[Federal Register Volume 68, Number 250 (Wednesday, December 31, 2003)]
[Notices]
[Pages 75677-75681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32171]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48991; File No. SR-NASD-2003-44]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change and Amendment Nos. 1 and 2 Thereto and Notice of 
Filing and Order Granting Accelerated Approval to Amendment No. 3 
Thereto by the National Association of Securities Dealers, Inc. To 
Modify an Existing Pilot Program Relating to the Bid Price Test of the 
Nasdaq Maintenance Listing Standards

December 23, 2003.

I. Introduction

    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'') a proposed rule change to modify an existing pilot 
program relating to the bid price test of Nasdaq's maintenance listing 
standards. Nasdaq submitted amendments to the proposed rule change on 
March 24, 2003,\1\ and September 26, 2003.\2\ On October 10, 2003, the 
Commission published notice of the proposal in the Federal Register.\3\ 
No comments were received on the proposed rule change. On November 26, 
2003, Nasdaq submitted Amendment No. 3 to the proposed rule change.\4\ 
This notice and order solicits comment on Amendment No. 3 and approves 
the proposed rule change, as amended, on an accelerated basis.
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    \1\ 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.
    \2\ 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 grace periods 
available to issuers not in compliance with the bid price test and 
added to the criteria that issuers would have to meet to avail 
themselves of such periods.
    \3\ See Securities Exchange Act Release No. 48592 (October 3, 
2003), 68 FR 58732.
    \4\ See letter from Sara Nelson Bloom, Associate General 
Counsel, Nasdaq, to Katherine A. England, Division of Market 
Regulation, Commission, dated November 25, 2003. In Amendment No. 3, 
Nasdaq made minor revisions to the proposal.
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II. Description of the Proposal

    To obtain a listing on the Nasdaq Stock Market, an issuer must meet 
the initial listing standards; to keep a listing on Nasdaq, an issuer 
must meet the maintenance listing standards on an ongoing basis.\5\ One 
of these standards relates to the bid price of the issuer's security. 
On either the Nasdaq National Market or the SmallCap Market, the 
security must maintain a bid price of at least $1.00 or face 
delisting.\6\ Nasdaq's listing rules provide that a failure to meet the 
bid price standard exists if the bid price remains less than $1.00 for 
30 consecutive business days.\7\ After 30 consecutive business days of 
the security failing the bid price test, Nasdaq would notify the issuer 
of the deficiency.\8\ Nasdaq's listing rules would then provide for 
certain ``grace periods'' during which the issuer is expected to regain 
compliance with the bid price standard or be delisted.
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    \5\ See NASD Rules 4300 et seq. and 4400 et seq.
    \6\ See NASD Rule 4310(c)(4) (for SmallCap); NASD Rules 
4450(a)(5) and (b)(4) (for National Market).
    \7\ See NASD Rule 4310(c)(8)(D) (for SmallCap); NASD Rule 
4450(e)(2) (for National Market).
    \8\ See id.
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    On the Nasdaq SmallCap Market, an issuer that fails the bid price 
test automatically receives a 180-calendar-day grace period.\9\ An 
issuer need not meet any special requirements to qualify for this grace 
period. If the issuer still fails the bid price test at the end of the 
180 days,\10\ it could be granted an additional 180-day grace period if 
it meets one of the quantitative initial listing standards (rather than 
the lesser maintenance standards) of the SmallCap Market.\11\ If the 
issuer were still deficient at the end of the second 180-day grace 
period, it could be granted an additional 90-calendar-day grace period 
if the issuer again meets one of the quantitative initial listing 
standards of the SmallCap Market. At the end of the 90 days (or of any 
other grace period where the issuer does not qualify for an additional 
grace period), Nasdaq would delist the security, subject to the 
procedural requirements of the NASD Rule 4800 Series. Thus, Nasdaq's 
maintenance listing standards currently allow a SmallCap issuer a 
theoretical maximum of approximately 1.25 years of non-compliance with 
the bid price standard before facing delisting.
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    \9\ See NASD Rule 4310(c)(8)(D).
    \10\ An issuer is deemed to be back in compliance with the bid 
price standard if it maintains a bid price of over $1 for ten 
consecutive business days, see id., although Nasdaq in its 
discretion may extend the ten-day requirement to as long as 20 
consecutive business days, see id.
    \11\ See id. (requiring issuer to meet any of the three criteria 
for initial listing set forth in NASD Rule 4310(c)(2)(A)).
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    On the Nasdaq National Market, like on the SmallCap Market, an 
issuer that fails the bid price test would automatically receive a 180-
calendar-day grace period without having to meet

