[Federal Register Volume 67, Number 236 (Monday, December 9, 2002)]
[Notices]
[Pages 72998-73003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31020]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46940; File No. SR-NASD-2002-89]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. To Amend 
Nasdaq's Listing Standards Pertaining to American Depositary Receipts, 
Preferred and Secondary Classes of Stock, Bid Price Compliance and 
Monitoring Periods, Categories of Securities Eligible for Initial 
Inclusion on Nasdaq, and the Market Capitalization Compliance Period

December 3, 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 7, 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 (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by Nasdaq. On 
November 1, 2002, NASD filed Amendment No. 1 to the proposed rule 
change.\3\ On December 2, 2002, NASD filed Amendment No. 2 to the 
proposed rule change.\4\ The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John Nachmann, Senior Attorney, Nasdaq, to 
Katherine England, Assistant Director, Division of Market 
Regulation, Commission, dated November 1, 2002.
    \4\ See letter from John Nachmann, Senior Attorney, Nasdaq, to 
Katherine England, Assistant Director, Division of Market 
Regulation, Commission, dated December 2, 2002.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to modify Nasdaq's listing standards pertaining 
to American Depositary Receipts, preferred and secondary classes of 
stock, bid price compliance and monitoring periods, categories of 
securities eligible for initial inclusion on Nasdaq, and the market 
capitalization compliance period. Below is the text of the proposed 
rule change. Proposed new language is in italic; 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)-(3) No change.
    (4) For initial inclusion, [common or preferred stock] common 
stock, preferred stock and secondary classes of common stock shall have 
a minimum bid price of $4 per share. For continued inclusion, the 
minimum bid price shall be $1 per share.
    (5) No change
    (6)(A) In the case of common stock, there shall be at least 300 
round lot holders of the security. [An account of a member that is 
beneficially owned by

[[Page 72999]]

