[Federal Register Volume 68, Number 197 (Friday, October 10, 2003)]
[Notices]
[Pages 58732-58735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25795]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48592; File No. SR-NASD-2003-44]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the National Association 
of Securities Dealers, Inc. To Modify the Existing Pilot Program 
Relating to the Compliance Periods for the Nasdaq Bid Price Criteria

October 3, 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 18, 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 
submitted

[[Page 58733]]

amendments to the proposed rule change on March 24, 2003,\3\ and 
September 26, 2003.\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 Sara Nelson Bloom, Associate General 
Counsel, Nasdaq, to Katherine A. England, Division of Market 
Regulation, Commission, dated March 21, 2003 (``Amendment No. 1''). 
In Amendment No. 1, Nasdaq made minor revisions to the original 
proposal.
    \4\ See letter from Edward S. Knight, Executive Vice President, 
Nasdaq, to Katherine A. England, Division of Market Regulation, 
Commission, dated September 25, 2003 (``Amendment No. 2''). In 
Amendment No. 2, Nasdaq revised the length of the compliance periods 
and added to the criteria that issuers would have to meet to avail 
themselves of such periods.
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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 an existing pilot program relating to 
compliance periods for the bid price criteria for Nasdaq National 
Market and Nasdaq SmallCap Market issuers. Nasdaq has represented that, 
during the pilot period, it would assess the effectiveness of these 
changes.
    Below is the text of the proposed rule change, including the 
revisions to the proposed rule text made by Amendment Nos. 1 and 2. 
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 [will] 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 [will] 
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 shall be 
afforded an additional 180 day compliance period, provided, that on the 
180th day of the first compliance period, [following notification of 
this deficiency,] the issuer demonstrates that it meets the criteria 
for initial inclusion set forth in Rule 4310(c)[(2)(A)] (except for the 
bid price requirement set forth in Rule 4310(c)(4)) based on the 
issuer's most recent public[ly filed] filings and market [financial] 
information. If the issuer has publicly announced information (e.g., in 
an earnings release) indicating that it no longer satisfies the 
applicable initial inclusion criteria, it shall not be eligible for the 
additional compliance period under this rule.
    If on the 180th day of the second compliance period, the issuer has 
not been deemed in compliance during such compliance period but it 
satisfies the criteria for initial inclusion set forth in Rule 4310(c) 
(except for the bid price requirement set forth in Rule 4310(c)(4)), 
the issuer shall be provided with an additional compliance period up to 
its next annual shareholder meeting, provided: the issuer commits to 
seek shareholder approval for a reverse stock split to address the bid 
price deficiency at or before its next annual meeting, and to promptly 
thereafter effect the reverse stock split; and the shareholder meeting 
to seek such approval is scheduled to occur no later than two years 
from the original notification of the bid price deficiency. If the 
issuer fails to timely propose, or obtain approval for, or promptly 
execute the reverse stock split, Nasdaq shall immediately institute 
delisting proceedings upon such failure. [If the issuer has not been 
deemed in compliance prior to the expiration of the second 180 day 
compliance period, it shall 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 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)-(d) No change.
    (e) Compliance Periods
    (1) No change.
    (2) 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 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 shall [will] be afforded an 
additional 180 day compliance period, provided, that on the 180th day 
following the notification of the deficiency, the issuer demonstrates 
that it meets the criteria for initial inclusion set forth in [either] 
Rule[s] 4420[(a)(1) and (a)(5), Rule 4420(b)(1) or Rule 4420(c)(6),] 
(except for the bid price requirement set forth in Rule 4420(a)(4), 
(b)(4) or (c)(3)) based on the issuer's most recent public[ly filed 
financial] filings and market information. If the issuer has publicly 
announced information (e.g., in an earnings release) indicating that it 
no longer satisfies the applicable initial inclusion criteria, it shall 
not be eligible for the additional compliance period under this rule.
    If the issuer has not been deemed in compliance 45 calendar days 
before the expiration of the second 180 day compliance period, the 
Listing Qualifications Department shall issue a letter (the ``Staff 
Warning Letter''), notifying the issuer of its non-compliance, the 
pending expiration of the compliance period, and its right to request a 
hearing. The issuer must request a hearing within seven calendar days 
of the date of the Staff Warning Letter in order to preserve its right 
to review pursuant to Rule 4820. If the issuer requests a hearing, the 
hearing shall be scheduled for a date promptly following the expiration 
of the compliance period. If the issuer fails to request a hearing and 
does not regain compliance prior to the expiration of the compliance 
period, it shall be delisted immediately following the compliance 
period with no further opportunity for a hearing. Compliance can be 
achieved during any compliance period by meeting the applicable 
standard for a minimum of 10 consecutive business days during the [180 
day] applicable compliance period.
    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,

