[Federal Register Volume 68, Number 51 (Monday, March 17, 2003)]
[Notices]
[Pages 12729-12732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6344]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47482; File No. SR-NASD-2003-34]


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

March 11, 2003.
    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 March 7, 2003, 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 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).

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

[[Page 12730]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq has proposed to modify and extend until December 31, 2004, 
the existing pilot program relating to compliance periods for the bid 
price criteria for Nasdaq National Market and Nasdaq SmallCap Market 
issuers; to eliminate the provision which permitted, on a pilot basis, 
certain companies that transferred to the SmallCap Market to return to 
the Nasdaq National Market under the continued inclusion criteria;\4\ 
and to permanently modify the continued bid price requirement for 
certain Nasdaq National Market issuers by requiring these issuers meet 
a $1 bid price instead of the existing $3 requirement. During the pilot 
period, Nasdaq will assess the effectiveness of these changes.
---------------------------------------------------------------------------

    \4\ An issuer that has transferred to the Nasdaq SmallCap Market 
in reliance on the existing pilot rule would be permitted to return 
to the Nasdaq National Market under the terms of the rule in effect 
at the time of transfer.
---------------------------------------------------------------------------

    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)-(C) No change.
    (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 notification of this 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. If the issuer has not been deemed in compliance 
prior to the expiration of the second 180 day compliance period, it 
will be afforded an additional 90 day compliance period, provided that 
on the last day of the second 180 day compliance period, 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 any [either 
180 day] compliance period by meeting the applicable standard for a 
minimum of 10 consecutive business days.
    (E) No change.
    (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), (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) No change.
    (b) Maintenance 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)-(3) No change.
    (4) Minimum bid price per share of [$3] $1;
    (5)-(6) No change.
    (c)-(d) No change.
    (e) Compliance Periods.
    (1) No change.
    (2) [For issuers subject to the $1.00 bid price requirement under 
Maintenance Standard 1 or the $3.00 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 180 [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 180 
[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).
    (3)-(4) No change.
    (f)-(h) No change.
    (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] a compliance period for bid 
price or otherwise so chooses, 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] any [180 day] compliance period set forth in Rule 
4310(c)(8)(D) as if the issuer had been listed on The Nasdaq SmallCap 
Market [and may thereafter be eligible for the subsequent 180 day 
compliance period pursuant to that rule]. The [90 day grace] compliance 
periods afforded by this rule and any time spent in the hearing process 
will be deducted in determining the length of the remaining [from the] 
applicable [grace] compliance 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

[[Page 12731]]

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, 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
    Following the extraordinary market conditions surrounding the 
September 11th tragedy, Nasdaq implemented a moratorium on enforcement 
of its bid price rules.\5\ In January 2002, immediately after the 
moratorium ended, Nasdaq implemented a pilot program, which expires at 
the end of this year, to extend certain compliance periods applicable 
to the bid price rule on the SmallCap Market.\6\ Specifically, the 
current pilot program extends the bid price compliance period for 
SmallCap Market issuers from 90 days to 180 days. Thereafter, SmallCap 
Market issuers are allowed an additional 180-day compliance period if 
they meet heightened requirements based upon certain core financial 
initial listing standards. In addition, National Market issuers that 
are bid-price deficient are allowed to transition to the SmallCap 
Market and benefit from the longer compliance periods it affords, as 
long as they meet SmallCap Market continued listing standards (with the 
exception of the bid price requirement).
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 44857 (September 27, 
2001), 66 FR 50485 (October 3, 2001) (SR-NASD-2001-61).
    \6\ See Securities Exchange Act Release No. 45387 (February 4, 
2002), 67 FR 6306 (February 11, 2002) (SR-NASD-2002-13).
---------------------------------------------------------------------------

    After careful consideration, Nasdaq continues to believe that the 
bid price requirements are a valuable measure of compliance. However, 
Nasdaq believes that the measurement periods for the requirements 
should be extended and modified to provide additional flexibility to 
both National Market and SmallCap Market issuers that are engaged in 
turnaround strategies in what Nasdaq considers to be a continuing 
difficult and historically unique climate. Nasdaq proposes that these 
modifications also be subject to implementation on a pilot basis, in 
order to allow Nasdaq to assess the efficacy of the changes and whether 
it is appropriate to recommend further, more permanent action.
    Specifically, this proposal would modify and extend the pilot as 
follows:
    [sbull] Extend the bid price grace period for all National Market 
issuers from 90 calendar days to 180 calendar days. Pursuant to a 
separate rule filing,\7\ Nasdaq also will propose to provide an 
additional 180-calendar-day compliance period for those National Market 
issuers able to demonstrate compliance with the core National Market 
initial listing criteria (i.e., $30,000,000 in equity; $75,000,000 in 
market value of listed securities; $75,000,000 in total assets and 
total revenues; or $15,000,000 in equity and $1,000,000 in income from 
continuing operations before income taxes in the most recently 
completed fiscal year, or two of the last three fiscal years);
---------------------------------------------------------------------------

    \7\ This rule proposal will be filed pursuant to Section 
19(b)(2) of the Act, 15 U.S.C. 78s(b)(2), and subject to public 
notice and comment prior to any Commission action on such proposal.
---------------------------------------------------------------------------

