[Federal Register Volume 65, Number 228 (Monday, November 27, 2000)]
[Notices]
[Pages 70751-70756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30136]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43583; File No. SR-NASD-00-62]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the National Association of Securities Dealers, Inc., Relating to the 
Removal of Duplicative Provisions

November 17, 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 October 19, 2000, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its wholly owned 
subsidiary, the Nasdaq Stock Market, Inc. (``Nasdaq'') 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 the NASD.\3\ The Commission is publishing 
this notice to

[[Page 70752]]

solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Nasdaq originally submitted the proposal on October 19, 
2000. On November 8, 2000, Nasdaq submitted a letter from Sara 
Nelson Bloom, Assistant General Counsel, Nasdaq, to Katherine 
England, Assistant Director, Division of Market Regulation 
(``Division''), Commission, amending the filing (``Amendment No. 
1''). In Amendment No. 1, Nasdaq made several corrections to its 
rule text and designated the proposed rule change as effective 
pursuant to Section 19(b)(3)(A)(i) of the Act, and Rule 19b-4(f)(3) 
thereunder. 15 U.S.C. 78s(b)(3)(A)(i), 17 CFR 240.19b-4(f)(3). 
Because of the nature of the Amendment, the Commission deems the 
filing date to be November 8, 2000, the date of the final amendment.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is filing with the Commission a proposed rule change 
regarding revisions to the Nasdaq Marketplace Rules to eliminate 
duplicative provisions and make conforming changes. Below is the text 
of the proposed rule change. Additions are italicized and deletions are 
in brackets.

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)-(20) No change.
    (21) Deleted and reserved.
    (22)-(24) No change.
    (25)-(29) Deleted and reserved.
    (d) No change.

IM-4310. Voting Rights Policy

    Renumbered IM-4351 and moved to follow Rule 4351.

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 paragraphs (a), 
(b) or (c), and (d), the security shall satisfy the following 
criteria for inclusion in Nasdaq:
    (1)-(18) No change.
    (19) Deleted and reserved.
    (20) No change.
    (21)-(25) Deleted and reserved.
    (f) No change.
    Cross reference to IM-4310 is deleted.

4420. Quantitative Designation Criteria

    (a)-(g) No change.

(h) Units

(1) Minimum Inclusion Period and Notice of Withdrawal

    In the case of units, the minimum period for inclusion of the 
units shall be 30 days from the first day of inclusion, except the 
period may be shortened if the units are suspended or withdrawn for 
regulatory purposes. Issuers and underwriters seeking to withdraw 
units from inclusion must provide Nasdaq with notice of such intent 
at least 15 days prior to withdrawal.

(2) Disclosure Requirements for Units

    Each Nasdaq National Market issuer of units shall include in its 
prospectus or other offering document used in connection with any 
offering of securities that is required to be filed with the 
Commission under the federal securities laws and the rules and 
regulations promulgated thereunder a statement regarding any 
intention to delist the units immediately after the minimum 
inclusion period.

4460. Non-Quantitative Designation Criteria for Issuers Excepting 
Limited Partnership

    Cross reference to IM-4310 is deleted.
    Renumbered as Rule 4350 and Amended as follows:

4350. [Non-Quantitative Designation Criteria] Qualitative Listing 
Requirements for Nasdaq National Market and Nasdaq SmallCap Market 
Issuers Except[ing] for Limited Partnerships Traded on the Nasdaq 
National Market

(a) Applicability

    No provisions of this Rule shall be construed to require any 
foreign issuer to do any act that is contrary to a law, rule or 
regulation of any public authority exercising jurisdiction over such 
issuer or that is contrary to generally accepted business practices 
in the issuer's country of domicile. Nasdaq shall have the ability 
to provide exemptions from the applicability of these provisions as 
may be necessary or appropriate to carry out this intent.
    Nasdaq shall review the issuer's past corporate governance 
activities. This review may include activities taking place while 
the issuer is listed on Nasdaq or an exchange that imposes corporate 
governance requirements, as well as activities taking place after 
the issuer is no longer listed on Nasdaq or an exchange that imposes 
corporate governance requirements. Based on such review, Nasdaq may 
take any appropriate action, including placing of restrictions on or 
additional requirements for listing, or the denial of listing of a 
security if Nasdaq determines that there have been violations or 
evasions of such corporate governance standards. Determinations 
under this subparagraph shall be made on a case-by-case basis as 
necessary to protect investors and the public interest.

