Document ID: SEC-2005-0015-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-09-22T04:00Z

[Federal Register: September 22, 2005 (Volume 70, Number 183)]
[Notices]               
[Page 55643-55646]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22se05-68]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52430; File No. SR-NASD-2004-162]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto To Establish Fee and Notice Requirements for 
Substitution Listing Events and To Provide Additional Transparency for 
Changes Requiring a Record-keeping Fee

September 14, 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 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'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. On May 11, 
2005, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ On 
August 18, 2005, Nasdaq filed Amendment No. 2 to the proposed rule 
change.\4\ The Commission is publishing this notice to solicit comments 
on the proposal, as amended, from interested persons.
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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    \3\ Amendment No. 1 superseded and replaced the filing in its 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. In Amendment No. 1, Nasdaq clarified that securities that 
are listed on a national securities exchange and not designated by 
Nasdaq as Nasdaq national market system securities are exempt from 
the proposed Substitution Listing Event notice and fee requirements. 
Amendment No. 1 also corrected typographical errors and clarified 
certain other non-material terms related to the scope of the 
proposed Substitution Listing Event fee and notice requirements.
    \4\ Amendment No. 2 superseded and replaced the amended filing 
in its entirety. In Amendment No. 2, Nasdaq clarified that 
securities that are listed on a national securities exchange and not 
designated by Nasdaq as Nasdaq national market system securities are 
exempt from only the proposed Substitution Listing Event fee 
requirement and, therefore, would be subject to the proposed notice 
requirement. Amendment No. 2 also made certain conforming changes 
and representations regarding the collection and dissemination of 
substitution listing event information and the proposed rules impact 
on Nasdaq's regulatory functions.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rules 4200(a), 4310, 4320, 4510, and 
4520 to establish fee and notice requirements for substitution listing

[[Page 55644]]

events for all Nasdaq issuers, except the proposed fee will not apply 
to issuers whose securities are listed on a national securities 
exchange and subsequently listed on Nasdaq but not designated by Nasdaq 
as Nasdaq national market system securities. Nasdaq also proposes 
amendments to provide more transparency regarding certain changes 
subject to the record-keeping fee. Nasdaq would implement the proposed 
rule change, as amended, as soon as practicable following Commission 
approval.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].\5\
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    \5\ Nasdaq represents that changes are marked to the rule text 
that appears in the electronic NASD Manual found at http://www.nasd.com.
 Nasdaq also represents that there are no pending rule 

filings that would affect this proposed rule change.
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* * * * *

4200. Definitions

    (a) For purposes of the Rule 4000 Series, unless the context 
requires otherwise:
    (1)-(36) No change.
    (37) ``Substitution Listing Event'' means a reverse stock split, 
re-incorporation or a change in the issuer's place of organization, the 
formation of a holding company that replaces a listed company, 
reclassification or exchange of an issuer's listed shares for another 
security, the listing of a new class of securities in substitution for 
a previously-listed class of securities, or any technical change 
whereby 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.
    (38) ``Transaction costs'' means costs incurred in connection with 
a limited partnership rollup transaction, including printing and 
mailing the proxy, prospectus or other documents; legal fees not 
related to the solicitation of votes or tenders; financial advisory 
fees; investment banking fees; appraisal fees; accounting fees; 
independent committee expenses; travel expenses; and all other fees 
related to the preparatory work of the transaction, but not including 
costs that would have otherwise been incurred by the subject limited 
partnerships in the ordinary course of business or solicitation 
expenses.
    [(38)](39) ``Underwriting Activity Report'' is a report provided by 
the Market Regulation Department in connection with a distribution of 
securities subject to SEC Rule 101 pursuant to Rule 2710(b)(11) and 
includes forms that are submitted by members to comply with their 
notification obligations under Rules 4614, 4619, and 4623.
    (b) No Change.
* * * * *

4310. Qualification Requirements for Domestic and Canadian Securities

    To qualify for inclusion in Nasdaq, a security of a domestic or 
Canadian issuer shall satisfy all applicable requirements contained in 
paragraphs (a) or (b), and (c) hereof.
    (a)-(b) No change.
    (c) In addition to the requirements contained in paragraph (a) or 
(b) above, and unless otherwise indicated, a security shall satisfy the 
following criteria for inclusion in Nasdaq:
    (1)-(19) No change.
    (20) The issuer shall notify Nasdaq promptly in writing of any 
change in the general character or nature of its businesses and any 
change in the address of its principal executive offices. The issuer 
also shall file on a form designated by Nasdaq notification of any 
corporate name change, or other change requiring payment of a record-
keeping fee, no later than 10 days after the change.
    (21)-(29) No change.
    (30) The issuer shall notify Nasdaq of a Substitution Listing Event 
(other than a re-incorporation or a change to an issuer's place of 
organization) no later than 15 calendar days prior to the 
implementation of such event by filing the appropriate form as 
designated by Nasdaq. For a re-incorporation or change to an issuer's 
place of organization, an issuer shall notify Nasdaq as soon as 
practicable after such event has been implemented by filing the 
appropriate form as designated by Nasdaq. Issuers shall also pay the 
appropriate fee associated with Substitution Listing Events. The 
Substitution Listing Event fee shall not apply to securities that are 
listed on a national securities exchange and not designated by Nasdaq 
as Nasdaq national market system securities.
    (d) No change.
* * * * *

