Document ID: SEC-2005-0209-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-11-07T05:00Z

[Federal Register: November 7, 2005 (Volume 70, Number 214)]
[Notices]               
[Page 67511-67513]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07no05-111]                         

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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

[[Page 67512]]

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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 superseded and replaced the filing in its 
entirety.
    \4\ Amendment No. 2 superseded and replaced the amended filing 
in its entirety.
    \5\ See Securities Exchange Act Release No. 52430 (September 14, 
2005), 70 FR 55643.
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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) 
Nasdaq-listed 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 non-designated securities, only the proposed notice requirement, 
and not the proposed fee, would apply.
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    \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.
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    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\
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    \7\ Nasdaq 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.
    \8\ For 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.
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    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\
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    \9\ Nasdaq 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).
    \10\ See 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.
    \11\ See 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, re-
incorporates, 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.
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    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

[[Page 67513]]

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\
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    \12\ The Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.
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    \13\ 15 U.S.C. 78o-3(b)(6).
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    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.
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    \14\ 15 U.S.C. 78o-3(b)(5).
    \15\ See 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).
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    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.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-22181 Filed 11-4-05; 8:45 am]

BILLING CODE 8010-01-P