[Federal Register Volume 67, Number 28 (Monday, February 11, 2002)]
[Notices]
[Pages 6306-6309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3235]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45387; File No. SR-NASD-2002-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the National Association of 
Securities Dealers, Inc., Relating to the Bid Price Criteria of Nasdaq 
Listing Standards

February 4, 2002.
    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 January 17, 2002, the National Association of Securities Dealers, 
Inc. (``NASD''), 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. Nasdaq has 
designated this proposed rule change as ``non-controversial'' pursuant 
to Rule 19b-4(f)(6) of the Act,\3\ which renders it effective 
immediately upon

[[Page 6307]]

filing. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify the grace period within which an issuer 
must demonstrate compliance with the bid price criteria on the Nasdaq 
SmallCap Market and to clarify the procedures pursuant to which Nasdaq 
National Market issuers transfer to the SmallCap Market for failing to 
comply with the bid price requirement. Nasdaq further proposes that 
this rule operate on a pilot basis ending on December 31, 2003. Nasdaq 
has represented that, during the pilot period, it will assess the 
effectiveness of these changes.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed 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)--(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)--(7) No change.
    (8)(A) A failure to meet the continued inclusion requirement[s] for 
a number of market makers shall be determined to exist only if the 
deficiency continues for a period of 10 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 30 calendar days from such notification to achieve compliance 
[with the applicable continued inclusion standard]. Compliance can be 
achieved by meeting the applicable standard for a minimum of 10 
consecutive business days during the 30-day compliance period.
    (B) A failure to meet the continued inclusion requirement[s] for 
[minimum bid price and] market value of publicly held shares [float] 
shall be determined to exist only if the deficiency [for the applicable 
criterion] continues for a period of 30 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 90 calendar days from such notification to achieve compliance 
[with the applicable continued inclusion standard]. Compliance can be 
achieved by meeting the applicable standard for a minimum of 10 
consecutive business days during the 90-day compliance period.
    (C) A failure to meet the continued inclusion requirement[s] for 
market capitalization shall be determined to exist only if the 
deficiency continues for a period of 10 consecutive business days. Upon 
such failure, the issuer shall be notified promptly and shall have a 
period of 30 calendar days from such notification to achieve compliance 
[with the applicable continued inclusion standard]. Compliance can be 
achieved by meeting the applicable standard for a minimum of 10 
consecutive business days during the 30-day compliance period.
    (D) A failure to meet the continued inclusion requirement for 
minimum bid price on The Nasdaq SmallCap Market shall be determined to 
exist only if the deficiency continues for a period of 30 consecutive 
business days. Upon such failure, the issuer shall be notified promptly 
and shall have a period of 180 calendar days from such notification to 
achieve compliance. If the issuer has not been deemed in compliance 
prior to the expiration of the 180 day compliance period, it will be 
afforded an additional 180 day compliance period, provided that on the 
180th day following the notification of the deficiency, the issuer 
meets any of the three criteria for initial inclusion set forth in Rule 
4310(c)(2)(A), based on the issuer's most recent publicly filed 
financial information. Compliance can be achieved during either 180-day 
compliance period by meeting the applicable standard for a minimum of 
10 consecutive business days.
    (9)--(29) No change.
    (d) No change.