a customer (as defined in Rule 0120) will be considered a holder of a 
security upon appropriate verification by a member.]
    (B) In the case of preferred stock and secondary classes of common 
stock, there shall be at least 100 round lot holders of the security, 
provided in each case that the issuer's common stock or common stock 
equivalent equity security is traded on either Nasdaq or a national 
securities exchange. In the event the issuer's common stock or common 
stock equivalent security is not traded on either Nasdaq or a national 
securities exchange, the preferred stock and/or secondary class of 
common stock may be traded on Nasdaq so long as the security satisfies 
the listing criteria for common stock.
    (C) An account of a member that is beneficially owned by a customer 
(as defined in Rule 0120) will be considered a holder of a security 
upon appropriate verification by a member.
    (7)(A) In the case of common stock, there shall be at least 
1,000,000 publicly held shares for initial inclusion and 500,000 
publicly held shares for continued inclusion. For initial inclusion 
such shares shall have a market value of at least $5 million. For 
continued inclusion such shares shall have a market value of at least 
$1 million. [Shares held directly or indirectly by any officer or 
director of the issuer and by any person who is the beneficial owner of 
more than 10 percent of the total shares outstanding are not considered 
to be publicly held.]
    (B) In the case of preferred stock and secondary classes of common 
stock, there shall be at least 200,000 publicly held shares having a 
market value of at least $2 million for initial inclusion and 100,000 
publicly held shares having a market value of $500,000 for continued 
inclusion. In addition, the issuer's common stock or common stock 
equivalent security must be traded on either Nasdaq or a national 
securities exchange. In the event the issuer's common stock or common 
stock equivalent security is not traded on either Nasdaq or a national 
securities exchange, the preferred stock and/or secondary class of 
common stock may be traded on Nasdaq so long as the security satisfies 
the listing criteria for common stock.
    (C) Shares held directly or indirectly by any officer or director 
of the issuer and by any person who is the beneficial owner of more 
than 10 percent of the total shares outstanding are not considered to 
be publicly held.
    (8)(A)-(D) No change
    (E) Nasdaq may, in its discretion, require an issuer to maintain a 
bid price of at least $1.00 per share for a period in excess of ten 
consecutive business days, but generally no more than 20 consecutive 
business days, before determining that the issuer has demonstrated an 
ability to maintain long-term compliance. In determining whether to 
monitor bid price beyond ten business days, Nasdaq will consider the 
following four factors: (i) margin of compliance (the amount by which 
the price is above the $1.00 minimum standard); (ii) trading volume (a 
lack of trading volume may indicate a lack of bona fide market interest 
in the security at the posted bid price); (iii) the market maker 
montage (the number of market makers quoting at or above $1.00 and the 
size of their quotes); and, (iv) the trend of the stock price (is it up 
or down).
    (9)-(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 (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 set out in this subsection for inclusion in Nasdaq.[:] In the 
case of ADRs, the underlying security will be considered when 
determining the ADR's qualification for initial or continued inclusion 
on Nasdaq.
    (1)-(2)(D) No change.
    [(E) In the case of ADRs, the underlying security will be 
considered when determining the ADR's qualification for initial or 
continued inclusion on Nasdaq.]
    (3) No change.
    (4)(A) [In the case of foreign shares, t]There shall be at least 
300 round lot holders of the security. [An account of a member that is 
beneficially owned by a customer (as defined in Rule 0120) will be 
considered a holder of a security upon appropriate verification by the 
member.]
    (B) In the case of preferred stock and secondary classes of common 
stock, there shall be at least 100 round lot holders of the security, 
provided in each case that the issuer's common stock or common stock 
equivalent equity security is traded on either Nasdaq or a national 
securities exchange. In the event the issuer's common stock or common 
stock equivalent security is not traded on either Nasdaq or a national 
securities exchange, the preferred stock and/or secondary class of 
common stock may be traded on Nasdaq so long as the security satisfies 
the listing criteria for common stock.
    (C) An account of a member that is beneficially owned by a customer 
(as defined in Rule 0120) will be considered a holder of a security 
upon appropriate verification by the member.
    (5) [In the case of foreign shares, t]There shall be at least 
1,000,000 publicly held shares for initial inclusion and 500,000 
publicly held shares for continued inclusion. In the case of preferred 
stock and secondary classes of common stock, there shall be at least 
200,000 publicly held shares for initial inclusion and 100,000 publicly 
held shares for continued inclusion. In addition, the issuer's common 
stock or common stock equivalent security must be traded on either 
Nasdaq or a national securities exchange. In the event the issuer's 
common stock or common stock equivalent security is not traded on 
either Nasdaq or a national securities exchange, the preferred stock 
and/or secondary class of common stock may be included in Nasdaq so 
long as the security satisfies the listing criteria for common stock. 
Shares held directly or indirectly by any officer or director of the 
issuer and by any person who is the beneficial owner of more than 10 
percent of the total shares outstanding are not considered publicly 
held.
    (6) In the case of rights, warrants and ADR[`]s for initial 
inclusion only, at least 100,000 shall be issued. Issuers of ADRs must 
also meet the round lot holders and publicly held shares requirements 
set forth in subsections (4) and (5) above.
    (7)-(25) No change.
    (f) No change
* * * * *

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), (g), (h), (i)2, 
[or] (j) or (k) 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--First Class of Common Stock, Shares or 
Certificates of

[[Page 73000]]

Beneficial Interest of Trusts, Limited Partnership Interests in Foreign 
or Domestic Issues and American Depositary Receipts
    (1)-(7) No change
    (b) Entry Standard 2--First Class of Common Stock, Shares or 
Certificates of Beneficial Interest of Trusts, Limited Partnership 
Interests in Foreign or Domestic Issues and American Depositary 
Receipts
    (1)-(7) No change
    (c) Entry Standard 3--First Class of Common Stock, Shares or 
Certificates of Beneficial Interest of Trusts, Limited Partnership 
Interests in Foreign or Domestic Issues and American Depositary 
Receipts
    (1)-(6) No change
    (d)-(j) No change
    (k) Quantitative Designation Criteria--Preferred Stock and 
Secondary Classes of Common Stock
    For initial inclusion, if the common stock or common stock equity 
equivalent security of the issuer is listed on Nasdaq or a national 
securities exchange, the issue shall have:
    (1) At least 200,000 publicly held shares;
    (2) A market value of publicly held shares of at least $4,000,000;
    (3) A minimum bid price per share of $5;
    (4) A minimum of 100 round lot shareholders;
    (5) At least three registered and active market makers.
    Alternatively, in the event the issuer's common stock or common 
stock equivalent security is not traded on either Nasdaq or a national 
securities exchange, the preferred stock and/or secondary class of 
common stock may be traded on Nasdaq so long as the security satisfies 
the listing criteria for common stock.
* * * * *

