[Federal Register Volume 59, Number 186 (Tuesday, September 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23843]


[[Page Unknown]]

[Federal Register: September 27, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34690; File No. SR-NASD-94-38]

 

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Relating to the 
Addition of Listing Requirements to Prohibit Immediate Withdrawal of 
Units From Inclusion on Nasdaq

September 20, 1994.
    On July 28, 1994, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') a proposed rule 
change\1\ pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'')\2\ and Rule 19b-4 Thereunder.\3\ The rule change 
amends the listing requirements found in Parts II and III of Schedule D 
to the NASD By-Laws to include additional requirements for units.
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    \1\The proposed rule change was initially submitted on June 21, 
1994, and was amended twice prior to the publication of the Notice; 
once on July 22, 1994, and again on July 28, 1994.
    \2\15 U.S.C. 78s(b)(1).
    \3\17 CFR 240.19b-4.
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    Under the rule as amended, in order to be included on the National 
Association of Securities Dealers Automated Quotation Service 
(``Nasdaq''), units included for quotation on Nasdaq must continue to 
be included for a minimum period of 30 days from the first day of 
inclusion, barring suspension or withdrawal for regulatory purposes. 
The rule also requires those issuers or underwriters seeking to 
withdraw units from inclusion to provide the NASD with notice of their 
intent at least 15 days prior to withdrawal. In addition, an issuer of 
units will be required to include in its prospectus or other offering 
document a statement disclosing any intention to withdraw the units 
immediately after the minimum inclusion period.
    Notice of the proposed rule change, together with its terms of 
substance was provided by issuance of a Commission release\4\ and by 
publication in the Federal Register.\5\
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    \4\Securities Exchange Act Rel. No. 34515 (August 10, 1994).
    \5\59 FR 42626 (August 18, 1994).
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    No comments were received in response to the notice. This order 
approves the proposed rule change.
    The new listing requirements have been proposed in response to the 
concerns of the NASD related to issuers that list and then almost 
immediately thereafter withdraw units from inclusion after trading has 
commenced.\6\ As the NASD indicated in its rule filing, problems have 
arisen in instances where, shortly after certain units had been 
included for quotation and trading had commenced, the issuers or their 
underwriters suddenly withdrew their units from inclusion without any 
prior disclosure of their intention or advance notice to investors, 
market makers, or Nasdaq. Because active trading in these securities 
had commenced with the expectation that the units would continue to be 
included on Nasdaq, the sudden withdrawal from quotation significantly 
and adversely affected the market makers and investors who traded in 
these securities.
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    \6\Generally, units are created by combining common stock of a 
corporation already quoted on Nasdaq with warrants for the same 
common stock.
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    The practice of immediate withdrawal of units from inclusion 
without adequate disclosure clearly poses harm to traders and investors 
in these securities and adversely affects the integrity of the Nasdaq 
Stock Market. The practice leads to confusion because market 
participants who have purchased the units are left without a liquid 
market in which to trade these securities.
    Moreover, if the lead underwriter involved in an offering also 
dominates or controls the market in the units, concerns regarding 
manipulation of the security may arise. A sudden withdrawal may cause 
difficulties for investors and market makers alike who may have 
established short positions in the units. These traders may be unable 
to cover their short positions after the withdrawal 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 withdrawal. In fact, in 
situations where warrants have not been issued separately from the 
unit, it may be impossible to ``recreate'' the unit so as to cover the 
short position.
    To address these concerns, the NASD's proposal makes three changes 
to its inclusion criteria for units. As noted, for both Nasdaq Small 
CapSM units and National Market units, the proposal will impose a 
minimum 30-day period within which the units may not be withdrawn, 
absent a legitimate regulatory interest in so doing. In addition, the 
amendment will require issuers and underwriters seeking to withdraw 
units from inclusion to provide the NASD with at least 15 days notice 
of their intention to withdraw, so that the NASD may provide adequate 
notice to investors and market makers before the withdrawal occurs. 
Issuers having any intention to withdraw the units immediately after 
the minimum inclusion period also will have to disclose their intention 
in the prospectus or other offering document.
    The Commission has determined to approve the NASD's proposal. The 
Commission finds that the rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to the NASD, including the requirements of Section 15A(b)(6) 
of the Act.\7\ Section 15A(b)(6) requires, in part, that the rules of a 
national securities association be designed to prevent fraudulent and 
manipulative acts and practices; to promote just and equitable 
principles of trade; 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 addresses concerns regarding the trading and inclusion 
process for units and enhances the integrity of Nasdaq listings. With 
the minimum inclusion requirement of 30 days for units, the amendment 
enhances the likelihood that an orderly trading market in these 
securities will exist. Similarly, requiring both a 15-day advance 
notice of withdrawal and an adequate disclosure of an issuer's 
intention to withdraw its units from inclusion promotes proper 
disclosure of information of use to all market participants.
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    \7\15 U.S.C. 78o-3(b)(6).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change SR-NASD-94-38 be, and hereby is, 
approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23843 Filed 9-26-94; 8:45 am]
BILLING CODE 8010-01-M