[Federal Register Volume 64, Number 241 (Thursday, December 16, 1999)]
[Notices]
[Pages 70309-70311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32557]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42214; File No. SR-NASD-99-61]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc., 
Amending Its Rules for the Listing of Additional Shares

December 9, 1999.
    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 19, 1999, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned 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 the NASD. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD is proposing to modify the notification requirements under 
the Nasdaq's Listing of Additional Shares (``LAS'') Program and to make 
conforming changes to procedures for calculating the related LAS fee. 
Below is the text of the proposed rule change. Proposed new language 
appears in italic; proposed deletions are bracketed.
* * * * *

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) No change.
    (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)-(16) No change.
    (17) The issuer shall be required to [file on a form designated by 
Nasdaq notification of the creation of a stock option, employee stock 
purchase or other stock remuneration plan or the issuance of additional 
shares of any class of securities included in Nasdaq, except for the 
issuance of additional shares under a stock option, employee stock 
purchase or other stock remuneration plan, no later than 15 calendar 
days prior to the creation of the plan or the issuance of additional 
shares.] notify Nasdaq on the appropriate form no later than 15 
calender days prior to:
    (A) establishing a stock option plan, purchase plan or other 
arrangement pursuant to which stock may be acquired by officers or 
directors without shareholder approval; or
    (B) issuing securities that may potentially result in a change of 
control of the issuer; or
    (C) issuing any common stock or security convertible into common 
stock in connection with the acquisition of the stock or assets of 
another company, if any officer or director or substantial shareholder 
of the issuer has a 5% or greater interest (or if such persons 
collectively have a 10% or greater interest) in the company to be 
acquired or in the consideration to be paid; or
    (D) entering into a transaction that may result in the potential 
issuance of common stock (or securities convertible into common stock) 
greater than 10% of either the total shares outstanding or the voting 
power outstanding on a pre-transaction basis.
    (18)-(28) No change.
    (d) No change.

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

    To qualify for inclusion in 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) or (c), and (d) and (e) 
of this Rule.
    (a)-(d) No change.
    (e) In addition to the requirements contained in paragraph (a), (b) 
or (c), and (d), the security shall satisfy the following criteria for 
inclusion in Nasdaq:
    (1)-(14) No change.
    (15) The issuer shall be required to [file on a form designated by 
Nasdaq notification of creation of a stock option, employee stock 
purchase or other stock remuneration plan or the issuance of additional 
shares of any class of securities included in Nasdaq, except for the 
issuance of additional shares under a stock option, employee stock 
purchase or other stock remuneration plan, no later than 15 calendar 
days prior to the creation of the plan or the issuance of additional 
shares.] notify Nasdaq on the appropriate form no later than 15 
calendar days prior to:

[[Page 70310]]

    (A) establishing a stock option plan, purchase plan or other 
arrangement pursuant to which stock may be acquired by officers or 
directors without shareholder approval; or
    (B) issuing securities that may potentially result in a change of 
control of the issuer; or
    (C) issuing any common stock or security convertible into common 
stock in connection with the acquisition of the stock or assets of 
another company, if any officer or director or substantial shareholder 
of the issuer has a 5% or greater interest (or if such persons 
collectively have a 10% or greater interest) in the company to be 
acquired or in the consideration to be paid; or
    (D) entering into a transaction that may result in the potential 
issuance of common stock (or securities convertible into common stock) 
greater than 10% of either the total shares outstanding or the voting 
power outstanding on a pre-transaction basis.
    (16)-(24) No change.
    (f) No change.

4510. The Nasdaq National Market \3\

(a) Entry fee
    No change.
---------------------------------------------------------------------------

    \3\ The NASD has filed a proposed rule change with the 
Commission to revise the fees it charges issuers listing additional 
shares on the Nasdaq National Market or Nasdaq SmallCap Market. 
Under the proposed rule change, the NASD seeks to modify its Rules 
4510 and 4520 as they relate to the calculation of LAS fees. The 
language of Rules 4510 and 4520 as it appears here has been marked 
to show changes to the language published for comment in SR-NASD-99-
40. See Commission File No. SR-NASD-99-40 and Securities Exchange 
Act Release No. 42108 (Nov. 4, 1999), 64 FR 61678 (Nov. 12, 1999).
---------------------------------------------------------------------------