4450.  Quantitative Maintenance Criteria

    After designation as a Nasdaq National Market security, a security 
must substantially meet the criteria set forth in paragraphs (a) or 
(b), and (c), (d), [(e),] and (f) below to continue to be designated as 
a national market system security. A security maintaining its 
designation under paragraph (b) need not also be in compliance with the 
quantitative maintenance criteria in the Rule 4300 series.
    (a) Maintenance Standard 1--Common Stock, Preferred Stock, Shares 
or Certificates of Beneficial Interest of Trusts and Limited 
Partnership Interests in Foreign or Domestic Issues
    (1) `` (5) No change
    (6) At least two registered and active market makers.
    (b)--(d) No change.
    (e) Compliance Periods [Market Makers]
    (1) A failure to meet the continued inclusion requirement for 
market value of publicly held shares shall be determined to exist only 
if the deficiency continues for a period of 30 consecutive business 
days. Upon such failure, the issuer shall be notified promptly and 
shall have a period of 90 calendar days from such notification to 
achieve compliance. Compliance can be achieved by meeting the 
applicable standard for a minimum of 10 consecutive business days 
during the 90-day compliance period.
    (2) A failure to meet the continued inclusion requirement for 
minimum bid price shall be determined to exist only if the deficiency 
continues for a period of 30 consecutive business days. Upon such 
failure, the issuer shall be notified promptly and shall have a period 
of 90 calendar days from such notification to achieve compliance. 
Compliance can be achieved by meeting the applicable standard for a 
minimum of 10 consecutive business days during the 90-day compliance 
period. If the issuer has not been deemed in compliance prior to the 
expiration of the 90 day compliance period, it may transfer to The 
Nasdaq SmallCap Market, provided that it meets all applicable 
requirements for continued inclusion on the SmallCap Market set forth 
in Rule 4310(c) (other than the minimum bid price requirement of Rule 
4310(c)(4)) or Rule 4320(e), as applicable. A Nasdaq National Market 
issuer transferring to The Nasdaq SmallCap Market must pay the entry 
fee set forth in Rule 4520(a). Upon such transfer, a domestic or 
Canadian Nasdaq National Market issuer transferring to The Nasdaq 
SmallCap Market will be afforded the remainder of the initial 180 day 
compliance period set forth in Rule 4310(c)(8)(D) and may thereafter be 
eligible for the subsequent 180 day compliance period pursuant to that 
rule. The issuer may also request a hearing to remain on The Nasdaq 
National Market pursuant to the Rule 4800 Series. The 90-day grace 
period afforded by this rule and any time spent in the hearing process 
will be deducted from the applicable grace periods on The Nasdaq 
SmallCap Market. Non-Canadian foreign issuers that transfer to The 
Nasdaq SmallCap Market are not subject to the $1 minimum bid price 
requirement pursuant to Rule 4320. Any issuer (including a non-Canadian 
foreign issuer) that was formerly listed on The Nasdaq National Market, 
and which transferred to The Nasdaq SmallCap Market pursuant to this

[[Page 6308]]

paragraph, may transfer back to The Nasdaq National Market without 
satisfying the initial inclusion criteria if it maintains compliance 
with the $1 bid price requirement for a minimum of 30 consecutive 
business days prior to the expiration of the compliance periods 
described in Rule 4310(c)(8)(D) and if it has continually maintained 
compliance with all other requirements for continued listing on The 
Nasdaq National Market since being transferred. Such an issuer is not 
required to pay the entry fee set forth in Rule 4510(a) upon 
transferring back to The Nasdaq National Market.
    (3) [At least two registered and active market makers, except that 
an issue must have at least four registered and active market makers to 
satisfy Maintenance Standard 2 under paragraph (b) of this rule.] A 
failure to meet the continued inclusion requirement[s] for a number of 
market makers shall be determined to exist only if the deficiency 
continues for a period of 10 consecutive business days. Upon such 
failure, the issuer shall be notified promptly and shall have a period 
of 30 calendar days from such notification to achieve compliance. [with 
the applicable standard.] Compliance can be achieved by meeting the 
applicable standard for a minimum of 10 consecutive business days 
during the 30-day compliance period.
* * * * *

