[Federal Register Volume 68, Number 136 (Wednesday, July 16, 2003)]
[Notices]
[Pages 42152-42153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17926]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48137; File No. SR-NASD-2002-80]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 thereto by the National Association of 
Securities Dealers, Inc. to Require an Issuer's Audit Committee or 
Another Independent Body of the Board of Directors to Approve Related 
Party Transactions

July 8, 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 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by Nasdaq. 
On December 30, 2002, Nasdaq submitted Amendment No. 1 to the proposed 
rule change.\3\ 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 D. Nachman, Senior Attorney, Nasdaq, to 
Katherine A. England, Assistant Director, Division of Market 
Regulation, Commission, dated December 30, 2002 (``Amendment No. 
1'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to require an issuer's audit committee or another 
independent body of the board of directors to approve related party 
transactions. Below is the text of the proposed rule change. Proposed 
new language is italicized; proposed deletions are in brackets.
* * * * *

Rule 4350. Qualitative Listing Requirements for Nasdaq National Market 
and Nasdaq SmallCap Market Issuers Except for Limited Partnerships

    (a)--(g) No change.
    (h) Conflicts of Interest.
    Each Issuer shall conduct an appropriate review of all related 
party transactions on an ongoing basis and [shall utilize] all such 
transactions must be approved by the company's audit committee or 
another [comparable] independent body of the board of directors [for 
the review of potential conflict of interest situations where 
appropriate]. For purposes of this rule, the term ``related party 
transaction'' shall refer to transactions required to be disclosed 
pursuant to SEC Regulation S-K, Item 404.
    (i)--(l) 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
    The purpose of the proposed rule change is to expand Nasdaq's 
conflict of interest rule, Rule 4350(h). This rule currently provides 
that an issuer must conduct an appropriate review of all related party 
transactions on an ongoing basis and utilize its audit committee or 
comparable body of the board of directors for the review of potential 
conflicts of interest. Nasdaq is proposing to expand this rule by

[[Page 42153]]

requiring the audit committee or another independent body of the board 
of directors to approve, rather than merely review, related party 
transactions.\4\ Of course, all directors that review and approve a 
related party transaction must not only be independent as specified 
under Nasdaq rules but also disinterested in the transaction. Nasdaq 
believes that requiring approval of such transactions will improve 
investor protection.
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    \4\ For purposes of Rule 4350(h), the term ``related party 
transaction'' shall refer to transactions required to be disclosed 
pursuant to SEC Regulation S-K, Item 404.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\5\ in general, and with 
section 15A(b)(6) of the Act,\6\ in particular, in that the proposed 
rules are designed to prevent fraudulent and manipulative acts and 
practices and, in general, to protect investors and the public 
interest. As previously mentioned, the proposed rule change is designed 
to improve investor protection.
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    \5\ 15 U.S.C. 78o-3.
    \6\ 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 amended 
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-2002-80 and 
should be submitted by August 6, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17926 Filed 7-15-03; 8:45 am]
BILLING CODE 8010-01-P