[[Page 75678]]

any special requirements.\12\ If the issuer still fails the bid price 
test at the end of the 180 days, it could be granted an additional 180-
day grace period if it meets one of the quantitative initial listing 
standards (rather than the lesser maintenance standards) of the 
National Market.\13\ If an issuer were still deficient at the end of 
the second 180-day grace period (or does not qualify for the second 
180-day grace period), Nasdaq could delist the security, subject to the 
procedural requirements of the NASD Rule 4800 Series. Thus, Nasdaq's 
maintenance listing standards currently allow a National Market issuer 
a theoretical maximum of approximately 1.0 years of non-compliance with 
the bid price test before facing delisting. A National Market security 
that meets the maintenance listing standards for the SmallCap Market 
could ``phase down'' to the SmallCap Market to take advantage of the 
additional grace period offered there.\14\
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    \12\ See NASD Rule 4450(e)(2).
    \13\ See id. (requiring issuer to meet the criteria for initial 
listing set forth in NASD Rules 4420(a)(1) and (5), Rule 4420(b)(1), 
or 4420(c)(6)).
    \14\ See NASD Rule 4450(i).
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    The second 180-day grace period and the additional 90-day grace 
period on the SmallCap Market were established by pilot rules adopted 
by Nasdaq in February 2002 and modified in March 2003.\15\ Also as part 
of the pilot program, Nasdaq extended the first grace period on the 
National Market from 90 days to 180 days and established the second 
180-day grace period.\16\ This pilot program expires on December 31, 
2004.
    Nasdaq has committed to study the effect of these changes to the 
maintenance listing standards during the pilot period.\17\
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    \15\ See Securities Exchange Act Release No. 45387 (February 4, 
2002), 67 FR 6306 (February 11, 2002) (SR-NASD-2002-13); Securities 
Exchange Act Release No. 47482 (March 11, 2003), 68 FR 12729 (March 
17, 2003) (SR-NASD-2003-34).
    \16\ See id.
    \17\ See letter from Sara Nelson Bloom, Nasdaq, to Katherine A. 
England, Division of Market Regulation, Commission, dated January 
31, 2002; letter from Florence Harmon, Division of Market 
Regulation, Commission, to Sara Nelson Bloom, Nasdaq, dated April 4, 
2003.
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    Nasdaq is now proposing to amend the pilot program by further 
extending the bid price grace periods. For the National Market, Nasdaq 
would provide an issuer with a third 180-calendar-day grace period if, 
at the end of the second 180-day period, the issuer meets all of the 
initial listing standards of the National Market (except for the bid 
price test).\18\ Thus, a National Market issuer could fail the bid 
price test for a theoretical maximum of approximately 1.5 years before 
being delisted. For the SmallCap Market, Nasdaq would replace the 
current 90-day grace period (which comes after the two 180-day grace 
periods), with a grace period that would last up to the issuer's next 
shareholder meeting,\19\ provided four conditions are met: (1) The 
issuer meets all of the initial listing standards for the SmallCap 
Market (other than the bid price test); (2) the shareholder meeting is 
scheduled to occur no later than two years from the original 
notification of the bid price deficiency; (3) the issuer obtains 
shareholder approval at the meeting to carry out the reverse stock 
split; and (4) the issuer executes the reverse stock split promptly 
after the shareholder meeting. If the issuer fails to timely propose, 
obtain approval for, or promptly execute the reverse stock split, 
Nasdaq would immediately institute delisting proceedings. Thus, 
Nasdaq's proposal would allow SmallCap issuers to fail the bid price 
test for a theoretical maximum of 2.0 years before being delisted.\20\
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    \18\ Under the proposal, the conditions relating to the first 
two 180-day grace periods would remain unchanged. The first 180-day 
grace period would be automatic; the second 180-day grace period 
would be available only if the issuer meets one (as opposed to all) 
of the quantitative initial listing requirements for the National 
Market.
    \19\ As originally proposed, the second year of the grace period 
would have lasted until the next annual shareholder meeting of the 
issuer. In Amendment No. 3, Nasdaq deleted the word ``annual'' and 
clarified that the shareholder meeting at which the reverse stock 
split is approved could be a special meeting rather than a regular 
annual meeting.
    \20\ In most cases, a SmallCap issuer would have a grace period 
of less than the two full years that is theoretically available. 
This can be demonstrated with the following example. Assume a 
SmallCap issuer receives an initial notice of bid price deficiency 
from Nasdaq on October 16, 2004. The issuer uses the first and the 
second 180-day grace periods, so the date is now October 11, 2005 
(i.e., 360 days after October 16, 2004). Assume further that the 
issuer's annual shareholder meeting is scheduled to occur on 
November 16, 2005. Although there is a theoretical maximum grace 
period of two years, the grace period in this case would extend only 
to November 16, 2005--a total of one year and one month. Now assume 
instead that the issuer holds its next annual shareholder meeting on 
October 10, 2006. The third grace period, therefore, could last 
until this annual meeting, if there is no intervening shareholder 
meeting. However, if there is a special shareholder meeting before 
October 10, 2006, authorization for the reverse stock split must be 
obtained at that meeting, because the pilot rule provides that the 
third grace period for the SmallCap Market extends only until the 
next shareholder meeting in the two-year window, not a shareholder 
meeting of the issuer's choosing. See e-mail from Sara Bloom, 
Nasdaq, to Michael Gaw, Division of Market Regulation, Commission, 
dated December 9, 2003.
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    In addition, Nasdaq is proposing to amend the second of the two 
180-day grace periods in the SmallCap Market by requiring that an 
issuer, at the end of the first 180-day period, meet all of the initial 
listing requirements to the SmallCap Market before entering the second 
grace period. Currently, the issuer need meet only one of the 
quantitative initial listing requirements of the SmallCap Market to 
receive the second grace period. The first 180-day grace period would 
continue to be available without any stipulations.
    Special provisions would apply during the transition period between 
the old and new rules. An issuer currently in the delisting process for 
bid price deficiency could avail itself of any grace period to which it 
would have been entitled had the new pilot rules been in effect when 
the issuer received the original notification of the deficiency.\21\ 
Furthermore, upon Commission approval of the new pilot rules, an issuer 
that is currently using a grace period offered by the old rules could 
remain listed for the duration of the period even though such period 
would be eliminated under the new rules. For example, a SmallCap issuer 
currently in the final 90-day grace period under the old rules would be 
permitted to maintain its listing on the SmallCap Market at least until 
the end of this period. At the end of the 90 days, the issuer could 
avail itself of the new rules and remain listed up to its next 
shareholder meeting, provided that it meets all of the initial listing 
criteria of the SmallCap Market (except the bid price test) and commits 
to seek shareholder approval for a reverse stock split, receives such 
approval, and promptly thereafter carries out the reverse stock split. 
However, in no event would a SmallCap issuer be afforded a cumulative 
grace period longer than two years from the date of the notification of 
the original bid price deficiency, absent ``extraordinary 
circumstances.''\22\
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    \21\ Nasdaq has stated that, during the pendency of this rule 
proposal, panels convened pursuant to the NASD Rule 4800 Series to 
consider delistings have been granting exemptions from the bid price 
rules consistent with the new pilot grace periods.
    \22\ Existing NASD Rule 4810(b) provides that Nasdaq may grant 
exceptions to its listing rules. In Amendment No. 3, Nasdaq 
clarified that it would be unwilling to exercise this discretion to 
allow a SmallCap issuer to maintain its listing beyond two years 
from the date of the notification of the original bid price 
deficiency, absent ``extraordinary circumstances.'' Nasdaq 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, in the opinion of Nasdaq, makes it impossible 
for the issuer to effect the actions necessary to achieve compliance 
within the specified compliance period.
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    This proposal would not change the termination date of the pilot 
program. The pilot program will expire on December 31, 2004.
    Finally, Nasdaq is proposing to amend NASD Rule 4820(a) to 
reference

