[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2124]


[[Page Unknown]]

[Federal Register: February 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33510; File No. SR-NASD-93-4]

 

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Relating to Issuer 
Disclosure of Material Information to the Public and to the NASD

January 24, 1994.
    On February 3, 1993, the National Association of Securities 
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities 
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule 
change pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'')\1\ and Rule 19b-4 thereunder.\2\ The proposal amends 
Schedule D, Part II, Sections 1(c)(17) and 2(e)(16), and the 
Interpretation ``Notification to NASD of News Releases.''\3\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1992).
    \3\See NASD Manual, (CCH) 1803, 1806A.
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    Notice of the proposed rule change, together with its terms of 
substance, appeared in the Federal Register on March 16, 1993.\4\ No 
comments were received on the proposal. This order approves the 
proposed rule change.
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    \4\Securities Exchange Act Release No. 31972 (March 10, 1993), 
58 FR 14234.
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    The NASD is amending the issuer disclosure requirements of Schedule 
D to conform its rules to reflect current NASD practice with regard to 
market surveillance, trading halts, and the confidentiality of 
information provided to the NASD, and to clarify issuers' obligations 
to respond to NASD inquiries and to disclose information to the public 
in certain circumstances under NASD rules. Currently, Nasdaq issuers 
must provide full and prompt responses to ``all requests for 
information'' by the NASD. Nevertheless, as a matter of practice, the 
NASD only makes request to issuers for information relating to unusual 
market activity or to events that may have a material impact on the 
trading of the issuer's securities in the Nasdaq System. In particular, 
the rule change also clarifies that the Market Surveillance Department 
is required to maintain the confidentiality of non-public information 
provided by Nasdaq issuers, including denial of rumors, and to use such 
information only for regulatory purposes.
    The NASD is amending Schedule D to provide that issuers need not 
make public disclosure of material events where it is possible to 
maintain confidentiality of those events and immediate disclosure would 
prejudice the ability of the issuer to pursue its objectives. The rule 
change provides that if rumors or unusual market activity indicate that 
information on impending developments has become known, a clear public 
announcement may be required with respect to such developments. In 
addition, the NASD believes that it may be appropriate in certain 
circumstances for the issuer publicly to deny false or inaccurate 
rumors which are likely to have, or have had, an effect on the trading 
of its securities, or would likely have a bearing on investment 
decisions.\5\
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    \5\Of course, as the Commission has noted,
    [w]henever an issuer makes a public statement or responds to an 
inquiry from a stock exchange official concerning rumors, unusual 
market activity, possible corporate developments or any other 
matter, the statement must be materially accurate and complete. If 
the issuer is aware of nonpublic information concerning acquisition 
discussions that are occurring at the time the statement is made, 
the issuer has an obligation to disclose sufficient information 
concerning the discussions to prevent the statements made from being 
materially misleading.
    In the Matter of Carnation Company, Securities Exchange Act 
Release No. 22214 (July 8, 1985), 33 SEC Doc. 874, 877.
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    The Commission believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD and, in particular, the requirements 
of Section 15A(b)(6) of the Act.\6\ The rule change will provide Nasdaq 
issuers with useful guidance regarding disclosure obligations under the 
Nasdaq listing agreement with respect to confidential information. 
Nevertheless, the Commission cautions issuers and counsel that the 
requirements of Schedule D regarding issue disclosure of material 
information are not interpretations of the disclosure requirements of 
federal and state securities laws,\7\ and that federal and state law 
requirements should also be carefully considered regarding the 
disclosure of material non-public information.\8\ As the Commission has 
stated, ``[t]he importance of accurate and complete issuer disclosure 
to the integrity of the securities markets cannot be overemphasized. To 
the extent that investors cannot rely upon the accuracy and 
completeness of issuer statements, they will be less likely to invest, 
thereby reducing the liquidity of the securities markets to the 
detriment of investors and issuers alike * * *.''\9\
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    \6\15 U.S.C. 78o-3(b)(6). Section 15A(b)(6) requires that the 
NASD's rules be designed to promote just and equitable principles of 
trade, to foster cooperation and coordination with persons engaged 
in regulating, clearing and 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.
    \7\See also NASD Manual, Schedule D to the By-Laws, Part II, 
Sec. 1(c)(18), (CCH) 1803 (``The issuer shall comply with any 
obligation of any person regarding filing or disclosure of 
information material to the issuer or the security, whether such 
obligation arises under the federal securities laws and the rules 
and regulations promulgated thereunder or other applicable federal 
or state statutes or rules.''). See also NASD Manual, Schedule D to 
the By-Laws, Part II, Sec. 2(e)(17), (CCH) 1804.
    \8\The rule change reflects that the NASD bases its 
determination of materiality on a ``reasonable'' shareholder 
standard--that is, would a reasonable shareholder consider the 
information important in deciding whether to purchase or sell 
securities.
    \9\See Carnation Company, 33 SEC Doc. at 877 (footnotes 
omitted).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the rule change in SR-NASD-93-4 be, and hereby is, approved, 
effective April 15, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2124 Filed 1-31-94; 8:45 am]
BILLING CODE 8010-01-M