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
    On September 27, 2001, the NASD implemented a temporary moratorium 
on Nasdaq's enforcement of its continued listing requirements relating 
to the bid price and the market value of the public float.\4\ Nasdaq 
has stated that this moratorium was established to provide greater 
stability to the marketplace in response to the extraordinary market 
conditions following the tragedy of September 11th. Authority for the 
moratorium expired on January 2, 2002. After careful consideration, 
Nasdaq concluded that the requirements relating to a minimum bid price 
and market value of the public float continue to be useful. In 
particular, Nasdaq believes that the 90-day grace period for National 
Market issuers to regain compliance with these requirements is 
commensurate with the stature and integrity of the market.
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    \4\ See Securities Exchange Act Release No. 44857 (September 27, 
2001), 66 FR 50485 (October 3, 2001) (SR-NASD-2001-61).
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    Nasdaq, however, proposes to modify the grace period applicable to 
the bid price requirement on the SmallCap Market. Generally, the 
listing standards on the SmallCap Market are lower than those on the 
Nasdaq National Market. As a result, issuers that become non-compliant 
with National Market listing standards are often afforded an 
opportunity to ``phase down'' to the SmallCap Market to take advantage 
of the lower standards applicable to that market. In the case of the 
minimum bid price, however, the standards are currently identical. 
Thus, a National Market issuer that fails to meet the National Market 
bid price requirement will also fail to meet the SmallCap bid price 
requirement and be forced to go to an unlisted, less transparent 
market. To ameliorate this inconsistency and to provide Nasdaq National 
Market companies with more time to develop and implement a turn-around 
plan, Nasdaq is proposing to allow companies up to one year to regain 
compliance with the minimum bid price requirement. In addition, Nasdaq 
is proposing to codify procedures pursuant to which a National Market 
issuer could transfer to the SmallCap Market if it did not meet the 
National Market bid price requirement.
    Specifically, Nasdaq proposes the following changes to the SmallCap 
Market bid price grace periods:
     Extend the grace period on the SmallCap Market from 90 
calendar days to 180 calendar days. Following this grace period, an 
issuer that demonstrates compliance with the SmallCap Market initial 
inclusion requirement of $5,000,000 in shareholders' equity; 
$50,000,000 in market capitalization; or $750,000 in net income in the 
most recently completed fiscal year or in two of the last three most 
recently completed fiscal years, will be afforded an additional grace 
period of 180 calendar days within which to regain compliance.
     If a Nasdaq National Market issuer is unable to regain 
compliance within the existing grace period of 90 days, the issuer 
could phase down to the SmallCap Market and be afforded the remainder 
of the 180 calendar days automatically afforded to all SmallCap 
issuers. An additional 180 calendar days would then be available, 
provided the former National Market issuer were able to demonstrate 
compliance with the SmallCap Market initial inclusion requirement noted 
above.
     In the event the former National Market issuer were able 
to demonstrate compliance with the $1 bid price requirement for 30 
consecutive trading days prior to the expiration of all the SmallCap 
Market grace periods, and the issuer could demonstrate that it had 
maintained compliance with all Nasdaq National Market maintenance 
requirements (with the exception of minimum bid price) at all times 
since it was phased-down to the SmallCap Market, it would then be 
eligible to phase-up to the Nasdaq National Market pursuant to the 
maintenance criteria.
    Nasdaq proposes that these changes be implemented on a pilot basis, 
through December 31, 2003. This will allow Nasdaq and the Commission to 
evaluate the effectiveness of these changes on market participants.\5\
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    \5\ Nasdaq has indicated that it ``intends to analyze the impact 
of the proposed rule during the pilot period, to determine whether 
it makes sense to seek permanent approval of the rule.'' Letter from 
Sara Nelson Bloom, Associate General Counsel, Nasdaq, to Katherine 
A. England, Assistant Director, Division of Market Regulation, 
Commission, dated January 31, 2002. Nasdaq also stated that it 
``would examine those Nasdaq National Market companies that phase 
down to the SmallCap market, and then are able to return to the 
National Market pursuant to the provisions of the pilot rule * * * 
and would share the results of this examination with the Commission 
staff on a confidential basis prior to seeking authority for a 
permanent rule.'' Id.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) of the Act \6\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest. Nasdaq has stated that it 
is proposing this rule change to minimize the impact on issuers in the 
marketplace and their shareholders, while providing greater 
transparency and consistency.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change would result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

[[Page 6309]]

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

    Nasdaq asserts that the proposed rule change is effective upon 
filing pursuant to section 19(b)(3)(A) of the Act \7\ and paragraph 
(f)(6) of Rule 19b-4 thereunder,\8\ because the proposed rule change: 
(1) Does not significantly affect the protection of investors or the 
public interest; (2) does not impose any significant burden on 
competition; and (3) does not become operative for 30 days after the 
date of the filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6)
    \9\ In addition, Rule 19b-4(f)(6) requires the self-regulatory 
organization to give the Commission written notice of its intent to 
file the proposed rule change at least five business days prior to 
the date of filing of such proposed rule change, or such shorter 
time as designated by the Commission. Nasdaq filed with the 
Commission an earlier iteration of the proposed rule change (SR-
NASD-2001-94) which was later withdrawn. The Commission deems the 
submission of SR-NASD-2001-94 to fulfill the five-day pre-filing 
notice requirement for the present filing, SR-NASD-2002-13.
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    Nasdaq has requested that the Commission waive the 30-day period, 
which would make the rule operative immediately. The Commission finds 
that it is consistent with the protection of investors and the public 
interest to waive the 30-day pre-operative period in this case.\10\ The 
Commission believes that no purpose would be served by having 30 days 
pass before the rule becomes operative because, during the intervening 
period, issuers and investors could become confused as to which grace 
periods applied. Allowing the rule to become operative immediately will 
allow Nasdaq to explain its bid price requirements more clearly to 
issuers that might have need of the grace period.
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    \10\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
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    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, 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 and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-2002-13 and 
should be submitted by March 4, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3235 Filed 2-8-02; 8:45 am]
BILLING CODE 8010-01-P