Document ID: SEC-2007-0808-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-06-12T04:00Z

[Federal Register: June 12, 2007 (Volume 72, Number 112)]
[Notices]               
[Page 32384-32386]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jn07-83]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55854; File No. SR-NASDAQ-2006-045]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Allow the Use of a Company's Web Site To Distribute an Annual Report 
and Meet Other Nasdaq Listing Requirements

June 4, 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 October 31, 2006, 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 April 25, 2007, 
Nasdaq submitted Amendment No. 1, which replaced the text of the 
original filing in its entirety. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes changes to Rule 4350 to facilitate the use of 
technology to satisfy Nasdaq listing requirements and to make certain 
clarifying and technical corrections. Nasdaq will implement the 
proposed rule immediately upon approval.
    The text of the proposed rule change is below. Proposed new 
language is in italic; proposed deletions are in brackets.\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://www.complinet.com/nasdaq
.

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* * * * *
4350. Qualitative Listing Requirements for Nasdaq Issuers Except for 
Limited Partnerships
(a) Applicability
    (1) Foreign Private Issuers. A foreign private issuer may follow 
its home country practice in lieu of the requirements of Rule 4350, 
provided, however, that such an issuer shall: Comply with Rules 
4350(b)(1)(B), 4350(j) and 4350(m), have an audit committee that 
satisfies Rule 4350(d)(3), and ensure that such audit committee's 
members meet the independence requirement in Rule 4350(d)(2)(A)(ii). A 
foreign private issuer that follows a home country practice in lieu of 
one or more provisions of Rule 4350 shall disclose in its annual 
reports filed with the Commission or on its Web site each requirement 
of Rule 4350 that it does not follow and describe the home country 
practice followed by the issuer in lieu of such requirements. In 
addition, a foreign private issuer making its initial public offering 
or first U.S. listing on Nasdaq shall make the same disclosures in its 
registration statement or on its Web site.
    (2)-(5) No change.
(b) Distribution of Annual and Interim Reports
    (1)(A) Each issuer with common stock or voting preferred stock (or 
their equivalents) listed on Nasdaq shall [distribute] make available 
to shareholders of such securities [copies of] an annual report 
containing audited financial statements of the company and its 
subsidiaries, which may be on Form 10-K, 20-F, 40-F or N-CSR. [The 
report shall be distributed to shareholders a reasonable period of time 
prior to the company's annual meeting of shareholders and shall be 
filed with Nasdaq at the time it is distributed to shareholders.] An 
issuer may comply with this requirement either: (i) By mailing the 
report to shareholders, or (ii) by posting the annual report to 
shareholders on or through the company's Web site (or, in the case of 
an issuer that is an investment company that does not maintain its own 
Web site, on a Web site that the issuer is allowed to use to satisfy 
the Web site posting requirement in Exchange Act Rule 16a-3(k)), along 
with a prominent undertaking in the English language to provide 
shareholders, upon request, a hard copy of the company's annual report 
free of charge. An issuer that chooses to satisfy this requirement via 
a Web site posting must, simultaneous with this posting, issue a press 
release stating that its annual report has been filed with the 
Commission (or other

[[Page 32385]]

