Document ID: SEC-2008-0693-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2008-05-13T04:00Z

[Federal Register: May 13, 2008 (Volume 73, Number 93)]
[Notices]               
[Page 27590-27593]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13my08-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57795; File No. SR-NASDAQ-2008-037]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Modify Nasdaq's Continued 
Listing Requirements To Replace Round Lot Shareholders

May 7, 2008.
    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 April 25, 2008, The NASDAQ Stock Market LLC (``Exchange'' or 
``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. 
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 Substance 
of the Proposed Rule Change

    Nasdaq proposes to change the shareholder requirements for 
continued listing. Nasdaq will implement the proposed rule immediately 
upon approval.
    The text of the proposed rule change is below. Proposed new 
language is italicized; 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://nasdaq.complinet.com.
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4200. Definitions

    (a) For purposes of the Rule 4000 Series, unless the context 
requires otherwise:
    (1)-(31) No change.
    (32) ``Public holders'' of a security include both beneficial 
holders and holders of record, but does not include any holder who is, 
either directly or indirectly, an executive officer, director, or the 
beneficial holder of more than 10% of the total shares outstanding. 
[``Reported Security'' means an equity security for which quotations 
are entered into the Consolidate Quotations Service.]
    (33) ``Round lot holder'' means a holder of a normal unit of 
trading. The number of beneficial holders will be considered in 
addition to holders of record.
    (34)-(37) No change.
    (38) ``Total holders'' of a security include both beneficial 
holders and holders of record.
    (39) ``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.
    [(39)] (40) ``Underwriting Activity Report'' is a report provided 
by the Corporate Financing Department of NASD Regulation, Inc. in 
connection with a distribution of securities subject to SEC Rule 101 
pursuant to NASD 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)-(c) No change.
* * * * *

4310. Listing Requirements for Domestic and Canadian Securities

    To qualify for listing in Nasdaq, a security of a domestic or 
Canadian issuer shall satisfy all applicable requirements contained in 
paragraphs (a), (b), and (c) hereof. Issuers that meet these 
requirements, but that are not listed on the Nasdaq Global Market, are 
listed on the Nasdaq Capital Market.
    (a)-(b) No change.
    (c) In addition to the requirements contained in paragraph (a) and 
(b) above, and unless otherwise indicated, a security shall satisfy the 
following criteria for listing on Nasdaq:
    (1)-(5) No change.
    (6) (A) In the case of common stock, for initial [and continued] 
listing[,] there shall be at least 300 round lot holders of the 
security and for continued listing there shall be at least 300 public 
holders of the security.
    (B) In the case of preferred stock and secondary classes of common 
stock, for initial [and continued] listing[,] there shall be at least 
100 round lot holders of the security and for continued listing there 
shall be at least 100 public holders of the security, provided in each 
case that the issuer's common stock or common stock equivalent equity 
security must be listed on Nasdaq or be a covered security. In the 
event the issuer's common stock or common stock equivalent security 
either is not listed on Nasdaq or is not a covered security, the 
preferred stock and/or secondary class of common stock may be listed on 
Nasdaq so long as the security satisfies the listing criteria for 
common stock.
    (C) No change.
    (7)-(30) No change.
    (d) No change.

4320. Listing Requirements for Non-Canadian Foreign Securities and 
American Depositary Receipts

    To qualify for listing on Nasdaq, a security of a non-Canadian 
foreign issuer, an American Depositary Receipt (ADR) or similar 
security issued in respect of a security of a foreign issuer shall 
satisfy the requirements of paragraphs (a), (b), and (e) of this Rule. 
Issuers that meet these requirements, but that are not listed on the 
Nasdaq Global Market, are listed on the Nasdaq Capital Market.
    (a)-(d) No change.