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), (g) (h) or (i) 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--First Class of Common Stock, [Preferred 
Stock,] Shares or Certificates of Beneficial Interest of Trusts, [and] 
Limited Partnership Interests in Foreign or Domestic Issues and 
American Depositary Receipts
    (1)-(6) No change
    (b) Maintenance Standard 2--First Class of Common Stock, [Preferred 
Stock,] Shares or Certificates of Beneficial Interest of Trusts, [and] 
Limited Partnership Interests in Foreign or Domestic Issues and 
American Depositary Receipts
    (1)-(6) No change
    (c)-(d) No change
    (e) Compliance Periods
    (1) No change
    (2) For issuers subject to the $1 bid price requirement under 
Maintenance Standard 1 or the $3 bid price requirement under 
Maintenance Standard 2, a [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. Nasdaq may, in its discretion, require an issuer 
under Maintenance Standard 1 to maintain a bid price of at least $1.00 
per share for a period in excess of ten consecutive business days, but 
generally no more than 20 consecutive business days, before determining 
that the issuer has demonstrated an ability to maintain long-term 
compliance. In determining whether to monitor bid price beyond ten 
business days, Nasdaq will consider the following four factors: (i) 
margin of compliance (the amount by which the price is above the $1.00 
minimum standard); (ii) trading volume (a lack of trading volume may 
indicate a lack of bona fide market interest in the security at the 
posted bid price); (iii) the market maker montage (the number of market 
makers quoting at or above $1.00 and the size of their quotes); and, 
(iv) the trend of the stock price (is it up or down). [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 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) No change
    (4) A failure to meet the continued inclusion requirements 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.
    (f)-(g) No change
    (h) Quantitative Maintenance Criteria--Preferred Stock and 
Secondary Classes of Common Stock
    For continued inclusion, if the common stock or common stock equity 
equivalent security of the issuer is listed on Nasdaq or a national 
securities exchange, the issue shall have:
    (1) At least 100,000 publicly held shares;
    (2) A market value of publicly held shares of at least $1,000,000;

[[Page 73001]]

    (3) A minimum bid price per share of $1;
    (4) A minimum of 100 round lot shareholders;
    (5) At least two registered and active market makers.
    Alternatively, in the event the issuer's common stock or common 
stock equivalent security is not traded on either Nasdaq or a national 
securities exchange, the preferred stock and/or secondary class of 
common stock may be traded on Nasdaq so long as the security satisfies 
the listing criteria for common stock.
    (i) Transfers between The Nasdaq National and SmallCap Markets For 
Bid Price Deficient Issuers
    (1) If a National Market issuer has not been deemed in compliance 
prior to the expiration of the 90 day compliance period for bid price, 
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). The issuer may 
also request a hearing to remain on The Nasdaq National Market pursuant 
to the Rule 4800 Series.
    (2) Following a transfer to The Nasdaq SmallCap Market pursuant to 
paragraph (1), a domestic or Canadian Nasdaq National Market issuer 
under Maintenance Standard 1 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 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. Any issuer that 
was formerly listed on The Nasdaq National Market, and which 
transferred to The Nasdaq SmallCap Market pursuant to this 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. An issuer qualifying for such a transfer 
pursuant to the maintenance requirements is not required to pay the 
entry fee set forth in Rule 4510(a) upon transferring back to The 
Nasdaq National Market.
    (3) Following a transfer to The Nasdaq SmallCap Market pursuant to 
paragraph (1), an issuer formerly qualifying for listing on The Nasdaq 
National Market under Maintenance Standard 2 or a non-Canadian foreign 
issuer, which is not subject to the $1 bid price requirement, may 
transfer back to The Nasdaq National Market without satisfying the 
initial inclusion criteria if it maintains compliance with the 
applicable bid price requirement for continued listing on The Nasdaq 
National Market for a minimum of 30 consecutive business days within 
360 days following the notification of the initial bid price 
deficiency, and if it has continually maintained compliance with all 
other requirements for continued listing on The Nasdaq National Market 
since being transferred. An issuer qualifying for such a transfer 
pursuant to the maintenance requirements is not required to pay the 
entry fee set forth in Rule 4510(a) upon transferring back to The 
Nasdaq National Market.
* * * * *