(b) Additional Shares
    (1) The issuer of each class of security that is a domestic issue 
which is listed in the Nasdaq National Market shall pay to The Nasdaq 
Stock Market, Inc. the fee set forth in subparagraph (2) below in 
connection with the issuance of additional shares of each class of 
listed security.
    (2) The fee in connection with additional shares shall be $2,000 or 
$.01 per additional share, whichever is higher, up to a maximum of 
$17,500 per [notification] quarter and an annual maximum of $35,000 per 
issuer.
    (3) [Calculation of the fee will be] The fee will be calculated and 
assessed quarterly based on the [issuer notification to Nasdaq of the 
issuance of additional shares of securities as required under 
provisions of Rule 4310(c)(17)] issuer's total shares outstanding as 
reported on its periodic reports filed with the SEC.
    (c)-(d) No change.

4520. The Nasdaq SmallCap Market

(a) Entry Fee
    No change.
(b) Additional Shares
    (1) The issuer of each class of security that is a domestic issue 
which is listed in The Nasdaq SmallCap Market shall pay to The Nasdaq 
Stock Market, Inc. the fee set forth in subparagraph (2) below in 
connection with the issuance of additional shares of each class of 
listed security.
    (2) The fee in connection with additional shares shall be $2,000 or 
$.01 per additional share, whichever is higher, up to a maximum of 
$17,500 per [notification] quarter and an annual maximum of $35,000 per 
issuer.
    (3) [Calculation of the fee will be] The fee will be calculated and 
assessed quarterly based on [issuer notification to the Association of 
the issuance of additional shares of securities as required under 
provisions of Rule 4310(c)(17).] the issuer's total shares outstanding 
as reported on its periodic reports filed with the SEC.
    (c)-(d) 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, 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 
text 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

1. Purpose
    The LAS Program has been employed by Nasdaq staff to monitor 
compliance by issuers with Nasdaq listing rules governing shareholder 
approval, public interest concerns, reverse mergers, and voting rights. 
Since 1992, all Nasdaq issuers have been required to file a 
notification upon the creation of a stock option, employee stock 
purchase, or other stock remuneration plan, or upon the issuance of 
additional shares of any class of securities included in Nasdaq.\4\ The 
NASD has reviewed the current LAS Program and is filing this proposed 
rule change to improve efficiency and to eliminate certain 
administrative burdens for Nasdaq staff and issuers arising from the 
requirements of the current LAS program.
---------------------------------------------------------------------------

    \4\ See NASD Rules 4310(c)(17) and 4320(e)(15). The Commission 
issued an order granting permanent approval to the LAS Program in 
1993. See Securities Exchange Act Release No. 31859 (February 16, 
1993), 58 FR 9584 (Feb. 22, 1993), (SR-NASD-92-27).
---------------------------------------------------------------------------

    The NASD believes that the current LAS Program is difficult and 
unduly time-consuming to administer. Specifically, the timing of the 
notification required by the current LAS Program varies depending on 
the nature of the specific action undertaken by an issuer and, as a 
result, has proved confusing to issuers and their counsel. This in turn 
has led to delays in filing or failures to comply with LAS Program 
notification and fee requirements. Furthermore, the NASD believes that, 
under the current LAS Program, it is difficult for an issuer to 
calculate the number of shares to be reported for LAS purposes because 
in order to do so an issuer must track the number of shares approved by 
Nasdaq according to current LAS criteria (a number not otherwise 
monitored by issuers and which has often proved difficult for Nasdaq 
staff and issuers to reconcile) instead of the total number of shares 
outstanding reported in periodic reports required to be filed with the 
Commission.
    The NASD proposes to make the following changes to the current LAS 
Program:
    1. The billing aspect of the LAS Program would be separated from 
required compliance reviews. Under the proposal, issuers will be billed 
each quarter for any increase in their total shares outstanding 
(``TSO'') as reported in publicly available periodic reports required 
to be filed with the Commission.\5\ This modification would ensure that 
the LAS Program is administered based on a publicly disclosed TSO 
number rather than on the number of approved shares currently 
calculated by Nasdaq according to existing LAS criteria. This 
modification would thereby eliminate the current procedure of 
establishing a baseline number of shares upon an issuer's initial 
listing as well as the