[[Page 58734]]

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 shall [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)-(i) No change.
4820. Request for Hearing
    (a) An issuer may, within seven calendar days of the earlier of the 
date of the Staff Determination or the Staff Warning Letter referenced 
in Rule 4450(e), request either a written or oral hearing to review the 
Staff Determination. Requests for hearings should be filed with The 
Nasdaq Office of Listing Qualifications Hearings (the ``Hearings 
Department''). A request for a hearing shall [will] stay the delisting 
action pending the issuance of a written determination by a Listing 
Qualifications Panel. If no hearing is requested within the seven 
calendar day period, the right to request review is waived, and the 
Staff Determination shall [will] take immediate effect. All hearings 
shall [will] be held before a Listing Qualifications Panel as described 
in Rule 4830. All hearings shall [will] be scheduled, to the extent 
practicable, within 45 days of the date that the request for hearing is 
filed, at a location determined by the Hearings Department. The 
Hearings Department shall [will] make an acknowledgment of the issuer's 
hearing request stating the date, time and location of the hearing, and 
the deadline for written submissions to the Listing Qualifications 
Panel. The issuer shall [will] be provided at least 10 calendar days 
notice of the hearing unless the issuer waives such notice.
    (b)-(c) 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
    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 to extend certain 
compliance periods applicable to the bid price rule.\6\ The pilot 
program was modified and extended to December 31, 2004.\7\ The current 
pilot program provides for a 180-day bid price compliance period for 
SmallCap Market issuers. Thereafter, SmallCap Market issuers are 
allowed an additional 180-day compliance period if they meet heightened 
requirements based upon certain core initial listing standards. 
SmallCap issuers are allowed an additional 90-day compliance period, 
provided that the issuer continues to meet the heightened requirements. 
National Market companies currently receive a single 180-day bid price 
compliance period.
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    \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).
    \7\ See Securities Exchange Act Release No. 47482 (March 11, 
2003), 68 FR 12729 (March 17, 2003) (SR-NASD-2003-34).
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    After careful consideration, Nasdaq continues to believe that the 
bid price requirements are valuable measures 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 companies that are engaged in 
turnaround strategies. Nasdaq proposes that these modifications also be 
subject to implementation under the pilot program currently in effect 
through December 31, 2004.
    Specifically, this proposal would modify and extend the pilot as 
follows:
    [sbull] Provide an additional 180-calendar-day compliance period 
for those National Market issuers able to demonstrate compliance with 
the National Market initial listing criteria set forth in Rule 4420 
(except for the bid price requirement set forth in Rule 4420(a)(4), 
(b)(4) or (c)(3);
    [sbull] Maintain the initial 180-calendar-day bid price compliance 
period for all SmallCap Market issuers, and provide a second 180-day 
compliance period for SmallCap Market issuers that satisfy the initial 
listing criteria set forth in Rule 4310(c) (except for the bid price 
requirement set forth in Rule 4310(c)(4)). This is more stringent than 
the current compliance period which conditions eligibility for the 
second 180-day compliance period on meeting only the financial or 
``core'' initial listing criteria, rather than all initial listing 
criteria. After the two initial 180-day compliance periods, instead of 
the additional 90-day compliance period provided by the recent 
modification to the pilot program,\8\ issuers would be provided with an 
additional compliance period up to their next annual shareholder 
meeting provided: the issuer commits to seek shareholder approval for a 
reverse stock split to address the bid price deficiency at or before 
its next annual meeting, and to promptly thereafter effect the reverse 
stock split; and the shareholder meeting to seek such approval is 
scheduled to occur no later than two years from the original 
notification of the bid price deficiency. If the issuer fails to timely 
propose, or obtain approval for, or promptly execute the reverse stock 
split, Nasdaq shall immediately institute delisting proceedings upon 
such failure.
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    \8\ See id.
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    Nasdaq believes that the proposal appropriately distinguishes 
between the National Market and the SmallCap Market by providing a 
relatively shorter compliance period for National Market issuers 
compared to that available to SmallCap Market issuers, and by 
expediting the National Market issuer delisting process. The proposal 
further provides that SmallCap Market issuers eligible for the longest 
compliance periods must take concrete corrective action to address the 
bid price deficiency or face prompt delisting. Nasdaq further believes 
that the proposal would benefit investors by lessening the disruption 
that can be associated with an issuer's move from the Nasdaq Stock 
Market to less liquid and regulated markets.
    Implementation. Nasdaq proposes that this rule be effective upon 
Commission approval, and that issuers that are at that time in the Rule 
4800 Series review process be afforded the benefit of the new rule. As 
such, issuers would be extended any additional compliance periods 
provided by this