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 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 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 amend Nasdaq's 
listing standards pertaining to American Depositary Receipts, preferred 
and secondary classes of stock, bid price compliance and monitoring 
periods, types of securities eligible for initial inclusion on Nasdaq, 
and the market capitalization compliance period.
    a. Standards for Preferred Stock and Secondary Classes of Common 
Stock
    Nasdaq proposes to establish listing standards pertaining to round 
lot shareholders, publicly held shares and market value of publicly 
held shares for preferred stock and secondary classes of common stock. 
Currently, Nasdaq listing standards do not distinguish between common 
stock and preferred stock or secondary classes of common stock for 
purposes of these requirements. Nasdaq believes that it is appropriate 
to establish separate liquidity standards for preferred and secondary 
classes of common stock as these securities are generally not as widely 
held nor as liquid as primary classes of common stock.\5\
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    \5\ The New York Stock Exchange (``NYSE'') and the American 
Stock Exchange (``AMEX'') also have separate listing standards for 
preferred stock. See NYSE Listed Company Manual, Section 703.05; 
Amex Listing Standards, Policies and Requirements, Section 103.
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    The new National Market listing standards would require 100 round 
lot shareholders; 200,000 publicly held shares; and $4,000,000 in 
market value of publicly held shares for initial inclusion, and 100 
round lot shareholders; 100,000 publicly held shares; and $1,000,000 in 
market value of publicly held shares for continued inclusion. The round 
lot shareholders and publicly held shares listing requirements would be 
the same for the SmallCap Market; however, the market value of publicly 
held shares requirement would be $2,000,000 and $500,000 for initial 
and continued inclusion, respectively.
    Preferred stock or secondary classes of common stock would be 
included under the proposed new standards only if the issuer's common 
stock or common stock equivalent is traded on either Nasdaq or a 
national securities exchange. In situations where an issuer's common 
stock or common stock equivalent is not traded on either Nasdaq or a 
national securities exchange, the preferred stock or secondary class of 
common stock would need to meet the initial inclusion listing standards 
pertaining to common stock.
    b. Transfer of Maintenance Standard 2 Issuers to the National 
Market
    Nasdaq Rule 4450(e)(2) currently allows a National Market issuer 
that has transferred to the SmallCap Market to transfer back to the 
National Market pursuant to the National Market maintenance criteria 
provided it meets certain conditions, including compliance with the 
$1.00 bid price requirement for a minimum of 30 consecutive business 
days prior to the expiration of the compliance periods set forth in 
Rule 4310(c)(8)(D). In effect, current Rule 4450(e)(2) only applies to 
National Market issuers that qualify for continued listing under 
Maintenance Standard 1. In contrast, National Market issuers that 
qualify for continued listing

[[Page 73002]]

