[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20315]


[[Page Unknown]]

[Federal Register: August 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34515; File No. SR-NASD-94-38]

 

Self-Regulatory Organizations; Notice of Filing of proposed rule 
Change by The National Association of Securities Dealers, Inc. Adding 
Listing Requirements To Prohibit Immediate Delistings of Units on 
Nasdaq

August 10, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on July 28, 
1994, the National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
NASD.\1\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\The proposed rule change was originally filed on June 21, 
1994, and was amended twice; once on July 22, 1994, and again on 
July 28, 1994. Both amendments are available for inspection in the 
Commission's Public Reference Room.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Act, the NASD 
is filing a proposed rule change related to the listing requirements in 
Parts II and III of Schedule D to the NASD By-Laws that would require 
that: (1) An issuer of units included for quotation on Nasdaq maintain 
the listing for a minimum period of 30 days; (2) an issuer provide the 
NASD with notice of delisting of the units at least 15 days prior to 
such action; and (3) an issuer disclose in the prospectus any intention 
to immediately delist the units. Below is the text of the proposed rule 
change. Proposed new language is italicized.

Schedule D

Part II

    Sec. 1(c)(10(a) * * *
    (b) in the case of units, the minimum period for inclusion of 
the unites shall be 30 days from the first day of inclusion, except 
the period may be shortened if the units are suspended or withdrawn 
for regulatory purposes. Issuers and underwriters seeking to 
withdraw units from inclusion must provide the Association with 
notice of such intent at least 15 days prior to withdrawal.
* * * * *
    Sec. 1(c) (21) The issuer of units shall include in its 
prospectus or other offering document used in connection with any 
offering of securities that is required to be filed with the 
Commission under the Federal securities laws and the rules and 
regulations thereunder a statement regarding any intention to delist 
the units immediately after the minimum inclusion period.
* * * * *

Part III

    Sec. 5.
    (1) Units
    (1) Minimum Inclusion Period and Notice of Withdrawal
    In the case of units, the minimum period for inclusion of the 
units shall be 30 days from the first day of inclusion, except the 
period may be shortened if the units are suspended or withdrawn for 
regulatory purposes. Issuers and underwrites seeking to withdraw 
units from inclusion must provide the Association with notice of 
such intent at least 15 days prior to withdrawal.
    (2) Disclosure Requirements for Units
    Each Nasdaq/NM issuer of units shall include in its prospectus 
or other offering document used in connection with any offering of 
securities that is required to be filed with the Commission under 
the federal securities laws and the rules and regulations 
promulgated thereunder a statement regarding any intention to delist 
the units immediately after the minimum inclusion period.

II. Self-Regulatory Organizations's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD 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 
test of these statements may be examined at the places specified in 
item IV below. The NASD 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

    The purpose of the new listing requirements for units is to address 
concerns that Nasdaq has experienced related to issuers listing and 
then almost immediately thereafter withdrawing units from inclusion 
after trading has commenced. In several instances, certain issuers of 
units have included such units for quotation on Nasdaq combining as a 
unit common stock previously quoted on Nasdaq with previously quoted or 
newly-issued warrants for the same common stock. Shortly after the 
units are listed and trading has commenced, these issuers, without any 
prior disclosure of their intention or advance notice to investors, 
market makers, or Nasdaq, delist the units. Because active trading in 
these securities has commenced with the expectation that the units will 
continue to be listed on Nasdaq, the sudden withdrawal from quotation 
significantly and adversely affect both market markers and investors 
who have traded in these securities.
    The practice of immediate delisting without adequate disclosure 
clearly poses harm to traders and investors in those securities and 
adversely affects the integrity of the Nasdaq Stock Market. The 
practice causes investor confusion because investors who have purchased 
the units no longer have a liquid market in which to trade these 
securities. Additionally, the sudden withdrawal may cause difficulties 
for investors and market makers alike who have established short 
positions in the units. These traders may be unable to cover their 
short positions after the delisting has occurred, and are likely to be 
required to cover these short positions by purchasing the components of 
the unit separately, frequently at a premium to the price originally 
being quoted prior to the delisting. Indeed, in those situations where 
warrants have been issued separately from the unit, it may be 
impossible to cover the short position.
    The NASD is also concerned because the practice of immediate 
delisting of units appears to raise serious regulatory issues regarding 
proper disclosure of the issuers' intentions regarding the units and it 
poses questions about manipulative practices in the market for the 
units. For example, if the prospectus contains no information regarding 
the issuer's intention or contemplation of delisting immediately or 
shortly after trading commences, it is reasonable to question whether 
adequate disclosure of the issuer's plans was made. Moreover, if they 
lead underwriter involved in the offering also dominates or controls 
the market in the units, concerns regarding manipulation of the 
security arise if the intention is to force short selling investors to 
cover their short positions at a premium to the unit prices.
    To address these concerns and to promote and enhance the integrity 
of the Nasdaq Stock Market, the NASD is proposing three changes to its 
inclusion criteria for units. As noted, for both Nasdaq SmallCAPSM 
units and National Market units, the NASD proposes to impose a minimum 
30-day period within which the units may not be delisted, absent a 
legitimate regulatory interest in so doing. In addition, the NASD 
believes that the issuer and its advisors should provide the NASD with 
adequate notice of their intention to delist, so that the NASD may 
provide adequate notice to investors and market makers before the 
delisting occurs. Because it is important that investors be provided 
with sufficient time to obtain the information and assess its effect on 
their positions, the NASD is proposing that the issuer provide such 
notice to the NASD at least 15 days before the delisting is to occur.
    In addition, the NASD is concerned that issuers of units may need 
to take additional steps to ensure that adequate disclosure of their 
intentions regarding delisting is made to investors prior to the 
offering of the units. It would appear to be a reasonable implication 
that an issuer that delists within a short period, i.e., a matter of 
days, after the initial inclusion on Nasdaq should reasonably have 
anticipated that such an event was intended or likely to occur. 
Therefore, the NASD proposes to require that issuers make adequate 
disclosure of their delisting intentions in their prospectuses.
    As noted in a recent Commission release regarding Nasdaq Stock 
Market listing requirements,\2\ the NASD has the authority to preserve 
and strengthen the quality of and public confidence in its market. 
Nasdaq inclusion criteria are intended to promote investor confidence 
and support the country's capital formation process. Accordingly, 
inclusion of a security in the Nasdaq Stock Market should carry with it 
the confidence that the security will continue to be available for 
trading once listed, unless regulatory issues with the security arise. 
These proposed changes address concerns regarding the trading and 
listing process for Nasdaq securities and enhance the integrity of 
Nasdaq listings. With the minimum listing requirement of 30 days for 
units, the NASD enhances the likelihood that an orderly trading market 
in these securities will exist. Similarly, the 15 day advance notice of 
delisting and adequate disclosure of an issuer's intent to delist 
promotes proper disclosure of material information of use to investors 
and to market makers. Consequently, the NASD believes that the proposed 
rule change is consistent with Section 15A(b)(6) in that these proposed 
changes are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to 
facilitate transactions in these securities, to remove impediments to 
and perfect the mechanism of a free and open market and national market 
system, and, in general, to protect investors and the public interest.
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    \2\Securities Exchange Act Release No. 34151 (June 3, 1994), 59 
FR 29843 (June 9, 1994).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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 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. In particular, the Commission 
invites the written views of interested persons concerning any hardship 
encountered by members or other persons due to the unforeseen delisting 
of units and whether the proposed rule change will provide effective 
protection against such hardship. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-94-38 and 
should be submitted by September 8, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20315 Filed 8-17-94; 8:45am]
BILLING CODE 8010-01-M