[Federal Register Volume 67, Number 152 (Wednesday, August 7, 2002)]
[Notices]
[Pages 51306-51310]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19890]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46288; File No. SR-NASD-2002-85]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Issuer Disclosure of Material Information

July 31, 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 June 26, 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. 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 proposes to modify its rules pertaining to issuer disclosure 
of material information. The text of the proposed rule change is below. 
Proposed additions are in italics; proposed deletions are in brackets.
4120. Trading Halts
    (a) No change.
    (b) Procedure for Initiating a Trading Halt
    (1) Nasdaq issuers are required to notify Nasdaq of the release of 
[any] certain material news prior to the release of such information to 
the [press] public as required by Rules 4310(c)(16) and 4320(e)(14).
    (2) Notification shall be provided directly to Nasdaq's MarketWatch 
Department by telephone, facsimile, or other compatible means of 
electronic communication.* Information communicated orally by 
authorized representatives of a Nasdaq issuer should be confirmed 
promptly in writing.
    *Notification may be provided to the MarketWatch Department by 
telephone 1-800-537-3929 and (240) 386-6046. Between 7 p.m. and [8] 
7:30 a.m. Eastern Time, voice mail messages may be left on either 
number. The fax number is (240) 386-604[6]7.
    (3)--(6) No change
IM-4120-1. Disclosure of Material Information
    Rules 4310(c)(16) and 4320(e)(14) require that, except in unusual 
circumstances, Nasdaq issuers disclose promptly to the public through 
[the news media] any Regulation FD compliant method (or combination of 
methods) of disclosure any material information which would reasonably 
be expected to affect the value of their securities or influence 
investors' decisions. [and that] Nasdaq issuers shall notify Nasdaq of 
the release of [any] such material information that involves any of the 
events set forth below prior to its release to the public [through the 
news media]. Nasdaq recommends that Nasdaq issuers provide such 
notification at least ten minutes before such release.** Under unusual 
circumstances issuers may not be required to make public disclosure of 
material events; for example, where it is possible to maintain 
confidentiality of those events and immediate public disclosure would 
prejudice the ability of the company to pursue its corporate 
objectives. However, Nasdaq issuers remain obligated to disclose this 
information to Nasdaq upon request pursuant to Rules 4310(c)(15) or 
4320(e)(13).
    Whenever unusual market activity takes place in a Nasdaq issuer's 
securities, the issuer normally should determine whether there is 
material information or news that should be disclosed. If rumors or 
unusual market activity indicate that information on impending 
developments has become known to the investing public, or if 
information from a source other than the issuer becomes known to the 
investing public, a clear public announcement may be required as to the 
state of negotiations or development of issuer plans. Such an 
announcement may be required, even though the issuer may not have 
previously been advised of such information or the matter has not yet 
been presented to the issuer's Board of Directors for consideration. It 
may also be appropriate, in certain circumstances, to publicly deny 
false or inaccurate rumors which are likely to have, or have had, an 
effect on the trading in its securities or would likely have an 
influence on investment decisions.

Trading Halts

    A trading halt benefits current and potential shareholders by 
halting all trading in any Nasdaq securities until there has been an 
opportunity for the information to be disseminated to the public. This 
decreases the possibility of

[[Page 51307]]