[[Page 27591]]

    (e) In addition to the requirements contained in paragraphs (a) and 
(b), the security shall satisfy the criteria set out in this subsection 
for listing on Nasdaq. In the case of ADRs, the underlying security 
will be considered when determining the ADR's qualification for initial 
or continued listing on Nasdaq.
    (1)-(3) No change.
    (4)(A) In the case of common stock, for initial [and continued] 
listing[,] there shall be at least 300 round lot holders of the 
security and for continued listing there shall be at least 300 public 
holders of the security.
    (B) In the case of preferred stock and secondary classes of common 
stock, for initial [and continued] listing[,] there shall be at least 
100 round lot holders of the security and for continued listing there 
shall be at least 100 public holders of the security, provided in each 
case that the issuer's common stock or common stock equivalent equity 
security must be listed on Nasdaq or be a covered security. In the 
event the issuer's common stock or common stock equivalent security 
either is not listed on Nasdaq or is not a covered security, the 
preferred stock and/or secondary class of common stock may be listed on 
Nasdaq so long as the security satisfies the listing criteria for 
common stock.
    (C) No change.
    (5)-(26) No change.
    (f) No change.
* * * * *

4426. Nasdaq Global Select Market Listing Requirements

    (a) No change.
    (b) Liquidity Requirements
    (1) The security must demonstrate either:
    (A)(i) a minimum of 550 [beneficial] total shareholders, and (ii) 
an average monthly trading volume over the prior 12 months of at least 
1,100,000 shares per month; or
    (B) a minimum of 2,200 [beneficial] total shareholders; or
    (C) a minimum of 450 [beneficial] round lot shareholders
    (2)-(3) No change.
    (c)-(f) No change.
* * * * *

4450. Quantitative Maintenance Criteria

    After listing as a Nasdaq Global Market security, a security must 
substantially meet the criteria set forth in paragraphs (a) or (b), and 
(c), (d), (e) (f), (g), (h) or (i) below to continue to remain listed 
on the Nasdaq Global Market. A security maintaining its listing under 
paragraph (b) need not also be in compliance with the quantitative 
maintenance criteria in the Rule 4300 series.
    (a) Maintenance Standard 1--First Class of Common Stock, Shares or 
Certificates of Beneficial Interest of Trusts, Limited Partnership 
Interests in Foreign or Domestic Issues and American Depositary 
Receipts.
    (1)-(3) No change.
    (4) 400 total shareholders [of round lots]; and
    (5)-(6) No change.
    (b) Maintenance Standard 2--First Class of Common Stock, Shares or 
Certificates of Beneficial Interest of Trusts, Limited Partnership 
Interests in Foreign or Domestic Issues and American Depositary 
Receipts.
    (1)-(4) No change.
    (5) 400 total shareholders [of round lots]; and
    (6) No change.
    (c)-(g) No change.
    (h) Quantitative Maintenance Criteria--Preferred Stock and 
Secondary Classes of Common Stock.
    For continued listing, if the common stock or common stock equity 
equivalent security of the issuer is listed on Nasdaq or another 
national securities exchange, the issue shall have:
    (1)-(3) No change.
    (4) A minimum of 100 [round lot] public shareholders;
    (5) No change.
    Alternatively, in the event the issuer's common stock or common 
stock equivalent security is not listed on either Nasdaq or another 
national securities exchange, the preferred stock and/or secondary 
class of common stock may be listed on Nasdaq so long as the security 
satisfies the listing criteria for common stock.
    (i) 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 rules require a company to maintain a certain minimum number 
of round lot holders for continued listing.\4\ However, for a variety 
of reasons, it is often difficult for Nasdaq and the listed company to 
determine compliance with these requirements. First, the Commission 
only requires companies to annually disclose the number of record 
holders, not round lot holders, in their proxy. Companies often don't 
know how many round lot holders they have since that group includes 
``objecting beneficial holders'' who wish their identity to remain 
confidential from the company.
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    \4\ The minimum requirement for continued listing of the first 
class of common stock or its equivalent on both the NASDAQ Global 
and Global Select Markets is 400 round lot shareholders and on the 
NASDAQ Capital Market is 300 round lot shareholders.
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    It also can be difficult to obtain the number of shares held by 
beneficial owners from record holders, such as broker-dealers.
    In order to determine compliance with the round lot requirement, 
Nasdaq reviews a number of factors, including whether the company has a 
number of record holders well in excess of the round lot holder 
requirement and shareholder data provided by the company's transfer 
agent and Broadridge Financial Solutions, Inc. (formerly, Automatic 
Data Processing, Inc.). While this process is effective, it is very 
time-consuming for Nasdaq and can be frustrating to the company, which 
has to spend considerable time and may be charged a fee to obtain this 
information.
    In contrast, the number of total holders is more easily determined. 
For example, the number of proxies that a company mails is a very good 
approximation of the number of its total holders. In fact, many 
companies disclose the number of beneficial holders in their public 
filings, either instead of, or in addition to, the number of record 
holders. Further, the number of public holders generally can be easily 
determined by subtracting from the total shareholders the number of 
executive officers, directors, and 10% shareholders that are disclosed 
in the company's proxy statement.
    When the round lot holder requirement was originally adopted it was 
difficult and costly to trade in increments of less than 100 shares. 
Thus odd lot holders (that is, holders of fewer

