[Federal Register Volume 68, Number 132 (Thursday, July 10, 2003)]
[Notices]
[Pages 41191-41192]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17473]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48123; File No. SR-NASD-2002-77]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
To Disclosure of Audit Opinions With Going Concern Qualifications

July 2, 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 June 11, 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 Change

    Nasdaq proposes to amend NASD Rule 4350(b) to add a requirement for 
issuers to announce publicly any audit opinions with going concern

[[Page 41192]]

qualifications.\3\ Below is the text of the proposed rule change. 
Proposed new language is italicized.
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    \3\ See also Securities Exchange Act Release No. 47516 (March 
17, 2003), 68 FR 14451 (March 25, 2003) (NASD 2002-141) for a 
description of additional proposed revisions to NASD's corporate 
governance listing standards.
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* * * * *
Rule 4350. Qualitative Listing Requirements for Nasdaq National Market 
and Nasdaq SmallCap Market Issuers Except for Limited Partnerships 
Traded on the Nasdaq National Market

    (a) No change.
    (b) Distribution of Annual and Interim Reports.
    (1) (A) Each issuer shall distribute to shareholders copies of an 
annual report containing audited financial statements of the company 
and its subsidiaries. The report shall be distributed to shareholders a 
reasonable period of time prior to the company's annual meeting of 
shareholders and shall be filed with Nasdaq at the time it is 
distributed to shareholders.
    (B) An issuer that receives an audit opinion that contains a going 
concern qualification must make a public announcement through the news 
media disclosing the receipt of such qualification. Prior to the 
release of the public announcement, the issuer must provide the text of 
the public announcement to the StockWatch section of Nasdaq's 
MarketWatch Department (``Nasdaq StockWatch'').* The public 
announcement shall be provided to Nasdaq StockWatch and released to the 
media not later than seven calendar days following the filing of such 
audit opinion in a public filing with the Securities and Exchange 
Commission.
    (2)-(3) No change

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    Footnote to Rule 4350(b)(1)(B):
    * Notification may be provided to the Nasdaq StockWatch at 1-
800-537-3929 or (240) 386-6046 (telephone), (240) 386-6047 
(facsimile).
* * * * *

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
    Nasdaq represents that, as a result of recent events, it has 
focused on ways to improve the corporate governance of listed 
companies. After considering these issues, Nasdaq identified several 
rule changes that could be instituted in the short term and identified 
these changes in an April 11, 2002, letter to then-Commissioner 
Chairman Harvey Pitt. Nasdaq now proposes to effect some of those 
changes. Specifically, the proposed rule change will require issuers to 
disclose in a press release the receipt of an audit opinion with a 
going concern qualification. Ordinarily, the continuation of an entity 
as a going concern is assumed in financial reporting in the absence of 
significant evidence to the contrary. If an auditor concludes that 
substantial doubt exists about the entity's ability to continue as a 
going concern for a reasonable period of time, however, the auditor 
provides this conclusion through an explanatory paragraph in the 
auditor's report. While the audit opinion is available in the Form 10-
K, Nasdaq believes that receipt of a going concern qualification is so 
material that it should be brought to the attention of investors and 
potential investors through a press release issued promptly after the 
filing of the Form 10-K. In the event management has developed plans to 
address the going concern qualification, it would be free to discuss 
those plans in the press release.
    Nasdaq will make this filing effective upon approval by the 
Commission.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
section 15A(b)(6) of the Act \4\ in that the proposed rules are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \4\ 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.

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 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 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-2002-77 and 
should be submitted by July 31, 2003.
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    \5\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
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pursuant to delegated authority.\5\

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-17473 Filed 7-9-03; 8:45 am]
BILLING CODE 8010-01-P