some investors acting on information known to them but which is not 
known to others. A trading halt provides the public with an opportunity 
to evaluate the information and consider it in making investment 
decisions. It also alerts the marketplace to the fact that news has 
been released.
    Nasdaq's MarketWatch Department monitors real time trading in all 
Nasdaq securities during the trading day for price and volume activity. 
In the event of certain price and volume movements, the MarketWatch 
Department may contact an issuer and its market makers in order to 
ascertain the cause of the unusual market activity. The MarketWatch 
Department treats the information provided by the issuer and other 
sources in a highly confidential manner, and uses it to assess market 
activity and assist in maintaining fair and orderly markets. A Nasdaq 
listing includes an obligation to disclose to the MarketWatch 
Department information that the issuer is not otherwise disclosing to 
the investing public or the financial community. On occasion, changes 
in market activity prior to the issuer's release of material 
information may indicate that the information has become known to the 
investing public. Changes in market activity also may occur when there 
is a release of material information by a source other than the issuer, 
such as when a Nasdaq issuer is subject to an unsolicited take-over bid 
by another company. Depending on the nature of the event and the 
issuer's views regarding the business advisability of disclosing the 
information, the MarketWatch Department may work with the issuer to 
accomplish a timely release of the information. Furthermore, depending 
on the materiality of the information and the anticipated affect of the 
information on the price of the issuer's securities, the MarketWatch 
Department may advise the issuer that a temporary trading halt is 
appropriate to allow for full dissemination of the information and to 
maintain an orderly market. The institution of a temporary trading halt 
pending the release of information is not a reflection on the value of 
the securities halted. Such trading halts are instituted, among other 
reasons, to insure that material information is fairly and adequately 
disseminated to the investing public and the marketplace, and to 
private investors with the opportunity to evaluate the information in 
making investment decisions. A trading halt normally lasts one half 
hour but may last longer if a determination is made that news has not 
been adequately disseminated or that the original or an additional 
basis under Rule 4120 exists for continuing the trading halt.
    The MarketWatch Department is required to keep non-public 
information confidential and to use such information only for 
regulatory purposes.
    [Material information which would reasonably be expected to affect 
the value of the securities of an issuer or influence investors' 
decisions would include information regarding issuer events of an 
unusual and/or nonrecurrent nature. ] Issuers are required to notify 
the MarketWatch Department of the release of material information 
included in the following list of events prior to the release of such 
information to the public. [The following list of events, while not an 
exhaustive summary of all situations in which disclosure to Nasdaq 
should be considered, may be helpful in determining whether information 
is material.] It should also be noted that every development that might 
be reported to Nasdaq in these areas would not necessarily be deemed to 
warrant a trading halt. In addition to the following list of events, 
Nasdaq encourages issuers to avail themselves of the opportunity for 
advance notification to the MarketWatch Department in situations where 
they believe, based upon their knowledge of the significance of the 
information, that a temporary trading halt may be necessary or 
appropriate.
    [ a merger, acquisition or joint venture;
     a stock split or stock dividend;
     earnings and dividends of an unusual nature;
     the acquisition or loss of a significant contract;
     a significant new product or discovery;
     a change in control or a significant change in management;
     a call of securities for redemption;
     the public or private sale of a significant amount of 
additional securities;
     the purchase or sale of a significant asset;
     a significant labor dispute;
     establishment of a program to make purchases of the 
issuer's own shares;
     a tender offer for another issuer's securities; and
     an event requiring the filing of a current report under 
the Act.]
    (a) Financial-related disclosures, including quarterly or yearly 
earnings, earnings restatements, pre-announcements or ``guidance.''
    (b) Corporate reorganizations and acquisitions, including mergers, 
tender offers, asset transactions and bankruptcies or receiverships.
    (c) New products or discoveries, or developments regarding 
customers or suppliers (e.g., significant developments in clinical or 
customer trials, and receipt or cancellation of a material contract or 
order).
    (d) Senior management changes of a material nature or a change in 
control.
    (e) Resignation or termination of independent auditors, or 
withdrawal of a previously issued audit report.
    (f) Events regarding the issuer's securities--e.g., defaults on 
senior securities, calls of securities for redemption, repurchase 
plans, stock splits or changes in dividends, changes to the rights of 
security holders, or public or private sales of additional securities.
    (g) Significant legal or regulatory developments.
    (h) Any event requiring the filing of a Form 8-K.

Use of Regulation FD Compliant Methods in the Disclosure of Material 
Information

