[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Notices]
[Pages 34973-34975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16559]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44467; File No. SR-NASD-2001-38]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Listing of Additional Shares

    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 May 29, 2001, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') through its 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 Nasdaq. 
The Commission is publishing this notice to 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq has filed the proposed rule change to amend Nasdaq 
Marketplace Rules 4320, 4510, and 4520, regarding the listing of 
additional shares. Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

Rule 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

[[Page 34974]]

following criteria for inclusion in Nasdaq:
    (1)-(14) No change
    (15) The issuer of any class of securities included in Nasdaq, 
except for American Depositary Receipts, shall be required to notify 
Nasdaq on the appropriate form no later than 15 calendar days prior to:
    (A)-(D) No change
    (16)-(25) No change
    (f) No change

Rule 4510. The Nasdaq National Market

(a) No change
(b) Additional shares
    (1) The issuer of each class of security that is a domestic issue 
which is listed in [t]T he 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] $22,000 per quarter and an annual maximum of [$35,000] 
$45,000 per issuer. There shall be no fee, however, for issuances of up 
to 49,000 additional shares per quarter.
    (3) No change
    (4) The Board of Directors of The Nasdaq Stock Market, Inc. or its 
designee may, in its discretion, defer or waive all or any part of the 
additional shares fee prescribed herein.
(c)-(d) No change

Rule 4520. The Nasdaq SmallCap Market

(a) 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] $22,000 per quarter and an annual maximum of [$35,000] 
$45,000 per issuer. There shall be no fee, however, for issuances of up 
to 49,000 additional shares per quarter.
    (3) No change
    (4) The Board of Directors of The Nasdaq Stock Market, Inc. or its 
designee may, in its discretion, defer or waive all or any part of the 
additional shares fee prescribed herein.
    (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, Nasdaq 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. Nasdaq 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
    Nasdaq proposes to amend Nasdaq Marketplace Rules 4320, 4510, and 
4520, regarding the listing of additional shares (``LAS Program''). 
These amendments include revising the fees for the listing of 
additional shares (``LAS''), providing the Board or its designee with 
the discretion to defer or waive fees relating to the LAS program, and 
clarifying that American Depositary Receipts are exempt from the LAS 
notification requirements contained in Nasdaq Marketplace Rule 
4320(e)(15).
    The LAS program involves notification and fee requirements for the 
issuance of additional shares. In January 2000, the notification 
process was simplified so that today issuers must notify Nasdaq only of 
a transaction that may implicate Nasdaq's corporate governance 
requirements contained in Nasdaq Marketplace Rules 4310(c)(25) and 
4320(e)(21).\3\ The LAS fee schedule was also amended last year to 
provide that the fees for the issuance of additional shares would be 
$0.01 per share or a minimum of $2,000, whichever is higher, based upon 
quarterly changes in total shares outstanding, subject to a cap of 
$17,500 per quarter and $35,000 per year.\4\
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    \3\ See Securities Exchange Act Release No. 42351 (January 20, 
2000), 65 FR 1210 (January 7, 2000).
    \4\ See Securities Exchange Act Release No. 42300 (December 30, 
1999), 65 FR 4457 (January 27, 2000).
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    Since the LAS fee schedule was amended, Nasdaq has received several 
complaints from issuers regarding these changes. Specifically, issuers 
have noted that the $2,000 minimum fee results in a significant per 
share cost for minor issuances. Issuers have further indicated that 
many of these minor issuances have resulted from employees exercising 
stock options, a circumstance over which issuers have no control. As 
such, several issuers have requested that their LAS fees be waived.
    In response to these concerns, Nasdaq proposes to amend Nasdaq 
Marketplace Rules 4510(b)(2) and 4520(b)(2) to provide a ``carve-out'' 
for issuances of up to 49,999 shares per quarter. To offset the loss in 
revenues resulting from this ``carve-out,'' Nasdaq proposes to change 
the maximum quarterly fee from $17,500 to $22,500 and the maximum 
annual fee from $35,000 to $45,000. These changes will alleviate 
issuers' concerns regarding small issuances while maintaining the 
revenues generated by the current LAS fee schedule.
    Nasdaq also proposes to amend Nasdaq Marketplace Rules 4510(b)(4) 
and 4520(b)(4) to give the Board of Directors, or its designee, the 
ability to defer or waive all or any part of the fees relating to the 
LAS program. Nasdaq believes that it is appropriate for its Board to 
have the ability to defer or waive LAS fees in those situations where 
such action would be justified to achieve an equitable result, 
consistent with Nasdaq's current ability to defer or waive entry and 
annual fees.\5\
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    \5\ See Nasdaq Marketplace Rules 4510(a)(3), 4510(c)(2), 
4520(a)(2), and 4520(c)(2).
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    Lastly, Nasdaq proposes to clarify the LAS notification requirement 
for foreign issuers. Originally, Nasdaq Marketplace Rule 4320(e)(15) 
excluded American Depositary Receipts (ADRs) from the LAS notification 
requirements for foreign issuers because it is very difficult to track 
the creation as well as unwinding of ADRs and their creation may not 
implicate any Nasdaq regulatory requirements. When the notification 
requirements were amended in January 2000,\6\ the exclusion of ADRs was 
inadvertently omitted from Rule 4320(e)(15). As such, Nasdaq proposes 
to amend this Rule to add that ADRs are not subject to the LAS 
notification requirement.
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    \6\ See Securities Exchange Act Release No. 42351 (January 20, 
2000), 65 FR 4457 (January 27, 2000).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(5) and (6) of the Act.\7\ The proposed 
rule change is consistent with section 15A(b)(5) in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among issuers using the Nasdaq system. Specifically, the LAS

[[Page 34975]]

program fees were adopted to fund issuer-related operations that 
include educational initiatives, issuer service initiatives and NASD 
surveillance measures.\8\ The proposed rule change is also consistent 
with Section 15A(b)(6) in that it is designed to promote just and 
equitable principles of trade and does not permit unfair discrimination 
between customers, issuers, brokers or dealers. As previously 
mentioned, the LAS program fees are used to fund various operations 
relating to issuers.
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    \7\ 15 U.S.C. 78o-3(b)(5) and (6).
    \8\ See Securities Exchange Act Release No. 31586, 53 S.E.C. 
Docket 2 (December 11, 1992).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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.

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

    Written comments were not solicited or 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 Nasdaq 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 proposal 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 the filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to the File No. SR-NASD-2001-38 and should be 
submitted by July 23, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-16559 Filed 6-29-01; 8:45 am]
BILLING CODE 8010-01-M