under Maintenance Standard 2 \6\ must maintain a minimum bid price of 
at least $3.00. Thus, while a Maintenance Standard 2 issuer with a bid 
price between $1.00 and $2.99 would be eligible to transfer to the 
SmallCap Market, it would not be eligible for the compliance period set 
forth in Rule 4310(c)(8)(D), and, by implication, would not be eligible 
to transfer back to the National Market without satisfying the initial 
inclusion criteria.
    In order to eliminate the disparate treatment between Maintenance 
Standard 1 \7\ and Maintenance Standard 2 issuers, Nasdaq proposes to 
provide Maintenance Standard 2 issuers the same compliance period and 
ability to transfer back to the National Market based on the Standard 2 
maintenance criteria (including the $3 minimum bid price) as is 
currently provided for Maintenance Standard 1 issuers.
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    \6\ Rule 4450(b).
    \7\ Rule 4450(a).
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    c. Clarification of the Bid Price Monitoring Period
    The majority of companies listed on Nasdaq are required to maintain 
a $1.00 minimum bid price for continued inclusion although, as noted 
above, National Market companies listed under Maintenance Standard 2 
are required to maintain a bid price of at least $3.00. In accordance 
with Rules 4310(c)(8)(D) and 4450(e)(2), once an issuer's bid price 
falls below the applicable standard for 30 consecutive business days, 
the issuer is automatically afforded a grace period in which to regain 
compliance. These rules further provide that compliance with the bid 
price requirement can be achieved by meeting the applicable standard 
for a minimum of 10 consecutive business days during the compliance 
period. The rules currently do not differentiate between companies that 
must maintain a bid price of at least $1.00 and those that must 
maintain a $3.00 minimum bid price.
    Nasdaq proposes to amend the bid price rule for Maintenance 
Standard 2 issuers to clearly indicate that the monitoring period will 
be limited to ten business days. This proposal is based upon Nasdaq's 
belief that trading in the securities of Maintenance Standard 2 
companies is less subject to market manipulation than the trading in 
the securities of Maintenance Standard 1 issuers. Therefore, Nasdaq 
believes that a ten-day monitoring period for Maintenance Standard 2 
issuers is sufficient to determine the compliance status of these 
issuers.
    Nasdaq further proposes to amend its bid price rules to set forth 
the following factors that will be considered when determining whether 
to monitor the bid price beyond 10 business days for those issuers that 
must maintain a minimum $1.00 bid price: (i) The margin of compliance 
(the amount by which the price is above the $1.00 minimum standard); 
(ii) the trading volume (a lack of trading volume may indicate a lack 
of bona fide market interest in the security at the posted bid price); 
(iii) the market maker montage (the number of market makers quoting at 
or above $1.00 and the size of their quotes); and, (iv) the trend of 
the stock price (is it up or down). Generally, Nasdaq will not monitor 
an issuer's bid price for more than 20 consecutive business days.\8\
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    \8\ Nasdaq will monitor an issuer's bid price beyond 20 business 
days only in unusual circumstances. For example, Nasdaq may monitor 
an issuer's bid price beyond 20 days if the issuer maintains a 
minimum bid price of $1.00 for ten consecutive business days and 
then there is no trading in the issuer's securities for the 
following ten consecutive business days.
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    d. Clarification of the Securities that are Eligible for Initial 
Inclusion on the National Market
    The requirements for continued listing on the National Market, as 
set forth in Rules 4450(a) and (b), list the specific types of 
securities that are eligible for continued inclusion, specifically, 
common stock, preferred stock, shares or certificates of beneficial 
interest of trusts and limited partnership interests in foreign or 
domestic issues. The requirements for initial inclusion on the National 
Market, as set forth in Marketplace Rules 4420(a), (b) and (c), 
however, do not cite the specific types of securities subject to the 
rule. Accordingly, Nasdaq proposes to amend Rules 4420(a), (b) and (c) 
in order to specify that these rules apply to the same securities as 
those cited in Rules 4450(a) and (b). To provide greater transparency, 
Nasdaq also proposes to amend the initial and continued inclusion 
requirements to indicate that American Depositary Receipts are also 
eligible for inclusion on the National Market.
    e. Market Capitalization Compliance Standard for the National 
Market
    To provide greater transparency, Nasdaq proposes to amend Rule 
4450(e), which sets forth the compliance periods for National Market 
issuers, to include a compliance period for the market capitalization 
listing standard. The text of the proposed rule is identical to the 
standard currently set forth in Rule 4310(c)(8)(C).
    f. American Depositary Receipts
    Nasdaq proposes to clarify that ADRs must meet the publicly held 
shares and round lot holders requirements set forth in Rules 4320(e)(4) 
and (5). As currently drafted, the rules are unclear as to whether ADRs 
must only meet the distribution requirement set forth in Rule 
4320(e)(6) or whether they must also meet the publicly held shares and 
round lot holders requirements in Rules 4320(e)(4) and (5). In order to 
avoid any potential confusion, Nasdaq proposes to clarify the 
requirements with respect to ADRs.
    g. Implementation
    Nasdaq recognizes the potential impact of the proposed listing 
standards relating to preferred stock and secondary classes of common 
stock. Therefore, Nasdaq proposes to provide those issuers that have 
preferred stock or secondary classes of common stock listed on Nasdaq 
at the time the rule filing is approved by the Commission eighteen 
months to come into compliance with these new listing standards. All 
other changes proposed in the rule filing would become effective at the 
time of Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\9\ which require, among 
other things, that the Association's rules must 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. Specifically, the proposed rule changes are 
designed to provide greater transparency and consistency to Nasdaq's 
listing standards.
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    \9\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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

[[Page 73003]]

(ii) as to which the self-regulatory organization 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 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-2002-89 and should be 
submitted by December 30, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-31020 Filed 12-6-02; 8:45 am]
BILLING CODE 8010-01-P