    Regardless of the method of disclosure that an issuer chooses to 
utilize, issuers are required to notify the MarketWatch Department of 
the release of material information that involves any of the events set 
forth above prior to its release to the public. Nasdaq recommends that 
issuers provide such notification at least ten minutes before such 
release. When an issuer chooses to utilize a Regulation FD compliant 
method for disclosure other than a press release or Form 8-K, the 
issuer will be required to provide prior notice to the MarketWatch 
Department of: (1) the press release announcing the logistics of the 
future disclosure event; and (2) a descriptive summary of the material 
information to be announced during the disclosure event if the press 
release does not contain such a summary.
    Depending on the materiality of the information and the anticipated 
effect of the information on the price of the issuer's securities, the 
MarketWatch Department may advise the issuer that a temporary trading 
halt is appropriate to allow for full dissemination of the information 
and to maintain an orderly market. The MarketWatch Department will 
assess with issuers utilizing methods of disclosure other than a press 
release or Form 8-K the timing within the disclosure event when the 
issuer will cover the material information so that the halt can be 
commenced accordingly. Issuers will be responsible for promptly 
alerting the MarketWatch Department of any significant changes to the 
previously outlined disclosure timeline. Issuers are reminded that the 
posting of information on its own website is not by

[[Page 51308]]

itself considered a sufficient method of public disclosure under 
Regulation FD, and as a result, under Nasdaq rules.
[Use of the Internet in the Disclosure of Material Information
    While Nasdaq requires that its listed issuers disseminate material 
press releases over one of the major news wires, Nasdaq recognizes the 
increased utilization of the Internet as a vehicle for additional news 
dissemination. The Internet is a valuable disclosure resource that can 
enhance the orderly dissemination of material information for all 
shareholders and market participants.
    Issuers can and should provide shareholders direct access to 
corporate disclosures via their Internet home pages and web sites.
    To ensure a level playing field for all investors in Nasdaq 
companies, however, this policy on disclosure of corporate information 
requires that the use of the Internet to disseminate material press 
releases is appropriate provided the information is not made available 
over the Internet before the same information is transmitted to, and 
received by, the traditional news vendor services. Issuers must still 
notify Nasdaq at least ten minutes prior to the release of any 
information that would reasonably be expected to affect the value of 
securities or influence investors' decisions, as indicated in this 
policy.]
    **Notification may be provided to the MarketWatch Department by 
telephone 1-800-537-3929 and (240) 386-6046. Between 7 p.m. and [8] 
7:30 a.m. Eastern Time, voice mail messages may be left on either 
number. Information communicated orally should be confirmed promptly in 
writing. The fax number is (240) 386-604[6]7.
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)-(15) No change.
    (16) Except in unusual circumstances, the issuer shall make prompt 
disclosure to the public through [the news media] any Regulation FD 
compliant method (or combination of methods) of disclosure of any 
material information that would reasonably be expected to affect the 
value of its securities or influence investors' decisions [and shall]. 
The issuer shall, prior to the release of the information, provide 
notice of such disclosure to Nasdaq's MarketWatch Department if the 
information involves any of the events set forth in IM-4120-1.*
    * [This notice shall be made to Nasdaq's MarketWatch Department at 
9509 Key West Avenue, Rockville, Maryland 20850-3351. The telephone 
numbers are] Notification may be provided to the MarketWatch Department 
by telephone 1-800-537-3929 and (240) 386-6046. Between 7 p.m. and [8] 
7:30 a.m. Eastern Time, voice mail messages may be left on either 
number. The fax number is (240) 386-6047.
    (17)-(29) No change.
    (d) No change.
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)-(13) No change.
    (14) Except in unusual circumstances, the issuer shall make prompt 
disclosure to the public in the United States through [international 
wire services or similar disclosure media] any Regulation FD compliant 
method (or combination of methods) of disclosure of any material 
information that would reasonably be expected to affect the value of 
its securities or influence investors' decisions [and shall]. The 
issuer shall, prior to the release of the information, provide notice 
of such disclosure to Nasdaq if the information involves any of the 
events set forth in IM-4120-1.*
    *[This notice shall be made to Nasdaq's MarketWatch Department at 
9509 Key West Avenue, Rockville, Maryland 20850-3351. The telephone 
numbers are] Notification may be provided to the MarketWatch Department 
by telephone 1-800-537-3929 and (240) 386-6046. Between 7 p.m. and [8] 
7:30 a.m. Eastern Time, voice mail messages may be left on either 
number. The fax number is (240) 386-6047.
    (15)-(25) No change.
    (f) 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
    Regulation Fair Disclosure (``Regulation FD'' or ``Reg FD'') was 
adopted by the SEC in order to curb the selective disclosure of 
material non-public information by issuers to analysts and 
institutional investors. Generally, Regulation FD requires that when an 
issuer discloses material information, it do so publicly. Public 
disclosure under Reg FD can be accomplished by filing a Form 8-K with 
the SEC or through another method of disclosure that is reasonably 
designed to provide broad, non-exclusionary distribution of the 
information to the public.
    Nasdaq has determined to harmonize its rules pertaining to issuer 
disclosure of material information with Reg FD by allowing issuers to 
disseminate material information via the same means permitted under Reg 
FD. Nasdaq also proposes to revise the list of material events set 
forth in IM-4120-1 and require issuers to provide prior notification to 
the MarketWatch Department only for information that involves any of 
the material events set forth in this list.
    Disclosure of Material Information. Currently, Nasdaq rules require 
that, except in unusual circumstances, Nasdaq listed companies promptly 
disclose to the public through the news media any material information 
which would reasonably be expected to affect the value of their 
securities or influence investors' decisions.\3\ This disclosure must 
be made via a press release that is distributed through news services 
such as Dow Jones, Reuters, Bloomberg, Business Wire or PR Newswire. In 
order