(b) Distribution of Annual and Interim Reports

    (1) Each [Nasdaq National Market] issuer shall distribute to 
shareholders copies of an annual report containing audited financial 
statements of the company and its subsidiaries. The report shall be 
distributed to shareholders a reasonable period of time prior to the 
company's annual meeting of shareholders and shall be filed with 
Nasdaq at the time it is distributed to shareholders.
    (2) Each [NNM] issuer which is subject to SEC Rule 13a-13 shall 
make available copies of quarterly reports including statements of 
operating results to shareholders either prior to or as soon as 
practicable following the company's filing of its Form 10-Q with the 
Commission. If the form of such quarterly report differs from the 
Form 10-Q, the issuer shall file one copy of the report with Nasdaq 
in addition to filing its Form 10-Q pursuant to Rule 4310(c)(14). 
The statement of operations contained in quarterly reports shall 
disclose, as a minimum, any substantial items of an unusual or 
nonrecurrent nature and net income before and after estimated 
federal income taxes or net income and the amount of estimated 
federal taxes.
    (3) Each [NNM] issuer which is not subject to SEC Rule 13a-13 
and which is required to file with the Commission, or another 
federal or state regulatory authority, interim reports relating 
primarily to operations and financial position, shall make available 
to shareholders reports which reflect the information contained in 
those interim reports. Such reports shall be made available to 
shareholders either before or as soon as practicable following 
filing with the appropriate regulatory authority. If the form of the 
interim report provided to shareholders differs from that filed with 
the regulatory authority, the issuer shall file one copy of the 
report to shareholders with Nasdaq in addition to the report to the 
regulatory authority that is filed with Nasdaq pursuant to Rule 
4310(c)(14).

(c) Independent Directors

    Each [NNM] issuer shall maintain a sufficient number of 
independent directors on its board of directors to satisfy the audit 
committee requirement set forth in Rule [4460]4350(d)(2).

(d) Audit Committee

(1) Audit Committee Charter

    Each Issuer must certify that it has adopted a formal written 
audit committee charter and that the [A]audit [C]committee has 
reviewed and reassessed the adequacy of the formal written charter 
on an annual basis. The charter must specify the following:
    (A) the scope of the audit committee's responsibilities, and how 
it carries out those responsibilities, including structure, 
processes, and membership requirements;
    (B) the audit committee's responsibility for ensuring its 
receipt from the outside auditors of a formal written statement 
delineating all relationships between the auditor and the company, 
consistent with Independence Standards Board Standard 1, and the 
audit committee's responsibility for actively engaging in a dialogue 
with the auditor with respect to any disclosed relationships or 
services that may impact the objectivity and independence of the 
auditor and for taking, or recommending that the full board take, 
appropriate action to oversee the independence of the outside 
auditor; and
    (C) the outside auditor's ultimate accountability to the board 
of directors and the audit committee, as representatives of 
shareholders, and these shareholder representatives' ultimate 
authority and responsibility to select, evaluate, and, where 
appropriate, replace the outside auditor (or to nominate the outside 
auditor to be proposed for shareholder approval in any proxy 
statement).

(2) Audit Committee Composition

    (A) Each issuer must have, and certify that it has and will 
continue to have, an audit

[[Page 70753]]

committee of at least three members, comprised solely of independent 
directors, each of whom is able to read and understand fundamental 
financial statements, including a company's balance sheet, income 
statement, and cash flow statement or will become able to do so 
within a reasonable period of time after his or her appointment to 
the audit committee. Additionally, each issuer must certify that it 
has, and will continue to have, at least one member of the audit 
committee that has past employment experience in finance or 
accounting, requisite professional certification in accounting, or 
any other comparable experience or background which results in the 
individual's financial sophistication, including being or having 
been a chief executive officer, chief financial officer or other 
senior officer with financial oversight responsibilities.
    (B) Notwithstanding paragraph (A), one director who is not 
independent as defined in Rule 4200, and is not a current employee 
or an immediate family member of such employee, may be appointed to 
the audit committee, if the board, under exceptional and limited 
circumstances, determines that membership on the committee by the 
individual is required by the best interests of the corporation and 
its shareholders, and the board discloses, in the next annual proxy 
statement subsequent to such determination, the nature of the 
relationship and the reasons for that determination.
    (C) Exception for Small Business Filers--Paragraphs (2)(A) and 
(2)(B) do not apply to issuers that file reports under SEC 
Regulation S-B. Such issuers must establish and maintain an [A]audit 
[C]committee of at least two members, a majority of the members of 
which shall be independent directors.