[[Page 58735]]

rule to which they would have been entitled had the rule been in effect 
upon their original notification of the bid price deficiency.\9\ 
Accordingly, issuers would be eligible for extended compliance periods 
in circumstances where they meet the terms of the new rule. Those 
issuers that do not meet the eligibility requirements under the new 
rule would be afforded an opportunity to present a definitive plan to 
demonstrate compliance with the bid price requirement or eligibility 
for the new compliance periods, and panels could determine to grant 
exceptions in order for such issuers to effectuate such plans. In 
addition, such issuers would be permitted to complete any pending 
compliance period that was extended pursuant to the rule in effect when 
the compliance period began.\10\ However, in no event shall a SmallCap 
Market issuer be afforded a period that exceeds two years from the date 
of the original bid price deficiency notification, absent extraordinary 
circumstances.\11\ All time periods under the new rule would run 
concurrent with the prior rule, from the date of the original bid price 
deficiency notification.
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    \9\ Nasdaq has represented that, during the pendency of this 
rule proposal, panels have afforded issuers exceptions consistent 
with the proposal as filed at the time pursuant to NASD Rule 
4810(b). All pending exceptions will be modified in accord with this 
new rule and this implementation proposal.
    \10\ For example, a SmallCap Market issuer that is currently in 
the final 90-day compliance period would be eligible to complete 
this 90-day compliance period, notwithstanding the fact that such 
period would be eliminated under the proposed rule. At the 
conclusion of the 90-day compliance period, the issuer would be 
afforded the final compliance period under the proposed rule up to 
its next shareholder meeting, provided it satisfied all requirements 
of the new rule. That is, it must satisfy all initial listing 
criteria, commit to seek shareholder approval at its next 
shareholder meeting, but in no event later than two years from the 
original bid price notification (nine months from the expiration of 
the 90-day period), and to promptly thereafter effect the reverse 
stock split to come into compliance with the bid price requirement.
    \11\ NASD Rule 4810(b) provides that Nasdaq may grant exceptions 
to its listing rules. As noted above, Nasdaq would be unwilling to 
exercise this discretion for SmallCap issuers beyond two years from 
the date of the original bid price deficiency notification, absent 
``extraordinary circumstances.'' Nasdaq has stated that adverse 
financial developments affecting the issuer would not support a 
finding of ``extraordinary circumstances.'' Rather, the term 
``extraordinary circumstances'' is intended to refer to a force 
majeure event that makes it impossible for the issuer to avail 
itself of the due process afforded by the Nasdaq listing rules. See 
e-mail from Sara Bloom, Nasdaq, to Michael Gaw, Commission, dated 
October 2, 2003.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with Section 15A(b)(6) of the Act \12\ 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 listing standards. Under the proposed rule 
change, issuers meeting heightened standards would have additional time 
to execute business and compliance plans, thereby, in Nasdaq's view, 
minimizing disruption to investors and providing greater transparency 
and consistency.
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    \12\ 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, as amended, 
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

    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, as amended, 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-2003-44 and should be submitted by October 31, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-25795 Filed 10-9-03; 8:45 am]
BILLING CODE 8010-01-P