[[Page 51309]]

to provide issuers with the flexibility afforded under Regulation FD, 
Nasdaq proposes to modify its rules in order to recognize all Reg FD 
compliant disclosure methods as a means for issuer compliance with 
Nasdaq disclosure obligations. In addition to a broadly disseminated 
press release, Reg FD compliant methods of disclosure include 
furnishing to or filing with the SEC a Form 8-K as well as conference 
calls, press conferences and webcasts, so long as the public is 
provided adequate notice (generally by press release) and granted 
access.\4\
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    \3\ See IM-4120-1.
    \4\ Securities Exchange Act Release No. 43154 (August 15, 2000), 
65 FR 51716 (August 24, 2000) at 51724.
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    By aligning Nasdaq disclosure options with those outlined in Reg 
FD, Nasdaq will enable issuers to recognize the benefits of utilizing 
current technologies as part of a comprehensive issuer disclosure 
strategy. In addition, issuer confusion between Reg FD compliant and 
Nasdaq compliant disclosure plans will be minimized. Lastly, allowing 
Nasdaq issuers to use Regulation FD compliant methods of disclosure 
will address the concerns that have been raised regarding self-
regulatory organization rules overriding the flexibility provided by 
Reg FD.\5\
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    \5\ See e.g., Unger, Special Study: Regulation Fair Disclosure 
Revisited (December 2001).
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    Irrespective of the method of disclosure, issuers will be required 
to provide prior notification of certain planned material news 
announcements to the MarketWatch Department prior to their release to 
the public.\6\ Issuers using a press release or Form 8-K must notify 
MarketWatch by faxing the press release or Form 8-K, or providing the 
material information by phone prior to public dissemination.\7\ When 
using a conference call, press conference or Web cast as the primary 
means for disclosure, issuers will be required to provide prior notice 
to MarketWatch of:
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    \6\ Nasdaq recommends that issuers provide such information at 
least 10 minutes before the release of the information to the 
public.
    \7\ Information communicated orally should be confirmed promptly 
in writing.

--The press release announcing the future conference call, press 
conference or Web cast; and
--A descriptive summary of the material elements to be announced in the 
call, press conference or Web cast if the press release does not 
contain a summary.