(e) Shareholder Meetings

    Each [NNM] issuer shall hold an annual meeting of shareholders 
and shall provide notice of such meeting to Nasdaq.

(f) Quorum

    Each [NNM] issuer shall provide for a quorum as specified in its 
by-laws for any meeting of the holders of common stock; provided, 
however, that is no case shall such quorum be less than 33\1/3\ 
[percent] % of the outstanding shares of the company's common voting 
stock.

(g) Solicitation of Proxies

    Each [NNM] issuer shall solicit proxies and provide proxy 
statements for all meetings of shareholders and shall provide copies 
of such proxy solicitation to Nasdaq.

(h) Conflicts of Interest

    Each [NNM] issuer shall conduct an appropriate review of all 
related party transactions on an ongoing basis and shall utilize the 
company's [A]audit [C]committee or a comparable body of the [B]board 
of [D]directors for the review of potential conflict of interest 
situations where appropriate.

(i) Shareholder Approval

    (1) Each [NNM] issuer shall require shareholder approval of a 
plan or arrangement under subparagraph (A) below, or prior to the 
issuance of designated securities under subparagraph (B), (C), or 
(D) below:
    (A) When a stock option or purchase plan is to be established or 
other arrangement made pursuant to which stock may be acquired by 
officers or directors, except for warrants or rights issued 
generally to security holders of the company or broadly based plans 
or arrangements including other employees (e.g.,2 ESOPs). 
In a case where the shares are issued to a person not previously 
employed by the company, as an inducement essential to the 
individual's entering into an employment contract with the company, 
shareholder approval will generally not be required. The 
establishment of a plan or arrangement under which the amount of 
securities which may be issued does not exceed the lesser of 1% of 
the number of shares of common stock, 1% of the voting power 
outstanding, or 25,000 shares will not generally require shareholder 
approval;
    (B) When the issuance or potential issuance will result in a 
change of control of the issuer;
    (C) In connection with the acquisition of the stock or assets of 
another company if:
    (i) Any director, officer or substantial shareholder of the 
issuer has a 5% or greater interest (or such persons collectively 
have a 10% or greater interest), directly or indirectly, in the 
company or assets to be acquired or in the consideration to be paid 
in the transaction or series of related transactions and the present 
or potential issuance of common stock, or securities convertible 
into or exercisable for common stock, could result in an increase in 
outstanding common shares or voting power of 5% or more; or
    (ii) Where, due to the present or potential issuance of common 
stock, or securities convertible into or exercisable for common 
stock, other than a public offering for cash:
    a. The common stock has or will have upon issuance voting power 
equal to or in excess of 20% of the voting power outstanding before 
the issuance of stock or securities convertible into or exercisable 
for common stock; or
    b. The number of shares of common stock to be issued is or will 
be equal to or in excess of 20% of the number of shares of common 
stock outstanding before the issuance of the stock or securities; or
    (D) In connection with a transaction other than a public 
offering involving:
    (i) The sale, issuance or potential issuance by the issuer of 
common stock (or securities convertible into or exercisable for 
common stock) at a price less than the greater of book or market 
value which together with sales by officers, directors or 
substantial shareholders of the company equals 20% or more of common 
stock or 20% or more of the voting power outstanding before the 
issuance; or
    (ii) The sale, issuance or potential issuance by the company of 
common stock (or securities convertible into or exercisable common 
stock) equal to 20% or more of the common stock or 20% or more of 
the voting power outstanding before the issuance for less than the 
greater of book or market value of the stock.
    (2) Exceptions may be made upon application to Nasdaq when:
    (A) The delay in securing stockholder approval would seriously 
jeopardize the financial viability of the enterprise; and
    (B) Reliance by the company on this exception is expressly 
approved by the [A]audit [C]committee or a comparable body of the 
[B]board of [D]directors.
    A company relying on this exception must mail to all 
shareholders not later than ten days before issuance of the 
securities a letter alerting them to its omission to seek the 
shareholder approval that would otherwise be required and indicating 
that the [A]audit [C]committee [of the Board] or a comparable body 
of the board of directors has expressly approved the exception.
    (3) Only shares actually issued and outstanding (excluding 
treasury shares or shares held by a subsidiary) are to be used in 
making any calculation provided for in this paragraph (i). Unissued 
shares reserved for issuance upon conversion of securities or upon 
exercise of options or warrants will not be regarded as outstanding.
    (4) Voting power outstanding as used in this rule refers to the 
aggregate number of votes which may be cast by holders of those 
securities outstanding which entitle the holders thereof to vote 
generally on all matters submitted to the company's security holders 
for a vote.
    (5) An interest consisting of less than either 5% of the number 
of shares of common stock or 5% of the voting power outstanding of 
an issuer or party shall not be considered a substantial interest or 
cause the holder of such an interest to be regarded as a substantial 
security holder.
    (6) Where shareholder approval is required, the minimum vote 
which will constitute shareholder approval shall be a majority of 
the total votes cast on the proposal in person or by proxy.

