[Federal Register Volume 66, Number 165 (Friday, August 24, 2001)]
[Notices]
[Pages 44657-44659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21369]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44720; File No. SR-NASD-2001-46]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Electronic Filings With the Corporate Financing Department

August 17, 2001.
    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 August 6, 2001, 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. 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

    NASD Regulation is proposing to amend Rule 2710 of the Conduct 
Rules of the NASD (``Corporate Financing Rule'' or ``Rule'') to: (i) 
require electronic filing of certain information with the Corporate 
Financing Department (``Department'') with respect to offerings subject 
to Rules 2710, 2720, and 2810; (ii) provide that all public offering 
documents that are filed with the Commission's Electronic Data 
Gathering and Retrieval System (``EDGAR'') will be treated as filed 
with the Association; and (iii) reduce the number of offering documents 
that are required to be filed with the Association for members that 
file manually with the Commission instead of electronically through 
EDGAR. Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.

2710. Corporate Financing Rule--Underwriting Terms and Arrangements

    (a) No Change.
(b) Filing Requirements
    (1)-(4) No Change.
(5) Documents To Be Filed

    (A) The following documents relating to all proposed public 
offerings of securities that are required to be filed under 
subparagraph (b)(4) above shall be filed with the Association for 
review:
    ([A]i) [Five (5)] Three copies of the registration statement, 
offering circular, offering memorandum, notification of filing, notice 
of intention, application for conversion and/or any other document used 
to offer securities to the public;
    ([B]ii) Three ([3)] copies of any proposed underwriting agreement, 
agreement among underwriters, selected dealers agreement, agency 
agreement, purchase agreement, letter of intent, consulting agreement, 
partnership agreement, underwriter's warrant agreement, escrow 
agreement, and any other document which describes the underwriting or 
other arrangements in connection with or related to the distribution, 
and the terms and conditions relating thereto; and any other 
information or documents which

[[Page 44658]]

may be material to or part of the said arrangements, terms and 
conditions and which may have a bearing on the Association's review;
    ([C]iii) [Five (5) Three copies of each pre- and post-effective 
amendment to the registration statement or other offering document, one 
copy marked to show changes; and three [(3]) copies of any other 
amended document previously filed pursuant to subparagraphs ([A])i) and 
([B]ii) above, one copy marked to show changes; and
    ([D]iv) Three [(3)] copies of the final registration statement 
declared effective by the Commission or equivalent final offering 
docment and a list of the members of the underwriting syndicate, if not 
indicated therein, and one ([1)] copy of the executed form of the final 
underwriting documents and any other document submitted to the 
Association for review.
    (B) All documents that are filed with the Commission through the 
Commission's Electronic Data Gathering and Retrieval System shall be 
treated as filed with the Association.
(6) Information Required To Be Filed
    (A) Any person filing documents [pursuant to subparagraph] that are 
required to be filed under paragraph (b)(4) above shall provide the 
following information with respect to the offering through the 
Association's electronic filing system:
    (i) An estimate of the maximum public offering price;
    (ii) An estimate of the maximum underwriting discount or 
commission; maximum reimbursement of underwriter's expenses, and 
underwriter's counsel's fees (except for reimbursement of ``blue sky'' 
fees); maximum financial consulting and/or advisory fees to the 
underwriter and related persons; maximum finder's fees; and a statement 
of any other type and amount of compensation which may accrue to the 
underwriter and related persons;
    (iii) a statement of the association or affiliation with any member 
of any officer, director or security holder of the issuer in an initial 
public offering of equity securities, and with respect to any other 
offering provide such information with respect to any officer, director 
or security holder of five percent or more of any class of the issuer's 
securities, to include:
    a. The identity of the person;
    b. The identity of the member and whether such member is 
participating in any capacity in the public offering; and
    c. The number of equity securities or the face value of debt 
securities owned by such person, the date such securities were 
acquired, and the price paid for such securities.
    (iv) a statement addressing the factors in subparagraphs (c)(4) (C) 
and (D), where applicable;
    (v) a detailed explanation of any other arrangement entered into 
during the 12-month period immediately preceding the filing of the 
offering, which arrangement provides for the receipt of any item of 
value and/or the transfer of any warrants, options, or other securities 
from the issuer to the underwriter and related persons; [and]
    (vi) a detailed explanation and any documents related to the 
modification of any item of compensation subsequent to the review and 
approval of such compensation by the Association; \3\ and
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    \3\ Subparagraphs (i)-(vi) are proposed to be amended in SR-
NASD-00-04. See Securities Exchange Act Release Nos. 42619 (April 4, 
2000), 65 FR 19409 (April 11, 2000); 44044 (March 6, 2001), 66 FR 
14949 (March 14, 2001).
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    (vii) any other information required by the Association's 
electronic filing system.
    (B) Any person filing documents pursuant to paragraph (b)(5) above 
shall [file with the Association written notice] notify the association 
through its electronic filing system that the offering has been 
declared effective or approved by the Commission or other agency no 
later than one business day following such declaration or approval or 
that the offering has been withdrawn or abandoned within three business 
days following the withdrawal decision to abandon the offering.

