[Federal Register Volume 65, Number 92 (Thursday, May 11, 2000)]
[Notices]
[Pages 30459-30460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11806]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42761; File No. SR-NASD-00-24]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Disclosure Requirements for 
Transactions Involving Callable Common Stock and Amendment Nos. 1 and 2 
Thereto

May 5, 2000.
    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 April 25, 2000, the National Association of Securities Dealers, 
Inc. (``NASD''), through its wholly owned subsidiary, NASD Regulation, 
Inc. (``NASD Regulation'') 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 NASD Regulation. On May 1, 2000 and May 3, 2000, the Exchange 
submitted Amendment Nos. 1 and 2, respectively, to the proposed rule 
change. \3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment Nos. 1 and 2, the Exchange reworded the 
proposed language in the interpretation for clarity. No substantive 
changes were made in the amendments. See Letters from Gary L. 
Goldsholle, Assistant General Counsel, NASD Regulation, to Katherine 
A. England, Assistant Director, Division of Market Regulation 
(``Division''), SEC. dated April 28, 2000 (``Amendment No. 1'') and 
May 2, 2000 (``Amendment No. 2'').
---------------------------------------------------------------------------

    The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

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

    NASD Regulation is proposing to interpret NASD Rule 2110, Standards 
of Commercial Honor and Principles of Trade, to require a member that 
provides a written confirmation for a transaction involving callable 
common stock to disclose on the written confirmation that the security 
is callable and that the customer may wish to contact the member for 
more information. Below is the text of the proposed rule change. 
Proposed new language is italicized.

IM-2110-6. Confirmation of Callable Common Stock

    Any member providing a customer confirmation pursuant to SEC Rule 
10b-10 in connection with any transaction in callable common stock 
shall disclose on such confirmation that:
     The security is callable common stock; and
     A customer may contact the member for more information 
concerning the security.

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

    In its filing with the Commission, NASD Regulation included 
statements concerning the purpose of and basic 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. NASD Regulation 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
    An issuer's common stock generally continues to trade on a market 
until the issuer fails to meet the market's listing requirements, 
combines with another

[[Page 30460]]

company, or voluntarily delists for another market. Occasionally, 
common stock will be callable, that is, subject to being called away 
from a shareholder, either by the issuer or a third party. Typically, 
the price at which callable common stock is called away from a 
shareholder is at a premium to the then prevailing market price or 
pursuant to a schedule of prices announced at the time the common stock 
is issued. \4\
---------------------------------------------------------------------------

    \4\ Because callable common stock combines the features of more 
than one category of securities (i.e., common stock and a call 
option), the staff of The Nasdaq Stock Market will evaluate whether 
callable common stock is eligible for inclusion in the Nasdaq 
National Market pursuant to the ``other securities'' provisions of 
NASD Rule 4420(f).
---------------------------------------------------------------------------

    An investor purchasing callable common stock is subject to unique 
risks not typically associated with ownership of common stock, even 
where such stock is called away at a premium. Moreover, the ability of 
an issuer's common stock to be called away from a shareholder generally 
will be a material fact to an investor. Accordingly, NASD Regulation 
believes that high standards of commercial honor and just and equitable 
principles of trade require that any member that provides a written 
confirmation for a transaction involving callable common stock must 
disclose on the confirmation that the security is callable and that the 
customer may contact the member for more information. NASD Regulation 
emphasizes that the disclosure of the call feature on the confirmation 
in no way relieves a member of its obligation to consider the callable 
nature of the security when complying with any applicable suitability 
obligations.
2. Statutory Basis
    NASD Regulation believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(6) of the Act, \5\ 
which requires, among other things, that the Association's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. NASD Regulation believes 
that callable common stock is subject to unique and material risks not 
typically associated with ownership of common stock; therefore, any 
member that provides a written confirmation for a transaction involving 
callable common stock must disclose that the security is callable and 
that the customer may contact the member for more information.
---------------------------------------------------------------------------

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

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    NASD Regulation has neither solicited nor received written 
comments.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    The proposed rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule and, therefore, has become effective 
upon filing pursuant to section 19(b)(3)(A)(i) of the Act \6\ and 
paragraph (f)(1) of Rule 19b-4 thereunder.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(3)(A)(i).
    \7\ 17 C.F.R. 240.19b-4(f)(1).
---------------------------------------------------------------------------

    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.

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, N.W., Washington, D.C. 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 insepection 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 SR-NASD-00-24 and should be 
submitted by June 1, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12)
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-11806 Filed 5-10-00; 8:45 am]
BILLING CODE 8010-01-M