Cross Reference IM-4300, Future Priced Securities

(j) Voting Rights

    (1) No rule, stated policy, practice, or interpretation of Nadaq 
shall permit the authorization for quotation and/or transaction 
reporting through an automated inter-dealer quotation system 
(authorization), or the continuance of authorization, of any common 
stock or other equity security of a domestic issuer, if the issuer 
of such security issues any class of security, or takes other 
corporate action, with the effect of nullifying, restricting, or 
disparately reducing the per share voting rights of holders of an 
outstanding class or classes of common stock of such issuer 
registered pursuant to section 12 of the Act.
    (2) For the purposes of paragraph (j)(1), the following shall be 
presumed to have the effect of nullifying, restricting, or 
disparately reducing the per share voting rights of an outstanding 
class or classes of common stock:
    (A) Corporate action to impose any restriction on the voting 
power of shares of the common stock of the issuer held by a 
beneficial or record holder based on the number of shares held by 
such beneficial or record holder;
    (B) Corporate action to impose any restriction on the voting 
power of shares of the common stock of the issuer held by a

[[Page 70754]]

beneficial or record holder based on the length of time such shares 
have been held by such beneficial or record holder;
    (C) Any issuance of securities through an exchange offer by the 
issuer for shares of an outstanding class of the common stock of the 
issuer, in which the securities issued have voting rights greater 
than or less than the per share voting rights of any outstanding 
class of the common stock of the issuer; or
    (D) Any issuance of securities pursuant to a stock dividend, or 
any other type of distribution of stock, in which the securities 
issued have voting rights greater than the per share voting rights 
of any outstanding class of the common stock of the issuer.
    (3) For the purposes of paragraph (j)(1), the following, 
standing alone, shall be presumed not to have the effect of 
nullifying, restricting, or disparately reducing the per share 
voting rights of holders of an outstanding class or classes of 
common stock:
    (A) The issuance of securities pursuant to an initial registered 
public offering;
    (B) The issuance of any class of securities, through a 
registered public offering, with voting rights not greater than the 
per share voting rights of any outstanding class of the common stock 
of the issuer;
    (C) The issuance of any class of securities to effect a bona 
fide merger or acquisition, with voting rights not greater than the 
per share voting rights of any outstanding class of the common stock 
of the issuer; or
    (D) Corporate action taken pursuant to state law requiring a 
state's domestic corporation to condition the voting rights of a 
beneficial or record holder of a specified threshold percentage of 
the corporation's voting stock on the approval of the corporation's 
independent shareholders.
    (4) The following terms shall have the following meanings for 
purposes of this Rule:
    (A) The term ``common stock'' shall include any security of an 
issuer designated as common stock and any security of an issuer, 
however designate,d which, by statute or by its terms, is a common 
stock (e.g., a security which entitles the holders thereof to vote 
generally on matters submitted to the issuer's security holders for 
a vote).
    (B) The term ``equity security'' shall include any equity 
security defined as such pursuant to SEC Rule 3a11-1 under the Act.
    (C) The term ``domestic issuer'' shall mean an issuer that is 
not a ``foreign private issuer'' as defined in SEC Rule 3b-4 under 
the Act.
    (D) The term ``security'' shall include any security defined as 
such pursuant to Section 3(a)(10) of the Act, but shall exclude any 
class of security having a preference or priority over the issuer's 
common stock as to dividends, interest payments, redemption or 
payments in liquidation, if the voting rights of such securities 
only become effective as a result of specified events, not relating 
to an acquisition of the common stock of the issuer, which 
reasonably can be expected to jeopardize the issuer's financial 
ability to meet is payment obligations to the holders of that class 
of securities.

