Document ID: SEC-2005-0449-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-12-28T05:00Z

[Federal Register: December 28, 2005 (Volume 70, Number 248)]
[Notices]               
[Page 76895-76897]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de05-164]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52985; File No. SR-NASD-2005-073]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto Relating to Rule 4350(e) To Amend the Annual 
Shareholder Meeting Requirement

December 20, 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 June 6, 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. On December 5, 
2005, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ On 
December 9, 2005, Nasdaq filed Amendment No. 2 to the proposed rule 
change.\4\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, Nasdaq revised the proposed rule text 
and corresponding description of the proposal in its Form 19b-4. 
Amendment No. 1 replaced Nasdaq's original filing in its entirety.
    \4\ In Amendment No. 2, Nasdaq made further clarifying changes 
to the proposed rule text of IM-4350-8 with respect to certain 
issuers still subject to the annual shareholder meeting requirement 
under NASD 4350(e).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 4350 in order to change its 
annual shareholder meeting requirement. Nasdaq would implement the 
proposed rule change, as amended, immediately upon approval by the 
Commission. Below is the text of the proposed rule

[[Page 76896]]

change. Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *

4350. Qualitative Listing Requirements for Nasdaq National Market and 
Nasdaq Capital Market Issuers Except for Limited Partnerships

    (a)-(d) No change.
    (e) Shareholder Meetings
    Each issuer listing common stock or voting preferred stock, and 
their equivalents, shall hold an annual meeting of shareholders [and 
shall provide notice of such meeting to Nasdaq.] no later than one year 
after the end of the issuer's fiscal year-end.
    (f)-(n) No change.
* * * * *

IM-4350-8. Shareholder Meetings

    Rule 4350(e) requires that each issuer listing common stock or 
voting preferred stock, and their equivalents, hold an annual meeting 
of shareholders within one year of the end of each fiscal year. At each 
such meeting, shareholders must be afforded the opportunity to discuss 
company affairs with management and to elect directors, if required by 
the issuer's governing documents. A new listing that was not previously 
subject to a requirement to hold an annual meeting is required to hold 
its first meeting within one-year after its first fiscal year-end 
following listing. Of course, Nasdaq's meeting requirement does not 
supplant any applicable state or federal securities laws concerning 
annual meetings.
    This requirement is not applicable as a result of an issuer listing 
the following types of securities: securities listed pursuant to Rule 
4420(f) (such as Trust Preferred Securities and Contingent Value 
Rights), unless the listed security is a common stock or voting 
preferred stock equivalent (e.g., a callable common stock); Portfolio 
Depository Receipts listed pursuant to Rule 4420(i); Index Fund Shares 
listed pursuant to Rule 4420(j); and Trust Issued Receipts listed 
pursuant to Rule 4420(l). Notwithstanding, if the issuer also lists 
common stock or voting preferred stock, or their equivalent, the issuer 
must still hold an annual meeting for the holders of that common stock 
or voting preferred stock, or their equivalent.
* * * * *
    The text of the proposed rule change, as amended, is also available 
on Nasdaq's Internet Web site (http://www.nasdaq.com), at Nasdaq's 

