[Federal Register Volume 67, Number 33 (Tuesday, February 19, 2002)]
[Notices]
[Pages 7436-7438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3868]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45431; File No. SR-NASD-2002-16]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Clarify the Income-Based Listing Standards 
of The Nasdaq Stock Market

February 11, 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 February 6, 2002, the National Association of Securities Dealers, 
Inc. (``NASD''),

[[Page 7437]]

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) under 
the Act,\3\ which renders it effective immediately upon filing. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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 to 
clarify Nasdaq's income-based listing standards. Text of the proposed 
rule change appears below. New language is italicized; deletions are 
bracketed.
* * * * *

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) No change
    (2)(A) For initial inclusion, the issuer shall have:
    (i)-(ii) No change.
    (iii) net income from continuing operations of $750,000 [(excluding 
extraordinary or non-recurring items)] in the most recently completed 
fiscal year or in two of the last three most recently completed fiscal 
years.
    (B) For continued inclusion, the issuer shall maintain:
    (i)-(ii) No change.
    (iii) net income from continuing operations of $500,000 [(excluding 
extraordinary or non-recurring items)] in the most recently completed 
fiscal year or in two of the last three most recently completed fiscal 
years.
* * * * *

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 paragraph (a), (b) 
or (c), and (d), the security shall satisfy the following criteria for 
inclusion in Nasdaq:
    (1) No change
    (2)(A) For initial inclusion, the issuer shall have:
    (i) stockholders' equity of U.S. $5 million;
    (ii) No change
    (iii) net income from continuing operations of U.S. $750,000 
[(excluding extraordinary or non-recurring items)] in the most recently 
completed fiscal year or in two of the last three most recently 
completed fiscal years.
    (B) For continued inclusion, the issuer shall maintain:
    (i) stockholders' equity of U.S. $2.5 million;
    (ii) No change
    (iii) net income from continuing operations of U.S. $500,000 
[(excluding extraordinary or non-recurring items)] in the most recently 
completed fiscal year or in two of the last three most recently 
completed fiscal years.
* * * * *

4420. Quantitative Designation Criteria

    In order to be designated for the Nasdaq National Market, an issuer 
shall be required to substantially meet the criteria set forth in 
paragraphs (a), (b), (c), (d), (e), (f), or (g) below. Initial Public 
Offerings substantially meeting such criteria are eligible for 
immediate inclusion in the Nasdaq National Market upon prior 
application and with the written consent of the managing underwriter 
that immediate inclusion is desired. All other qualifying issues, 
excepting special situations, are included on the next inclusion date 
established by Nasdaq.
(a) Entry Standard 1
    (1) The issuer of the security had annual [pre-tax] income from 
continuing operations before income taxes of at least $1,000,000 
[(excluding extraordinary or non-recurring items)] in the most recently 
completed fiscal year or in two of the last three most recently 
completed fiscal years.
    (2)-(7) No change
* * * * *

I. 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
    The purpose of the proposed rule change is to provide greater 
transparency to Nasdaq's income-based listing standards. Nasdaq rules 
currently exclude non-recurring items from the income listing 
standards. These standards, however, lack transparency, as the term 
``non-recurring'' is not defined in Generally Accepted Accounting 
Principles (``GAAP''). Since the intent of the income listing standards 
is to capture income from continuing operations, Nasdaq proposes to 
amend these standards to use the term ``income from continuing 
operations'' rather than to exclude non-recurring items. As defined 
under GAAP, the term ``income from continuing operations'' excludes 
discontinued operations, extraordinary items, and the cumulative effect 
from changes in accounting principles. Nasdaq believes that the 
proposed amendments to its initial and continued inclusion income 
listing standards will help to clarify these listing standards for 
issuers and investors.
    The proposed rule change also clarifies that the equity listing 
standard for non-Canadian foreign securities and American Depositary 
Receipts is based on U.S. dollars.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) of the Act\4\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest. As previously noted, 
Nasdaq is proposing to amend the income-based listing standards to

[[Page 7438]]

provide greater clarity and transparency for issuers, their counsel, 
and investors.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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.

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 \5\ and paragraph 
(f)(6) of Rule 19b-4 thereunder,\6\ 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.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
    \7\ In addition, Rule 19b-4(f)(6) requires that the self-
regulatory organization give the Commission five days' written 
notice of its intent to file the proposed rule change. The NASD, 
through Nasdaq, complied with this requirement. See e-mail from John 
Nachmann, Senior Attorney Nasdaq, to Florence Harmon, Senior Special 
Counsel, Division of Market Regulation, Commission, dated January 4, 
2002.
---------------------------------------------------------------------------

    Nasdaq has requested that the Commission waive the 30 day pre-
operative period, which would make the proposed 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.\8\ The Commission believes that the 
new rule will provide greater transparency to Nasdaq's listing 
standards, thereby reducing uncertainty for issuers and investors.
---------------------------------------------------------------------------

    \8\ 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).
---------------------------------------------------------------------------

    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-2002-16 and 
should be submitted by March 12, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3868 Filed 2-15-02; 8:45 am]
BILLING CODE 8010-01-P