[[Page 27592]]

than 100 shares) added little to the distribution and potential 
liquidity of a security. These impediments no longer exist, given the 
current state of online trading and competitive commission structures. 
As such, Nasdaq believes that today all holders, not just holders of 
round lots, can potentially contribute to a security's liquidity.
    In addition, in Nasdaq's experience, companies do not typically see 
a decrease in the number of round lot holders following their listing, 
absent a transaction such as a reverse stock split or major stock buy-
back.
    Given these difficulties and changed circumstances, Nasdaq proposes 
that the shareholder requirements for continued listing be changed so 
that it no longer considers only round lot holders. As revised, Nasdaq 
would generally require 300 public shareholders \5\ for continued 
listing on the Capital Market, and 400 total shareholders for continued 
listing on the Global and Global Select Markets.\6\ In the case of 
preferred stock and secondary classes of common stock, 100 public 
shareholders would be required for continued listing on the Capital, 
Global and Global Select Markets. As proposed, a public holder would 
exclude any holder who is, either directly or indirectly, an executive 
officer, director, or the beneficial holder of more than 10% of the 
total shares outstanding.
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    \5\ The definition of ``public holders'' would appear in 
proposed Rule 4200(a)(32) and replace the definition of ``Reported 
Security'' because that term is now defined in Regulation NMS and is 
not used within the Nasdaq rules.
    \6\ Nasdaq proposes to require public shareholders, instead of 
total shareholders, on the Capital Market so that Nasdaq's rules 
remain substantially similar to the rules of the American Stock 
Exchange (``Amex''), which require 300 public shareholders. See 
Section 1003(b)(i)(B) of the Amex Company Guide. Nasdaq does not 
believe it necessary to limit the shareholders on the Global and 
Global Select Markets to public shareholders given the higher number 
of total holders required. In addition, Nasdaq notes that the New 
York Stock Exchange (``NYSE'') requires 400 total shareholders for 
continued listing. See Section 802.01A of the NYSE Listed Company 
Manual.
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    Under this definition, Nasdaq would consider immediate family 
members of an executive officer, director, or 10% holder to not be 
public holders to the extent the shares held by such individuals are 
considered beneficially owned by the executive officer, director or 10% 
holder under Rule 16a-1 under the Act.\7\
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    \7\ See 17 CFR 240.16a-1(a)(2). Nasdaq will determine ``public 
holders'' based on the information disclosed in public filings about 
the company, including ownership statements and proxy statements.
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    Nasdaq also proposes to modify the rules relating to the Nasdaq 
Global Select Market to use the newly defined term ``total 
shareholders'' in those rules; however, no substantive change is being 
made to the requirements for the Global Select Market. In addition, no 
change is proposed to the initial listing requirements because the 
majority of initial listings are initial public offerings, where the 
number of round lot shareholders can be easily determined by the 
underwriter when distributing the offering, and because SEC rules 
require that markets have a minimum of 300 round lot holders for 
initial listing to avoid having listed securities be subject to the 
penny stock rules.\8\ Nasdaq does propose, however, to clarify that the 
definition of round lot holders includes beneficial holders in addition 
to holders of record, consistent with current practice.
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    \8\ See 17 CFR 240.3a51-1(a)(2)(i)(D).
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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,\9\ in general, and with 
Sections 6(b)(5) of the Act,\10\ 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 is consistent with these requirements in that modifying the 
requirement will facilitate consistent application of the rules by 
Nasdaq and ease the burden of compliance on listed companies, without 
increasing the risk to investors.
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    \9\ 15 U.S.C. 78f.
    \10\ 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, as amended.

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-2008-037 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Nasdaq-2008-037. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days

[[Page 27593]]

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 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-
Nasdaq-2008-037 and should be submitted on or before June 3, 2008. 

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E8-10622 Filed 5-12-08; 8:45 am]

BILLING CODE 8010-01-P