4320. Qualification Requirements for Non-Canadian Foreign Securities 
and American Depository Receipts

    To qualify for inclusion in Nasdaq, a security of a non-Canadian 
foreign issuer, an American Depository Receipt (ADR) or similar 
security issued in respect of a security of a foreign issuer shall 
satisfy the requirements of paragraphs (a), (b) or (c), and (d) and (e) 
of this Rule.
    (a)-(d) No change.
    (e) In addition to the requirements contained in paragraphs (a), 
(b) or (c), and (d), the security shall satisfy the criteria set out in 
this subsection for inclusion in Nasdaq. In the case of ADRs, the 
underlying security will be considered when determining the ADR's 
qualification for initial or continued inclusion on Nasdaq.
    (1)-(17) No change.
    (18) The issuer shall notify Nasdaq promptly in writing of any 
change in the general character or nature of its businesses and any 
change in the address of its principal executive offices. The issuer 
also shall file on a form designated by Nasdaq notification of any 
corporate name change, or other change requiring payment of a record-
keeping fee, no later than 10 days after the change.
    (19)-(25) No change.
    (26) The issuer shall notify Nasdaq of a Substitution Listing Event 
(other than a re-incorporation or a change to an issuer's place of 
organization) no later than 15 calendar days prior to the 
implementation of such event by filing the appropriate form as 
designated by Nasdaq. For a re-incorporation or change to an issuer's 
place of organization, an issuer shall notify Nasdaq as soon as 
practicable after such event has been implemented by filing the 
appropriate form as designated by Nasdaq. Issuers shall also pay the 
appropriate fee associated with Substitution Listing Events. The 
Substitution Listing Event fee shall not apply to securities that are 
listed on a national securities exchange and not designated by Nasdaq 
as Nasdaq national market system securities.
    (f) No change.
* * * * *

4510. The Nasdaq National Market

    (a)-(d) No change.
    (e) Record-Keeping Fee.
    An issuer that makes a change such as a change to its name, the par 
value or title of its security, or its symbol shall pay a fee of $2,500 
to The Nasdaq Stock Market, Inc. and submit the appropriate form as 
designated by Nasdaq.
    (f) Substitution Listing Fee
    An issuer that implements a Substitution Listing Event shall pay a 
fee of $7,500 to The Nasdaq Stock Market, Inc. and submit the 
appropriate form as designated by Nasdaq. Notwithstanding the 
foregoing, this substitution listing fee shall not apply to securities 
that are listed on a national securities exchange and not designated by 
Nasdaq as Nasdaq national market system securities.

[[Page 55645]]

4520. The Nasdaq SmallCap Market

    (a)-(c) No change.
    (d) Record-Keeping Fee.
    An issuer that makes a change such as a change to its name, the par 
value or title of its security, or its symbol shall pay a fee of $2,500 
to The Nasdaq Stock Market, Inc. and submit the appropriate form as 
designated by Nasdaq.
    (e) Substitution Listing Fee.
    An issuer that implements a Substitution Listing Event shall pay a 
fee of $7,500 to The Nasdaq Stock Market, Inc. and submit the 
appropriate form as designated by Nasdaq. Notwithstanding the 
foregoing, this substitution listing fee shall not apply to securities 
that are listed on a national securities exchange and not designated by 
Nasdaq as Nasdaq national market system securities.
* * * * *

