or proposed scope of authority;
    [cir] the extent to which the individual has responsibility for 
financial accounting or reporting; and
    [cir] the individual's equity interest.
    Based on this review, Nasdaq may determine that the regulatory 
history rises to the level of a public interest concern, but may also 
consider whether remedial measures proposed by the issuer, if taken, 
would allay that concern. Examples of such remedial measures could 
include any or all of the following, as appropriate:
     The individual's resignation from officer and director 
positions, and/or other employment with the company;

[[Page 39109]]

     divestiture of stock holdings;
     terminations of contractual arrangements between the 
issuer and the individual; or
     the establishment of a voting trust surrounding the 
individual's shares.
    Nasdaq staff is willing to discuss with issuers, on a case-by-case 
basis, what remedial measures may be appropriate to address public 
interest concerns, and for how long such remedial measures would be 
required. Alternatively, Nasdaq may conclude that a public interest 
concern is so serious that no remedial measure would be sufficient to 
alleviate it. In the event that Nasdaq staff [makes such a 
determination] denies initial or continued listing based on such public 
interest considerations, the issuer may seek review of that 
determination through the procedures set forth in the Rule 4800 Series. 
On consideration of such appeal, a listing qualifications panel 
comprised of persons independent of Nasdaq may accept, reject or modify 
the staff's recommendations by imposing conditions.
    Nasdaq may also use its discretionary authority, for example, when 
an issuer files for protection under any provision of the federal 
bankruptcy laws or comparable foreign laws, when an issuer's 
independent accountants issue a disclaimer opinion on financial 
statements required to be audited, or when financial statements do not 
contain a required certification.
    In addition, pursuant to its discretionary authority, Nasdaq 
[shall] will review the issuer's past corporate governance activities. 
This review may include activities taking place while the issuer is 
listed on Nasdaq or an exchange that imposes corporate governance 
requirements, as well as activities taking place after a formerly 
listed issuer is no longer listed on Nasdaq or such an exchange. Based 
on such review, and in accordance with the Rule 4800 Series, Nasdaq may 
take any appropriate action, including placing restrictions on or 
additional requirements for listing, or denying listing of a security, 
if Nasdaq determines that there have been violations or evasions of 
such corporate governance standards. Such determinations [shall] will 
be made on a case-by-case basis as necessary to protect investors and 
the public interest.
    Although Nasdaq has broad discretion under Rule 4300 to impose 
additional or more stringent criteria, the Rule does not provide a 
basis for Nasdaq to grant exemptions or exceptions from the enumerated 
criteria for initial or continued listing, which may be granted solely 
pursuant to rules explicitly providing such authority.
* * * * *

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
    Nasdaq proposes to modify Nasdaq IM-4300 to provide additional 
transparency to how Nasdaq applies its public interest authority. 
Specifically, Nasdaq proposes to clarify certain of the factors 
contained in this interpretive material to better guide companies. 
Nasdaq also proposes to change the formatting of portions of the text 
to enhance their readability and to add new language highlighting 
Nasdaq staff's willingness to discuss these concerns, and possible 
remedial measures, with companies. Nasdaq does not consider these 
changes to be substantive in nature.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 6 of the Act,\4\ in general, and with section 
6(b)(5) of the Act,\5\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, 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. The proposed rule change 
clarifies how Nasdaq applies its public interest authority.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. 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-2007-024 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-2007-024. 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

[[Page 39110]]

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, on official 
business days 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 Nasdaq. 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 File Number SR-NASDAQ-2007-024 and 
should be submitted on or before August 7, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E7-13808 Filed 7-16-07; 8:45 am]

BILLING CODE 8010-01-P