[Federal Register Volume 65, Number 168 (Tuesday, August 29, 2000)]
[Notices]
[Pages 52462-52463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22016]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43195; File No. SR-NASD-00-31]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by National Association of Securities Dealers, Inc. to Apply 
Nasdaq's Recently Amended Independent Director and Audit Committee 
Listing Requirements to Limited Partnerships

August 22, 2000.

I. Introduction

    On May 26, 2000, 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''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to apply Nasdaq's recently 
amended independent director and audit committee listing requirements 
to limited partnerships.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published in the Federal Register on 
June 27, 2000.\3\ No comments were received on the proposal. This order 
approves the proposed rule change.
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    \3\ Securities Exchange Act Release No. 42970 (June 21, 2000), 
65 FR 39642.
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II. Description of the Proposed Rule Change

A. Independent Director and Audit Committee Listing Requirements

    In 1993, Nasdaq established corporate governance standards, 
including independent director and audit committee requirements, for 
limited partnerships that were similar to those for other issuers. Last 
year, the Commission approved amendments to the independent director 
and audit committee listing requirements for corporations quoted on 
Nasdaq.\4\ Nasdaq believes that although there are few limited 
partnerships currently quoted on Nasdaq, the new independent director 
and audit committee requirements should also be applied to limited 
partnerships in order to provide investors in limited partnerships with 
the same protections enjoyed by the shareholders of corporations. 
Therefore, Nasdaq proposes to extend the recent amendments to its 
independent director and audit committee listing standards for 
corporations to limited partnerships.
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    \4\ See Securities Exchange Act Release No. 42231 (December 14, 
1999), 64 FR 71523 (December 21, 1999).
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B. Implementation

    In order to minimize disruption to existing limited partnership 
audit committees, to permit current audit committee members to serve 
out their terms, and to allow adequate time for the recruitment of the 
requisite members, Nasdaq proposes to provide limited partnerships 
eighteen months from the date of this approval to meet the audit 
committee structure and membership requirements. Additionally, Nasdaq 
proposes that limited partnerships listed on the effective date of the 
rule be provided with six months following the date of this approval 
order to adopt a formal written audit committee charter.
    Further, Nasdaq proposes that limited partnerships that applied for 
listing prior to the effective date of the rule be able to qualify for 
listing under the listing standards in force at the time of their 
application, and receive the same grace period provided to current 
limited partnerships. Also, limited partnerships that transfer to 
Nasdaq from the

[[Page 52463]]

American Stock Exchange LLC and the New York Stock Exchange, will be 
subject to, and afforded, the same grace periods they would have 
received under their previous market's implementation schedule.\5\
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    \5\ Telephone conversation between John Nachmann, Attorney, 
Office of General Counsel, NASDAQ, and Andrew Shipe, Attorney, 
Division of Market Regulations, SEC, on August 22, 2000.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association,\6\ and in particular, the requirements of section 
15A(b)(6) of the Act.\7\ The proposed rule change applies Nasdaq's 
recently amended independent director and audit committee listing 
requirements to limited partnerships. As noted above, the Commission 
approved those requirements on December 14, 1999. \8\
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    \6\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78(c)(f).
    \7\ 15 U.S.C. 78o(b)(6).
    \8\ See supra note 4.
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    The Commission believes it appropriate for Nasdaq to extend the 
recent amendments to its independent director and audit committee 
listing standards to limited partnerships, and that these standards 
should provide investors in limited partnerships the same protections 
as the shareholders of other issuers. As the Commission noted in its 
order with respect to the amendments approved on December 14, 1999, the 
proposed rule change will protect investors by improving the 
effectiveness of audit committees of limited partnerships listed on 
Nasdaq, and should enhance the reliability and credibility of their 
financial statements by making it more difficult for limited 
partnerships to inappropriately distort their true financial 
performance.
    Specifically, the Commission notes that directors without 
financial, familial, or other material personal ties to management will 
be more likely to objectively evaluate the propriety of management's 
accounting, internal control, and financial reporting practices. The 
Commission also believes that the proposal's resulting prohibition 
against employees serving on the audit committee is appropriate. The 
Commission further believes that the proposed rule change's application 
of requirements for the qualifications of audit committee members will 
enhance the effectiveness of the audit committee and help to ensure 
that audit committee members are able to adequately fulfill their 
responsibilities.

 IV. Conclusion

    For the foregoing reasons, the Commission finds that Nasdaq's 
proposal to apply its independent director and audit committee listing 
requirements to limited partnerships is consistent with the 
requirements of the Act and rules and regulations thereunder.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASD-00-31) is approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-22016 Filed 8-28-00; 8:45 am]
BILLING CODE 8010-01-M