Cross Reference--IM-4310, Voting Rights Policy

(k)] Listing Agreement

    Each [NNM] issuer shall execute a Listing Agreement in the form 
designated by Nasdaq.

[(I) Units

(1) Minimum Inclusion Period and Notice of Withdrawal

    In the case of units, the minimum period for inclusion of the 
units shall be 30 days from the first day of inclusion, except the 
period may be shortened if the units are suspended or withdrawn for 
regulatory purposes. Issuers and underwriters seeking to withdraw 
units from inclusion must provide Nasdaq with notice of such intent 
at least 15 days prior to withdrawal.

(2) Disclosure Requirements for Units

    Each Nasdaq National Market issuer of units shall include in its 
prospectus or other offering document used in connection with any 
offering of securities that is required to be filed with the 
Commission under the federal securities laws and the rules and 
regulations promulgated thereunder a statement regarding any 
intention to delist the units immediately after the minimum 
inclusion period.

(m)] (k) Peer Review

    (1) Each issuer must be audited by an independent public 
accountant that:
    (A) Has received an external quality control review by an 
independent public accountant (``peer review'') that determines 
whether the auditor's system of quality control is in place and 
operating effectively and whether established policies and 
procedures and applicable auditing standards are being followed; or
    (B) Is enrolled in a peer review program and within 18 months 
receives a peer review that meets acceptable guidelines.
    (2) The following guidelines are acceptable for purposes of this 
paragraph [(m)]:
    (A) The peer review should be comparable to AICPA standards 
included in Standards for Performing on Peer Reviews, codified in 
the AICPA's SEC Practice Section Reference Manual;
    (B) The peer review program should be subject to oversight by an 
independent body comparable to the organizational structure of the 
Public Oversight Board as codified in the AICPA's SEC Practice 
Section Reference Manual; and
    (C) The administering entity and the independent oversight body 
of the peer review program must, as part of their rules of 
procedure, require the retention of the peer review working papers 
for 90 days after acceptance of the peer review report and allow 
Nasdaq access to those working papers.

(I[n]) Direct Registration Program

    If an issuer establishes or maintains a Direct Registration 
Program for its shareholders, the issuer shall, directly or through 
its transfer agent, participate in an electronic link with a 
securities depository registered under Section 17A of the Exchange 
Act to facilitate the electronic transfer of securities held 
pursuant to such program.

4351. Voting Rights

    Voting rights of existing shareholders of publicly traded common 
stock registered under Section 12 of the Act cannot be disparately 
reduced or restricted through any corporate action or issuance. 
Examples of such corporate action or issuance include, but are not 
limited to, the adoption of time-phased voting plans, the adoption 
of capped voting rights plans, the issuance of super-voting stock, 
or the issuance of stock with voting rights less than the per share 
voting rights of the existing common stock through an exchange 
offer.

Cross Reference IM-4300, Future Priced Securities

IM-4351, Voting Rights Policy

    Text of existing IM-4310 relocated here.

4470. [Non-Quantitative Designation Critical Qualitative Listing 
Requirements for Nasdaq National Market Issuers That Are Limited 
Partnerships

(a) Applicability

    No change.

(b) Distribution of Annual and Interim Reports

    No change.

(c) Corporate General Partner/Independent Directors

    Each issuer that is a limited partnership shall maintain a 
corporate general partner or co-general partner, which shall have 
the authority to manage the day-to-day affairs of the partnership. 
Such corporate general or co-partner shall maintain a sufficient 
number of independent directors on its board of directors to satisfy 
the audit committee requirement set forth in Rule [4460]4350(d)(2).

(d) Audit Committee

    The corporate general partner or co-general partner of each 
issuer that is a limited partnership must satisfy the audit 
committee requirements set forth in Rule [4460]4350(d).
    (e)-(i) No change.