principal office, and at the Commission's Public Reference Room.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASD Rule 4350(e) currently requires all Nasdaq issuers to hold an 
annual meeting of shareholders and to provide notice of such meeting to 
Nasdaq.\5\ An annual meeting allows the equity owners of a company--
typically its common stockholders--the opportunity to elect directors 
and meet with management to discuss company affairs.\6\
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    \5\ Nasdaq's annual shareholder meeting requirement applies in 
addition to any applicable state and federal securities laws 
concerning such annual meetings.
    \6\ Nasdaq permits the use of webcasts instead of, or in 
addition to, a physical meeting, provided such webcasts are 
permissible under the applicable state law and that shareholders 
have the opportunity to ask questions of management.
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    This requirement, however, is not necessary for an issuer as a 
result of listing certain securities because the holders of those 
securities do not directly participate as equity holders and do not 
vote in the election of directors. For example, Nasdaq lists a number 
of securities pursuant to NASD Rule 4420(f) (Quantitative Designation 
Criteria, Other Securities), which allows for the listing of securities 
that possess attributes or features of more than one category of 
security.\7\ Typically, these securities are not an issuer's primary 
equity security, and their holders have only limited economic interests 
and other rights.
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    \7\ Securities currently listed under Rule 4420(f) include: (i) 
Trust Preferred Securities, the payments on which are linked to the 
performance of another security; (ii) Index Linked Notes, the 
payments on which are linked to the performance of an underlying 
index; and (iii) Contingent Value Rights, the performance of which 
are tied to the performance of another security, a particular 
division of the company, or the occurrence of a certain event.
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    Nasdaq also lists Portfolio Depository Receipts and Index Fund 
Shares, securities issued by unit investment trusts and open-end 
management investment companies, respectively, that are organized as 
exchange-traded funds. These exchange-traded funds, which are generally 
passive investment vehicles that seek to match the performance of an 
index, must obtain an exemptive order from the Commission before they 
offer securities. As a result, their operations are circumscribed by 
numerous representations and conditions of the applicable orders, and 
they do not typically experience the need for operational or other 
changes requiring a shareholder vote, and, by extension, a shareholder 
meeting.\8\ These entities are also extremely sensitive to expenses, 
and as a result, some of these entities have stated to Nasdaq that the 
imposition of an annual shareholder meeting requirement could impact 
the ability of some exchange-traded funds to compete with other 
investment types, such as typical open-end funds.
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    \8\ These exchange-traded funds are registered under, and remain 
subject to, the Investment Company Act of 1940, which imposes 
various shareholder-voting requirements that may be applicable to 
the funds.
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    In addition, Nasdaq lists Trust Issued Receipts, which are 
securities issued by a trust that holds, but does not manage, specific 
securities on behalf of the investors in the trust. These trusts 
typically do not hold shareholder (or unitholder) meetings because the 
trusts have no boards of directors and essentially serve only as 
conduits for the investors' indirect investments in the underlying 
securities of the trusts.
    For these reasons, in the past, Nasdaq has not required certain 
issuers to hold annual shareholder meetings as a result of listing 
these securities. Nasdaq now proposes to amend NASD Rule 4350(e) such 
that only issuers of voting and non-voting common and voting preferred 
stock, and their equivalents, would be required to hold an annual 
shareholder meeting, except as set forth in proposed IM-4350-8. By 
clearly identifying those issuers that will be subject to the annual 
shareholder meeting requirement, Nasdaq believes that the rule will be 
more transparent.
    In addition, NASD Rule 4350(e) currently requires all issuers to 
provide notice of their annual meetings to Nasdaq. Nasdaq, however, 
does not rely on this notification to monitor compliance with the 
annual shareholder meeting requirement. Instead, the Nasdaq staff 
reviews proxy statements (and, in the case of issuers that do not file 
proxy statements, other Commission filings) to determine compliance. As 
such, Nasdaq believes that the current

[[Page 76897]]

notification requirement is redundant and proposes to eliminate it.
    Finally, while the current rule does not provide a deadline for 
holding the annual shareholder meeting, Nasdaq proposes that the annual 
shareholder meeting must be held within one year of the end of the 
issuer's fiscal year. Nasdaq believes that codifying this time frame 
would provide additional transparency to the annual meeting 
requirement.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\9\ in general, and with 
section 15A(b)(6) of the Act,\10\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. Nasdaq asserts that the 
proposed rule change is consistent with these requirements in that it 
will provide transparency to its annual shareholder meeting rule and 
eliminate an unnecessary notification requirement.
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    \9\ 15 U.S.C. 78o-3.
    \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 impose 
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

    No written comments were solicited or received with respect to the 
proposed rule change.

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, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, 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-NASD-2005-073 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-NASD-2005-073. 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal offices 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 available 
publicly. All submissions should refer to File Number SR-NASD-2005-073 
and should be submitted on or before January 18, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7896 Filed 12-27-05; 8:45 am]

BILLING CODE 8010-01-P