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, as 
amended, and discussed any comments it received on the proposal. 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
    The purpose of this rule filing is to amend NASD Rules 4200(a), 
4310, 4320, 4510, and 4520 to establish a fee for substitution listing 
events and a corresponding notice requirement. Substitution listing 
events include the implementation of a reverse stock split, 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), the 
reclassification or exchange of an issuer's listed shares for another 
security, formation of a holding company that replaces a listed 
company, the listing of a new class of securities in substitution for a 
previously listed class of securities, or any technical change where 
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.
    When Nasdaq learns about a substitution listing event for a Nasdaq-
listed company, Nasdaq must implement technical changes to its trading, 
market data, and internal monitoring systems. Nasdaq disseminates 
certain substitution listing event information about Nasdaq-listed 
companies to other markets and market participants through a 
subscription service.\6\ Nasdaq-listed issuers that are designated by 
Nasdaq pursuant to NASD Rule 4400 Series as Nasdaq national market 
system securities (``Nasdaq designated securities'') are contacted 
directly by Nasdaq to verify the details of the substitution listing 
events. Under the NASD Rule 4400 Series, the securities of certain 
Nasdaq-listed issuers that are also listed on a national securities 
exchange are not designated by Nasdaq as Nasdaq national market system 
securities (``Nasdaq non-designated securities'').\7\ Nasdaq does not 
contact the issuers of Nasdaq non-designated securities directly to 
verify the details of substitution listing events. Instead, for Nasdaq 
non-designated securities, Nasdaq receives electronic reports from the 
national securities exchange that designated the securities as national 
market system securities \8\ under that market's national market system 
plan. Nasdaq uses these reports to make the necessary changes to its 
systems.
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    \6\ Nasdaq 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.
    \7\ NASD IM-4400 provides that Nasdaq shall not exercise its 
authority under the NASD Rule 4400 Series separately to designate 
the securities that are listed on a national securities exchange and 
subsequently permitted to list on the Nasdaq National Market as 
Nasdaq national market system securities within the meaning of 
Section 11A of the Act, 15 U.S.C. 78k-1, or the rules thereunder.
    \8\ For example, Nasdaq 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 dedicated specific resources to manage the process for 
collecting, verifying, and implementing the changes related to 
substitution listing events of Nasdaq-listed securities 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 event for issuers of 
Nasdaq designated securities. Since the costs associated with managing 
the substitution listing events for Nasdaq non-designated securities is 
reduced through Nasdaq's use of consolidated reports from other 
markets, the proposed rule would waive the substitution listing event 
fee for these particular issuers.\9\ Waiving these fees also would 
eliminate the possibility that these issuers would be charged twice for 
the same substitution listing event since, as discussed below, other 
markets charge their listed companies a fee for substitution listing 
events.
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    \9\ Although the proposed rule would waive the substitution-
listing event fee for these Nasdaq issuers, Nasdaq represents 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 Nasdaq 
issuers, Nasdaq represents that its rules must be ``designed to 
produce fair and informative quotations, to prevent fictitious or 
misleading quotations, and promote orderly procedures for 
collecting, distributing, and publishing quotations' pursuant to 
Section 15A(b)(11) of the Act, 15 U.S.C. 78o-3(b)(11).
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    Under the proposed rule change, issuers of both Nasdaq designated 
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 event, in order to provide Nasdaq with 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 proposes to require issuers to notify Nasdaq as soon as 
practicable after the event has been implemented since these 
substitution listing events may be contingent on shareholder approval 
and would not require immediate changes to Nasdaq's systems.
    Other markets also assess a fee for substitution listing events. 
For example, both the NYSE and the American Stock Exchange (``Amex'') 
charge a fee for substitution listing events. The NYSE charges a 
``Reduced Initial Fee'' of $15,000 for substitution events.\10\ Under 
the NYSE's rules, 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

[[Page 55646]]

comply with these requirements, the full initial listing fees would 
apply. Amex charges $5,000 for each substitution listing event.\11\ 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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    \10\ See NYSE Listed Company Manual Section 902.02.
    \11\ See AMEX Company Guide Sections 142 and 305.
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    The proposed rule change also would make minor amendments to NASD 
Rules 4310(c)(20), 4320(e)(18), 4510(e), and 4520(d) to clarify that 
Nasdaq-listed companies that are subject to a recordkeeping fee must 
submit the appropriate form to Nasdaq within 10 days after the change. 
This proposed change simply reflects the current practice of issuers.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 15A of the Act,\12\ in 
general, and with Section 15A(b)(5) of the Act,\13\ in particular, in 
that the proposed rules 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 Nasdaq operates or 
controls. The proposed rule change is reasonable because the fee is 
competitive with similar fees charged by other markets. The proposed 
rule is also equitable because it will apply to all similarly situated 
Nasdaq issuers on an equal basis. The exemption from the proposed fee 
requirement for issuers of Nasdaq non-designated securities is 
equitable and reasonable because it recognizes the reduced costs for 
managing substitution listing events for such issuers. The exemption is 
also consistent with the provisions of Section 15A of the Act \14\ in 
that it promotes competition among exchange markets.
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    \12\ 15 U.S.C. 78o-3.
    \13\ 15 U.S.C. 78o-3(b)(5).
    \14\ 15 U.S.C. 78o-3.
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    The proposed clarifications to NASD Rules 4310(c)(20), 4320(e)(18), 
4510(e), and 4520(d) regarding the requisite form to be submitted in 
connection with payment for a recordkeeping fee is consistent with 
Section 15A of the Act,\15\ in general, and furthers the objectives of 
Section 15A(b)(6) of the Act,\16\ in particular in that it is designed 
to foster cooperation and coordination with persons engaged in 
regulating and processing information with respect to, and facilitating 
transactions in securities, 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 believes that the proposed 
rule change would benefit issuers and issuers' counsel by providing 
additional transparency with respect to the process by which issuers 
request changes covered by the recordkeeping fee.
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    \15\ Id.
    \16\ 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 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 NASD 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-NASD-2004-162 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASD-2004-162. 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 NASD. 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-2004-162 and should be submitted on or before October 13, 2005.

    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. 05-18897 Filed 9-21-05; 8:45 am]

BILLING CODE 8010-01-P