4480. Termination Procedure

    (a) Failure to maintain compliance with the provisions of Rules 
4350, 4450, [4460,] or 4470 will result in the termination of an 
issue's designation unless an exception is granted as provided in 
the Rule 4800 Series. Termination shall become effective in 
accordance with the terms of notice by Nasdaq.
    (b) No change.

IM-4300. Interpretive Material Regarding Future Priced Securities 
Summary

    No change.

How the Rules Apply

Shareholder Approval

    NASD Rule 4350(i)(1)(D)[4310(c)(25)(H)(i) relating to Nasdaq 
SmallCap issuers and Rule 4460(i)(1) relating to Nasdaq National 
Market issuers] provides, in part:

    Each issuer shall require shareholder approval * * * prior to 
the issuance of designated securities * * * in connection

[[Page 70755]]

with a transaction other than a public offering involving * * * the 
sale, issuance or potential issuance by the issuer of common stock 
(or securities convertible into or exercisable for common stock) at 
a price less than the greater of book or market value which together 
with sales by officers, directors or substantial shareholders of the 
company equals [equal to] 20 [percent] % or more of the common stock 
or 20 [percent] % or more of the voting power outstanding before the 
issuance [for less than the greater of book or market value of the 
stock].\4\
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    \4\ Nasdaq may make exceptions to this requirement when the 
delay in securing stockholder approval would seriously jeopardize 
the financial viability of the enterprise and reliance by the 
company on this exception is expressly approved by the Audit 
Committee or a comparable body of the Board of Directors.
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* * * * *
    Some Future Priced Securities may contain features to obviate 
the need for shareholder approval by: (1) placing a cap on the 
number of shares that can be issued upon conversion, such that the 
holders of the Future Priced Security cannot, without prior 
shareholder approval, convert the security into 20 [percent] % or 
more of the common stock or voting power outstanding before the 
issuance of the Future Priced Security; \5\ or (2) placing a floor 
on the conversion price, such that the conversion price will always 
be at least as high as the greater of book or market value of the 
common stock prior to the issuance [emphasis added] of the Future 
Priced Securities. Even when a Future Priced Security contains these 
features, however, shareholder approval is still required under 
Rule[s 4310(c)(25)(H)(i)(b) and 4460] 4350(i)(1)(B) if the issuance 
will result in a change of control.
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    \5\ In order to obviate the need for shareholder approval 
through such an arrangement, those shares already issued in 
connection with the Future Priced Security must not be entitled to 
vote on the proposal to approve the issuance of additional shares 
upon conversion of the Future Priced Security.
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Voting Rights

    NASD Rule [4310(c)(21)] 4351 provides:

    Voting rights of existing shareholders of publicly traded common 
stock registered under Section 12 of the Act cannot be disparately 
reduced or restricted through any corporate action or issuance.

    [Rule 4460(j) and] IM-[4310] 4351 also provides rules relating 
to voting rights of Nasdaq issuers.
* * * * *

The Bid Price Requirement

    No change.

Listing of Additional Shares

    NASD Rule 4310(c)(17) provides:

    [The issuer shall be required to file on a form designated by 
Nasdaq notification of * * * the issuance of additional shares of 
any class of securities included in Nasdaq * * * no later than 15 
calendar days prior to * * * the issuance of additional shares.]
    The issuer shall be required to notify Nasdaq on the appropriate 
form no later than 15 calendar days prior to: * * * issuing 
securities that may potentially result in a change of control of the 
issuer, or * * * 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.

    Issuers should be cognizant that under this rule notification is 
required at least 15 days prior [emphasis added] to issuing any 
security (including a Future Priced Security) convertible into 
shares of a class of securities already listed on Nasdaq. Failure to 
provide such notice can result in an issuer's removal from Nasdaq.

Public Interest Concerns

    No change.