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 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. 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

Background

    The Corporate Financing Rule regulate the underwriting terms and 
arrangements of public offerings of securities. The Rule requires 
members to file multiple copies of documents such as registration 
statements and other supplemental information with the Corporate 
Financing Department for most public offerings.
    The Department reviews the filings to ensure compliance with NASD 
Rules, including Rules 2710, 2720, and 2810.\4\ These rules require 
underwriters and their counsel to submit specified documents to the 
Department, such as registration statements and other documents 
describing the underwriting and other arrangements relating to 
distributions. The Department receives thousands of packages and 
letters each year in paper form from underwriters and their counsel. 
Before the Department deployed its electronic filing system, members 
and their counsel had to send these documents and information by 
regular mail, courier or fax.
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    \4\ NASD Rule 2720 regulates corporate public offerings of 
securities where a participating member may have a conflict of 
interest. NASD Rule 2810 regulates public offerings of direct 
participation program securities.
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    In June 1999, the Department deployed the Corporate Offerings 
Business Regulatory Analysis System (``COBRA'') to permit members and 
their counsel to file information electronically with the Department 
and to permit the staff to access any documents filed with the SEC 
through EDGAR. On April 30, 2001, the Department deployed a Web-based 
application of the COBRA system. The system consists of an internal 
software application used by the Department and ``Web COBRADesk,'' a 
user interface that permits members and their counsel to file offerings 
from their offices over the Internet.
    Members' use of the electronic filing system has greatly 
facilitated the Department's review of filings. Filings made through 
Web COBRADesk automatically enter the Department's database for review 
by the staff. By contrast, for paper filings, the staff must manually 
enter information into the COBRA system, which delays its review.
    Web COBRADesk eliminates the need for members to file registration 
statements with the Department if the registration statement already 
has been filed with the SEC using EDGAR. Filers simply provide the 
Department with an EDGAR accession number when they file the original 
registration statement, subsequent amendments, and final prospectus. 
COBRA allows the staff to link to each document for review. Using 
COBRADesk significantly reduces members' printing and delivery expenses 
related to Corporate Financing

[[Page 44659]]

review. In addition, the system provides each filer with a local 
electronic database of the information it has filed with the 
Department. NASD Regulation District examiners, Enforcement staff and 
other internal users also can access the filing information as needed.
    Since its implementation, COBRA has improved the efficiency of the 
review process for electronic filings, decreased review time, and 
reduced the amount of paper correspondence and documents that members 
must file with the Department. The system has operated as a faster and 
more efficient mechanism for communication between filers and NASD 
Regulation.

Description of Proposed Amendments

    NASD Regulation is proposing to amend NASD Rule 2710(b)(6) to 
require members to file information required by subparagraph (b)(6) 
with the Department through its electronic filing system. The 
obligation to file information electronically that is proposed in 
subparagraph (b)(6) would apply to all offerings subject to the Rule's 
filing requirements, regardless of whether the offering is exempt from 
registration with the SEC or is submitted confidentially to the SEC for 
review.
    NASD Regulation also is proposing to adopt new subparagraph 
(b)(5)(B) of Rule 2710 to provide that all documents that are filed 
with the SEC through the EDGAR system shall be treated as filed with 
the Association. Members that do not file documents with the SEC 
through EDGAR would remain obligated to continue to submit multiple 
copies of any required documents in paper format. However, NASD 
Regulation is proposing to amend NASD Rule 2710(b)(5)(A) (ii) and (iii) 
to reduce the number of required copies of these documents from five to 
three.

Implementation

    NASD Regulation has hosted several training sessions to provide 
opportunities for members and their counsel to learn how to file 
offerings using COBRADesk. In addition, certain Department staff 
members are dedicated to assisting filers when they access and navigate 
the system. Prior to and following Commission approval of the proposed 
rule change, the Department will provide additional training sessions 
and providing continuing support and assistance to members and their 
counsel who have questions and are unfamiliar with the system.
    The NASD will publish a Notice To Members within 30 days of 
Commission approval announcing the proposed rule change and providing 
an effective date within 60 days of Commission approval.
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 the proposed rule change will facilitate the Association's review 
of public offerings of securities and assist the Association to 
maintain a confidential, nonpublic database of information related to 
such filings.
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    \5\ 15 U.S.C. 78o-3.
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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 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 neither solicited nor 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 NASD Regulation 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-2001-46 and should be 
submitted by September 14, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-21369 Filed 8-23-01; 8:45 am]
BILLING CODE 8010-01-M