    [sbull] Maintain the initial 180-calendar-day bid price compliance 
period for all SmallCap Market issuers as well as the additional 180-
day compliance period for SmallCap Market issuers demonstrating 
compliance with the core SmallCap Market initial listing criteria 
(i.e., $5,000,000 in equity; $50,000,000 in market value of listed 
securities; or $750,000 in net income from continuing operations in the 
most recently completed fiscal year, or two of the last three fiscal 
years) and provide an additional 90-day compliance period, if the 
issuer maintains compliance with the heightened, initial inclusion 
criteria noted above, as measured at the end of each compliance period. 
Pursuant to the separate rule filing, Nasdaq also will propose further 
extensions to the bid price compliance periods;
    [sbull] Extend the expiration date of the pilot program from 
December 31, 2003, to December 31, 2004.
    Nasdaq believes that this proposal is consistent with the public 
interest because it conditions entitlement to the extended grace 
periods upon compliance with heightened requirements--core financial 
initial listing standards,\8\ rather than continued listing standards. 
Nasdaq states, moreover, that these extended compliance periods will 
provide issuers with the time necessary to execute business and 
compliance plans that can address their bid price deficiencies, which 
Nasdaq believes in many cases may be attributable, at least to some 
degree, to the challenging economic conditions and continuing market 
downturn. Nasdaq also believes that this proposal benefits investors by 
lessening the disruption that can be associated with a company's move 
from the Nasdaq Stock Market to less liquid and regulated markets. 
However, given the extended compliance periods proposed, Nasdaq also 
proposes to eliminate the provision that permitted, on a pilot basis, 
certain companies that transferred to the SmallCap Market to return to 
the National Market under the continued inclusion criteria.\9\
---------------------------------------------------------------------------

    \8\ Of course, companies will not be obligated to meet the 
requirements in NASD Rules 4420(c)(6)(A) or 4310(c)(2)(A)(ii) that 
currently traded issuers meet the bid price and market value of 
listed securities standards prior to applying for listing as these 
requirements apply to companies not currently listed on Nasdaq.
    \9\ An issuer that has transferred to the SmallCap Market in 
reliance on the existing pilot rule would be permitted to return to 
the National Market under the terms of the rule in effect at the 
time of transfer.
---------------------------------------------------------------------------

    In addition, Nasdaq proposes to change the National Market 
continued

[[Page 12732]]

listing bid price requirement from $3 to $1 for those issuers 
qualifying for continued listing based on the market value of listed 
securities or total assets and total revenue, as set forth in NASD Rule 
4450(b).\10\ Nasdaq does not believe that any material additional 
protection is afforded to investors as a result of the $3 bid price 
requirement. Further, investors and issuers are often confused by the 
dual price requirements. Nasdaq notes that no other marketplace has 
such a dual price requirement, and there are only about 40 issuers 
currently subject to the $3 bid price requirement.
---------------------------------------------------------------------------

    \10\ This proposal is not part of the pilot program discussed 
above.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \11\ in that it is 
designed to prevent fraudulent and manipulative acts and practices, and 
to protect investors and the public interest. As previously mentioned, 
Nasdaq is proposing this rule change to allow issuers additional time 
to comply with the bid price requirements if they demonstrate 
compliance with heightened financial standards. Under the proposed 
pilot, issuers meeting heightened standards will have additional time 
to execute business and compliance plans, which Nasdaq states will 
minimize disruption to investors and provide greater transparency and 
consistency.
---------------------------------------------------------------------------

    \11\ 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 \12\ and paragraph 
(f)(6) of Rule 19b-4 thereunder,\13\ 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.\14\ Nasdaq asserts that the proposed rule change does not 
alter the $1 minimum bid price requirement, but merely extends the 
existing compliance periods applicable to this requirement. Nasdaq 
believes that the proposed compliance periods are generally comparable 
to, or more stringent than, those available on other marketplaces and 
already approved by the Commission.\15\ Nasdaq further states that the 
proposal to change the National Market continued listing bid price 
requirement from $3 to $1 for those issuers qualifying for continued 
listed under NASD Rule 4450(b) is comparable to, or more stringent 
than, bid price requirements currently existing on other markets and 
already approved by the Commission.\16\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)
    \14\ In addition, Nasdaq complied with the requirement in Rule 
19b-4(f)(6) that the self-regulatory organization 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.
    \15\ Nasdaq states that the proposed compliance period for the 
Nasdaq National Market is similar to the existing compliance period 
available on the New York Stock Exchange (``NYSE''). See NYSE Rule 
802.01C. Nasdaq also states that the proposed compliance period for 
the Nasdaq SmallCap Market is more stringent than the American Stock 
Exchange (``Amex'') listing standards, which do not have a specific 
minimum price requirement or compliance period. See Amex Rule 
1003(f)(v).
    \16\ The proposed $1 bid price is the same as the NYSE continued 
listing requirement. See NYSE Rule 802.01C. As noted above, Amex 
does not have this requirement.
---------------------------------------------------------------------------

    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.\17\ The 
Commission believes that no purpose would be served by having 30 days 
pass before the rule becomes operative because, issuers and investors 
could become confused as to which grace periods applied during the 
intervening period. Allowing the rule to become operative immediately 
will allow Nasdaq to explain its bid price standards more clearly to 
issuers that might have need of the grace period.
---------------------------------------------------------------------------

    \17\ For purposes only of accelerating the operative date of 
this proposed rule change, 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-2003-34 and 
should be submitted by April 7, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6344 Filed 3-14-03; 8:45 am]
BILLING CODE 8010-01-U