Change of Control and Change in Financial Structure

    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 Section 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
    Currently, Nasdaq issuers and their counsel must navigate through 
three sets of Corporate Governance requirements depending on whether 
the issuer is a Nasdaq SmallCap Market issuer or a Nasdaq National 
Market issuer and whether the issuer is domestic or foreign. These 
three sets of rules, however, are largely identical. Furthermore, the 
layout of and citation to some of these rules is extremely cumbersome. 
For example, a SmallCap issuer seeking information about shareholder 
approval in connection with an acquisition of another company would 
have to look at Rule 4310(c)(25)(G)(i)(c)(2)(A). Accordingly, in an 
effort to simplify the Marketplace Rules and make them more user 
friendly, Nasdaq proposes to eliminate the duplication of these rules 
and have the Corporate Governance rules appear in a single location 
applicable to all issuers, \6\ other than Limited Partnerships traded 
on the Nasdaq National Market. The comparable rules relating to Limited 
Partnerships would not be combined with those of other issuers because 
of the unique structure of Limited Partnerships, the fact that 
different corporate governance rules apply to such issuers, and the 
fact that the existing Limited Partnership rules only apply to Nasdaq 
National Market issuers.
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    \6\ The Rule 4300 Series applies to all Nasdaq issuers. Nasdaq 
National Market issuers must also comply with the Rule 4400 Series.
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    To give effect to this change, the Nasdaq proposes to have the 
corporate governance sections of current Rule 4310 (relating to 
domestic SmallCap issuers) and Rule 4320 (relating to foreign SmallCap 
issuers) deleted. \7\ Nasdaq proposes to have existing Rule 4460 (which 
now relates only to National Market issuers other than Limited 
Partnerships) be renumbered to Rule 4350 and amended to apply to all 
Nasdaq issuers. \8\
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    \7\ In addition to the primary corporate governance sections, 
those sections relating to voting rights, audit committees, listing 
agreements, auditor peer review, and direct registration programs 
would also be combined in the new rules applicable to all issuers.
    \8\ Nasdaq represents that one provision of Rule 4460 is not 
being moved to Rule 4350. The Units provision (existing Rule 
4460(l)) will be moved to existing Rule 4420 because it contains a 
provision, Disclosure Requirements for Units, that solely applies to 
Nasdaq National Market issuers. Telephone conversation between 
Arnold Golub, Senior Attorney, Office of General Counsel, Nasdaq, 
and Lisa Jones, Attorney, Division, Commission, November 17, 2000.
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    The language of the voting rights rules presently differ between 
the SmallCap Market and National Market. Nasdaq, however, has applied 
these rules consistently across the two markets. In fact, when the 
voting rights rules were first adopted for the Small Cap Market, Nasdaq 
stated that it would interpret the rules of both market segments 
uniformly.\9\ Nasdaq does not believe that the disparity in language 
between the two markets serves any useful purpose and proposes adopting 
a single voting rights rule applicable to both markets. Further, Nasdaq 
believes that this change will give effect to the SEC's goal that 
Nasdaq, the American Stock Exchange (``Amex''), and the New York Stock 
Exchange (``NYSE'') all adopt a uniform policy with respect to the 
voting rights of common stock shareholders.\10\ Accordingly, Nasdaq 
proposes eliminating the existing Rule 4460(j) and incorporating 
existing Rule

[[Page 70756]]

4310(c)(21) \11\ into new Rule 4351. The Voting Rights Policy presently 
located at IM-4310 would be relocated as IM-4351.
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    \9\ See Securities Exchange Act Release No. 34518 (August 11, 
1994), 59 FR 42614 (August 18, 1994) (``Voting Rights Release'').
    \10\ See Id.
    \11\ Existing Rule 4310(c)(21) is identical to the voting rights 
rules on the NYSE and Amex. See NYSE Listed Company Manual Section 
313 and Amex Company Guide Section 122.
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\12\ which requires, 
among other things, that the Association's rules must 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. The changes proposed are designed to 
simplify the use of Nasdaq's rules by issuers and investors.
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    \12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD does not believe that the proposed rule change will impose 
any burden on competition.

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

    The NASD has neither solicited nor received written comments on the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \13\ and Rule 19b-4(f)(3) thereunder because 
it is concerned solely with the administration of the NASD.\14\ At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate such rule change 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 purpose of the Act.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(i).
    \14\ 17 CFR 240.19b-4(f)(3).
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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 Public Reference Room. Copies of such filing will also be 
available for inspection at the principal office of the NASD.
    All submissions should refer to File No. SR-NASD-00-62 and should 
be submitted by December 18, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-30-2(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 00-30136 Filed 11-24-00; 8:45 am]
BILLING CODE 8010-01-M