[[Page 70311]]

resultant confusion surrounding when transactions resulting in new 
shares being issued must be reported to Nasdaq. This modification would 
also permit Nasdaq staff to rely on the publicly reported TSO when 
performing reconciliations.
---------------------------------------------------------------------------

    \5\ Billing for all issuers would be conducted on a calendar 
year basis and LAS fees would then be assessed on any increase in 
the TSO number set forth in an issuer's most recent periodic report 
filed with the Commission pursuant to Section 13 or 15(d) of the 
Act. Telephone conversation between Arnold Golub, Senior Attorney, 
Office of the General Counsel, Nasdaq, and Matthew Boesch, 
Paralegal, Division of Market Regulation Commission, on December 6, 
1999.
---------------------------------------------------------------------------

    2. The process of reporting to Nasdaq would be streamlined by 
confining issuers' notification requirements to those transactions 
implicated by the Nasdaq's corporate governance compliance 
requirements.\6\ Consequently, notification would not be required, 
unless:
---------------------------------------------------------------------------

    \6\ See NASD Rules 4310(c)(25) and 4320(e)(21).
---------------------------------------------------------------------------

    (a) a stock option plan, purchase plan or other arrangement is 
established without shareholder approval; or
    (b) the issuer enters into a transaction that may result in a 
change of control; or
    (c) the issuer issues common stock or a security convertible into 
common stock in connection with the acquisition of the stock or assets 
of another company, if any officer or director or substantial 
shareholder of the issuer has an interest of 5% or more (or if a group 
of such persons collectively holds an interest of 10% or more) in the 
company to be acquired or in the consideration to be paid; or
    (d) the issuer enters into a transaction that may result in the 
potential issuance of common stock (or securities convertible into 
common stock) representing more than 10% of either the total shares 
outstanding or voting power outstanding on a pre-transaction basis.
    Under the proposed rule change, all LAS notifications would be 
required to be filed 15 calendar days prior to issuance (except for 
stock splits and dividends which are required to be filed 10 calendar 
days prior to the record date pursuant to SEC Rule 10b-17 \7\). This 
requirement would eliminate the numerous timing requirements under the 
current LAS Program and enable Nasdaq staff to consider the most 
current information when evaluating such transactions.
---------------------------------------------------------------------------

    \7\ 17 CFR 240.10b-17.
---------------------------------------------------------------------------

    The NASD believes that these proposed changes to the LAS Program, 
if approved, will improve Nasdaq's administration of the LAS Program by 
focusing on the TSO reported publicly in periodic reports required to 
be filed with the Commission instead of relying on a calculated number 
of approved shares. In addition, the NASD believes that the proposed 
changes will streamline the filing requirements imposed on issuers by 
reducing the filing burden to the extent that no filings will be 
required for issuances that do not raise corporate governance concerns, 
while simultaneously streamlining the notification filing time frame. 
Finally, the NASD believes that the proposed changes will allow Nasdaq 
staff to focus on larger and more complex transactions in its review of 
issuers' compliance with corporate governance rules and other continued 
listing standards by eliminating the current requirement that issuers 
file information about even those issuances that do not generally raise 
these concerns in these respects.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Sections 15A(b)(5) and (6) \8\ of the Act. The 
proposed rule change is consistent with Section 15A(b)(5) as it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers using the Nasdaq system. The 
proposed rule change will alter the frequency with which Nasdaq 
collects LAS fees from issuers by billing these quarterly rather than 
per transaction; the change will also simplify the computation of fees 
owed by issuers by basing such fees on changes in the TSO rather than 
the number of shares approved for issuance according to existing Nasdaq 
procedures. The proposed rule change is consistent with Section 
15A(b)(6) as it is designed to promote just and equitable principles of 
trade and does not permit unfair discrimination between customers, 
issuers, brokers or dealers. As noted above, the proposed rule change 
is designed to reduce the number of LAS filings required of issuers and 
to thereby allow Nasdaq staff more time to review those share issuances 
that may be in contravention of Nasdaq corporate governance rules or 
listing standards.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78o-3(b)(5) and (6).
---------------------------------------------------------------------------

(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 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
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 Pubic 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-99-61 and 
should be submitted by January 6, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 99-32557 Filed 12-15-99; 8:45 am]
BILLING CODE 8010-01-M