appropriate regulatory authority). This press release must also state 
that the annual report is available on the company's Web site and 
include the Web site address and that shareholders may receive a hard 
copy free of charge upon request. An issuer must provide such hard 
copies within a reasonable period of time following the request.
    (B) An issuer that receives an audit opinion that [contains a going 
concern qualification] expresses doubt about the ability of the company 
to continue as a going concern for a reasonable period of time must 
make a public announcement through the news media disclosing the 
receipt of such [qualification] opinion. Prior to the release of the 
public announcement, the issuer must provide the text of the public 
announcement to the StockWatch section of Nasdaq's MarketWatch 
Department (``Nasdaq StockWatch''). The public announcement shall be 
provided to Nasdaq StockWatch and released to the media not later than 
seven calendar days following the filing of such audit opinion in a 
public filing with the Securities and Exchange Commission.
    (2)-(4) No change.
    (c)-(n) No change.
* * * * *
IM 4350-6. Applicability
    1. Foreign Private Issuer Exception and Disclosure. A foreign 
private issuer (as defined in Rule 3b-4 under the Act) listed on Nasdaq 
may follow the practice in such issuer's home country (as defined in 
General Instruction F of Form 20-F) in lieu of some of the provisions 
of Rule 4350, subject to several important exceptions. First, such an 
issuer shall comply with Rule 4350(b)(1)(B) (Disclosure of Going 
Concern Opinion), Rule 4350(j) (Listing Agreement) and Rule 4350(m) 
(Notification of Material Noncompliance). Second, such an issuer shall 
have an audit committee that satisfies Rule 4350(d)(3). Third, members 
of such audit committee shall meet the criteria for independence 
referenced in Rule 4350(d)(2)(A)(ii) (the criteria set forth in Rule 
10A-3(b)(1), subject to the exemptions provided in Rule 10A-3(c) under 
the Act). Finally, a foreign private issuer that elects to follow home 
country practice in lieu of a requirement of Rule 4350 shall submit to 
Nasdaq a written statement from an independent counsel in such issuer's 
home country certifying that the issuer's practices are not prohibited 
by the home country's laws. In the case of new listings, this 
certification is required at the time of listing. For existing issuers, 
the certification is required at the time the company seeks to adopt 
its first non-compliant practice. In the interest of transparency, the 
rule requires a foreign private issuer to make appropriate disclosures 
in the issuer's annual filings with the Commission (typically Form 20-F 
or 40-F), and at the time of the issuer's original listing in the 
United States, if that listing is on Nasdaq, in its registration 
statement (typically Form F-1, 20-F, or 40-F); alternatively, the 
issuer may provide these disclosures in English on its Web site. The 
issuer shall disclose each requirement of Rule 4350 that it does not 
follow and include a brief statement of the home country practice the 
issuer follows in lieu of these corporate governance requirement(s). If 
the disclosure is only available on the Web site, the annual report and 
registration statement should so state and provide the Web address at 
which the information may be obtained.
    (2)-(4) No change.
* * * * *

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 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.\4\ 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.\5\ Nasdaq believes 
that allowing companies to rely on the Internet to satisfy the 
requirement to provide shareholders with an annual report containing 
audited financial statements will allow companies to provide investors 
with information in a more timely, efficient and cost effective manner. 
At present, this proposal would only be meaningful to foreign private 
issuers because they are exempt from the Commission's proxy 
solicitation rules under Rule 3a12-3(b) of the Act.\6\ However, the 
Commission recently approved rules that will permit issuers to rely on 
the Internet to deliver proxy materials, effective July 1, 2007,\7\ and 
is considering further expanding those rules to require the use of the 
Internet to deliver proxy materials.\8\
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    \4\ 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.
    \5\ 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).
    \6\ 17 CFR 240.3a12-3(b).
    \7\ See Securities Exchange Act Release No. 55146 (January 22, 
2007), 72 FR 4148 (January 29, 2007).
    \8\ See Securities Exchange Act Release No. 55147 (January 22, 
2007), 72 FR 4176 (January 29, 2007).
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    Nasdaq also proposes to specify that the annual report requirement 
is applicable only to issuers of common stock and voting preferred 
stock (and their equivalents) \9\ and that the annual report 
requirement can be satisfied by providing the company's annual filing 
with the Commission, such as on Form 10-K, 20-F, 40-F, or N-CSR. 
Further, Nasdaq proposes to remove a provision related to the timing 
for delivery of the annual report, because the Commission's proxy rules 
already require that such information be provided before the annual 
meeting.\10\
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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\ Pursuant to Rule 14a-3(b), 17 CFR 240.14a-3(b), the proxy 
statement for a company's annual meeting 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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    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

[[Page 32386]]

qualification.'' \11\ 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. Nasdaq believes that 
this clarification will remove confusion as to when the rule applies.
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    \11\ Conversation between Arnold Golub, Associate General 
Counsel, The Nasdaq Stock Market, Inc., Raymond Lombardo, Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
and Molly Kim, Special Counsel, Division, Commission, on April 26, 
2007.
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Disclosure of Non-Conforming Governance Practices

    Nasdaq requires that foreign private issuers disclose all non-
conforming governance practices in their Form F-1, 20-F, or 40-F.\12\ 
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.\13\
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    \12\ Nasdaq Rule 4350(a)(1) and IM-4350-6.
    \13\ Conversation between Arnold Golub, Associate General 
Counsel, The Nasdaq Stock Market, Inc., Raymond Lombardo, Special 
Counsel, Division, Commission, and Molly Kim, Special Counsel, 
Division, Commission, on May 31, 2007.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\14\ in general, and with 
Section 6(b)(5) of the Act,\15\ in particular. The proposed rule change 
would allow additional methods of disclosure for Nasdaq-listed 
companies, thereby reducing costs for those companies, and allowing 
them to rely on technology to provide information to investors in a 
timelier manner. As such, the proposed rule change is 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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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(5).
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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, as amended, 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-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. 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-2006-045 and 
should be submitted on or before July 3, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-11267 Filed 6-11-07; 8:45 am]

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