[Federal Register Volume 68, Number 205 (Thursday, October 23, 2003)]
[Notices]
[Pages 60747-60748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26709]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48646; File No. SR-NASD-2003-23]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the National Association of 
Securities Dealers, Inc. To Clarify the Applicability of the Nasdaq 
Corporate Governance Requirements During the Listing Review Process

October 16, 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 February 26, 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. On October 10, 
2003, NASD, through 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 Mary M. Dunbar, Vice President and Deputy 
General Counsel, to Katherine A. England, Assistant Director, 
Division of Market Regulation, Commission, dated October 9, 2003 
(``Amendment No. 1''). Amendment No. 1 replaces the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to clarify the applicability of its corporate 
governance requirements during the listing review process.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

4800. Procedures for Review of Nasdaq Listing Determinations

4810. Purpose and General Provisions
    (a)-(d) No change.
    (e) At each level of a proceeding under the Rule 4800 Series, the 
Listing Qualifications Panel, Listing Council, or NASD Board, as part 
of its respective review, may consider any failure to meet any 
quantitative standard or qualitative consideration set forth in the 
Rule 4000 Series, including failures previously not considered in the 
proceeding. The Listing Council or the NASD Board, as part of its 
respective review, may also consider any action by an issuer during the 
review process that would have constituted a violation of Nasdaq's 
corporate governance requirements had the issuer's securities been 
listed on Nasdaq at the time. The issuer will be afforded notice of 
such consideration and an opportunity to respond. [In this regard,] 
Furthermore, the issuer may be subject to additional or more stringent 
criteria for the initial or continued inclusion of particular 
securities based on any event, condition, or circumstance that exists 
or occurs that makes initial or continued inclusion of the securities 
inadvisable or unwarranted in the opinion of the Association, even 
though the securities meet all enumerated criteria for initial or 
continued inclusion in The Nasdaq Stock 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
    The NASD Rule 4800 Series sets forth the procedures for the 
independent review of a staff determination prohibiting the listing of 
an issuer's securities. These rules provide that an issuer may appeal a 
staff determination to the Listing Qualifications Panel (``Panel''). 
Following a hearing, the Panel will issue a written decision that the 
issuer may appeal to the Listing and Hearing Review Council (``Listing 
Council''). Following its deliberations, the Listing Council will also 
issue a written decision. Although an issuer may not appeal a Listing 
Council decision to the NASD Board of Governors (``NASD Board''), the 
NASD Board may call a Listing Council decision for review.
    Nasdaq rules further provide that while an appeal to the Panel will 
stay the delisting of an issuer's securities until a written decision 
is issued by the Panel, an appeal of a Panel decision to the Listing 
Council generally does not stay a delisting. Therefore, an issuer's 
securities generally will not be listed on Nasdaq during the time of 
the Listing Council's or the NASD Board's review of an appeal. Although 
NASD Rule 4810 currently provides that an issuer's failure to meet any 
quantitative standard or qualitative consideration may be considered at 
each level of the review process, Nasdaq proposes to clarify this rule 
by explicitly stating that the Listing Council and the NASD Board have 
the authority to consider any action undertaken by an issuer during the 
review process that would have constituted a violation of Nasdaq's 
corporate governance requirements if the issuer had been listed on 
Nasdaq at that time.\4\ Nasdaq believes that this clarification is 
important so that issuers in the review process are aware of the 
necessity of their continued compliance with Nasdaq's corporate 
governance requirements.\5\
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    \4\ Nasdaq represents that before the Listing Council or the 
NASD Board considers any action by an issuer that would have 
constituted a violation of Nasdaq's corporate governance rules had 
it been listed, the issuer will be provided notice of such 
consideration and an opportunity to respond.
    \5\ Nasdaq represents that, of course, an issuer in the review 
process would also need to be in compliance with Nasdaq's 
quantitative requirements before it could be relisted as public 
investors rely on Nasdaq's listing standards and are entitled to 
assume that listed securities meet its minimum listing requirements. 
See KLH Engineering Group, Inc., 52 S.E.C. 460 (1995); ORS 
Automation, Inc., 48 S.E.C. 490 (1986).

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[[Page 60748]]

    In order to assist issuers that are in the listing review process 
comply with Nasdaq's corporate governance requirements, such issuers 
may contact Nasdaq staff to request any necessary corporate governance 
interpretations or financial viability waivers.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\6\ in general and with 
section 15A(b)(6) of the Act,\7\ in particular, in that the proposed 
rule change is designed to prevent fraudulent and manipulative acts and 
practices and, in general, to protect investors and the public 
interest. In particular, Nasdaq believes the proposed rule change will 
provide greater clarity and transparency for investors, issuers, and 
their counsel.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 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, 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 
number SR-NASD-2003-23 and should be submitted by November 13, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-26709 Filed 10-22-03; 8:45 am]
BILLING CODE 8010-01-P