    MarketWatch will continue to evaluate the materiality of these 
disclosures and implement temporary trading halts, where appropriate, 
to facilitate the orderly dissemination of certain issuer announcements 
having a potentially material impact on the price of the securities.\8\ 
MarketWatch will assess with issuers using press conferences, 
conference calls and webcasts the timing during the event where the 
issuer will cover the material points. For example, if an issuer plans 
to commence discussing the material information ten minutes into the 
event and expects it to take fifteen minutes to address, MarketWatch 
will coordinate the resumption of trading (usually thirty minutes 
following dissemination of the material news) based on the material 
news being covered twenty-five minutes after the start of the event.\9\ 
If a press release announcing a future conference call, press 
conference or webcast contains details of the essential material 
disclosure, Nasdaq may halt trading for dissemination of this 
statement. In that instance, trading would not be halted again for the 
subsequent press conference, conference call or webcast.
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    \8\ Separate from this filing, Nasdaq will soon be seeking 
public comment on several issues related to trading halts, including 
a possible pilot halt-free period during the after hours trading 
session, the length of halts, and the procedure for resumption of 
trading following a halt.
    \9\ It will be the issuer's responsibility to promptly alert 
MarketWatch of any significant changes to a previously outlined 
disclosure timeline.
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    MarketWatch Notification Categories. Nasdaq rules currently require 
issuers to notify Nasdaq of the release of any material information 
prior to its release to the public.\10\ Prior notification allows 
Nasdaq's MarketWatch Department to determine whether a temporary 
trading halt of an issuer's securities is appropriate to allow the full 
dissemination of the information to the public. In order to assist 
issuers in determining whether information is material, IM-4120-1 
currently provides a non-exhaustive list of events that may affect the 
value of an issuer's securities or influence investors' decisions. 
Nasdaq proposes to revise the list set forth in IM-4120-1 and require 
issuers to provide prior notification to MarketWatch only of material 
information that involves the events set forth in this list.
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    \10\ See IM-4120-1.
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    The revised list is comprised of the events that are expected to 
have a material impact on the price of an issuer's securities or on 
investors' decisions. The list was developed through the analysis of 
Nasdaq trading halt data and material information categories outlined 
in other sources, including Reg FD. In fact, the events are generally 
similar to those enumerated in the Regulation FD adopting release,\11\ 
but include certain additional clarifications deemed appropriate by 
Nasdaq. The following is a list of the categories of material 
information that must be disclosed to the MarketWatch Department prior 
to public dissemination:
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    \11\ Securities Exchange Act Release No. 43154 (August 15, 
2000), 65 FR 51716 (August 24, 2000) at 51721.
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    (a) Financial-related disclosures, including quarterly or yearly 
earnings, earnings restatements, pre-announcements or ``guidance.''
    (b) Corporate reorganizations and acquisitions, including mergers, 
tender offers, asset transactions and bankruptcies or receiverships.
    (c) New products or discoveries, or developments regarding 
customers or suppliers (e.g., significant developments in clinical or 
customer trials, and receipt or cancellation of a material contract or 
order).
    (d) Senior management changes of a material nature or a change in 
control.
    (e) Resignation or termination of independent auditors, or 
withdrawal of a previously issued audit report.
    (f) Events regarding the issuer's securities--e.g., defaults on 
senior securities, calls of securities for redemption, repurchase 
plans, stock splits or changes in dividends, changes to the rights of 
security holders, or public or private sales of additional securities.
    (g) Significant legal or regulatory developments.
    (h) Any event requiring the filing of a Form 8-K.
    The proposed rule does not relieve Nasdaq issuers of their 
requirement to promptly disclose to the public any material information 
that would reasonably be expected to affect the value of their 
securities or influence investors' decisions. Rather, the rule sets 
forth those instances in which issuers must provide prior notice to 
Nasdaq before the disclosure of the material information to the public. 
Of course, Nasdaq issuers are encouraged to provide advance 
notification to MarketWatch of material information that does not 
involve the events set forth in the above list in situations where they 
believe, based upon their knowledge of the significance of the 
information, that a temporary trading halt may be necessary or 
beneficial.
    2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\12\ in general, and with 
section 15A(b)(6) of the Act,\13\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, and, in

[[Page 51310]]

general, to protect investors and the public interest. As noted above, 
Nasdaq believes the harmonization of Nasdaq's disclosure rules with 
Regulation FD will minimize issuer confusion while at the same time 
allowing issuers to utilize current technologies for the broad, non-
exclusionary dissemination of material information to the public. In 
addition, Nasdaq believes the development of a list of categories of 
material information that must be disclosed to the MarketWatch 
Department prior to public dissemination will provide greater 
transparency for issuers while allowing Nasdaq to continue to ensure 
the fair and adequate dissemination of material information to the 
public.
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    \12\ 15 U.S.C. 78o-3.
    \13\ 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 will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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 the NASD 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 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 number SR-NASD-2002-85 and 
should be submitted by August 28, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-19890 Filed 8-6-02; 8:45 am]
BILLING CODE 8010-01-P