[Federal Register Volume 65, Number 18 (Thursday, January 27, 2000)]
[Notices]
[Pages 4457-4458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1970]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42351; File No. SR-NASD-99-61]


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

January 20, 2000.

I. Introduction and Background

    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'') 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 proposed rule change modifies the 
procedures employed by the NASD in assessing fees against issuers 
listing additional shares on either the Nasdaq National Market 
(``NNM'') or Nasdaq SmallCap Market (``NSCM'').
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    Notice of the proposed rule change was published for comment in the 
Federal Register on December 16, 1999.\3\ The Commission received no 
comments on the proposal.
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    \3\ Securities Exchange Act Release No. 42214 (Dec. 9, 1999), 64 
FR 70309.
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II. Description of the Proposal

    The Commission recently approved a rule change filed by the NASD to 
modify the fee rate structures and notification requirements applicable 
to issuers listing additional shares on the NNM and NSCM.\4\ The rule 
change harmonizes the fee structures applicable to issuers of 
additional shares of NNM and NSCM securities, and allows issuers to 
file notifications of several issuances on a single form.
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    \4\ Securities Exchange Act Release No. 42300 (Dec. 30, 1999), 
65 FR 1210 (Jan. 7, 2000) (SR-NASD-99-40).
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    To further simplify the administration of the Listing of Additional 
Shares (``LAS'') Program, the NASD is modifying notification procedures 
applicable to issuers of additional shares, and Nasdaq's monitoring and 
assessment of fees on the listing of such additional shares.
    Nasdaq staff employ the LAS Program 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 form 
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.\5\
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    \5\ See NASD Rules 4310(c)(17) and 4320(e)(15). The Commission 
granted 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).
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    The NASD believes that the current LAS Program is difficult and 
unduly time-consuming to administer. Specifically, 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: 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. 
Furthermore, the timing of the notifications required by the current 
LAS Program varies depending on the nature of the 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.
    To remedy these deficiencies, the NASD proposal makes the following 
changes to the current LAS Program:
    1. In order to address the problem of monitoring the number of fee-
assessable shares, the billing aspect of the LAS Program will be 
separated from required compliance reviews. 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.\6\ This modification will 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 will thereby 
eliminate the current procedure of establishing a baseline number of 
shares upon an issuer's initial listing as well as the resultant 
confusion surrounding when transactions resulting in new shares being 
issued must be reported to Nasdaq. This modification will also permit 
Nasdaq staff to rely on the publicly reported TSO when performing 
reconciliations.
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    \6\ Billing for all issuers will be conducted on a calendar year 
basis and LAS fees will 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.
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    2. To address the uncertainty which has surrounded issuers' LAS 
notification requirements, the process of reporting to Nasdaq will be 
streamlined by confining issuers' notification requirements to those 
transactions implicated by the Nasdaq's corporate governance compliance 
requirements.\7\ Consequently, notification will not be required, 
unless:
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    \7\ See NASD Rules 4310(c)(25) and 4320(e)(21).
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    (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 will be 
required to be filed 15 calendar days prior to issuance (except for 
stock splits and dividends

[[Page 4458]]

which are required to be filed 10 calendar days prior to the record 
date pursuant to Rule 10b-17 under the Act \8\). This requirement 
eliminates the numerous timing requirements under the current LAS 
Program and enables Nasdaq staff to consider the most current 
information when evaluating such transactions.
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    \8\ 17 CFR 240.10b-17.
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    The NASD believes that these changes 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 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 
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 requirement that issuers file information about issuances that do 
not raise corporate governance concerns.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD. Specifically, the Commission finds 
that the rule change is consistent with the provisions of Sections 
15A(b)(5) and (6) of the Act.\9\ Section 15A(b)(5) requires that the 
rules of the NASD provide for the equitable allocation of reasonable 
dues, fees, and other charges among members, issuers and other persons 
using any facility or system which the NASD operates or controls. 
Section 15A(b)(6) requires in pertinent part that the rules of the NASD 
be designed to promote just and equitable principles of trade and not 
to permit unfair discrimination between customers, issuers, brokers or 
dealers. The Commission believes that the amended rules, which affect 
the notification and billing processes associated with the LAS Program, 
are consistent with the Act because they are designed to simplify the 
procedures applicable to Nasdaq issuers listing additional shares on 
the NNM and NSCM, as well as those of Nasdaq staff monitoring such 
issuers. This in turn will increase the issuers' levels of compliance 
and the staff's surveillance effectiveness.
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    \9\ 15 U.S.C. 780-3(b)(5) and (6).
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IV. Conclusion

    The Commission finds that the rule change is consistent with the 
Act, in general, and in particular with Sections 15A(b)(5) and (6) of 
the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-NASD 99-61) be, and hereby 
is, approved.\11\
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ In approving the proposal, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
15 U.S.C. 78c(f).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-1970 Filed 1-26-00; 8:45 am]
BILLING CODE 8010-01-M