[[Page 75679]]

the ``Staff Warning Letter'' described in the proposed amendments to 
paragraph (e)(2) of NASD Rule 4450 and to make other minor, technical 
revisions.

III. Discussion

A. Approval of Revised Pilot Program

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the regulations 
thereunder applicable to the NASD.\23\ In particular, the Commission 
believes that the proposal is consistent with Section 15A(b)(6) of the 
Act.\24\ Section 15A(b)(6) requires, among other things, that the rules 
of a national securities association be 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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    \23\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78o-3(b)(6).
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    During the 1980s, there was widespread concern about the occurrence 
of so-called penny stock fraud which prompted Congress to enact the 
Securities Enforcement Remedies and Penny Stock Reform Act of 1990.\25\ 
This legislation provided the Commission with expanded authority to 
regulate the market in securities with a low bid price. In light of 
these developments and that fact that the provisions of the Penny Stock 
Reform Act do not apply to any security listed on Nasdaq, the 
Commission in January 1990 wrote the NASD urging it to carefully 
scrutinize Nasdaq listing applications to ensure that low-priced 
securities fully complied with all applicable standards.\26\ Nasdaq 
responded with a proposal to raise its listing standards by, among 
other things, adopting for the first time a requirement that an issuer 
maintain a minimum bid price. In its September 1991 approval order for 
that proposal, the Commission noted that there were two competing 
interests present. First, small, thinly capitalized companies had an 
interest in listing on Nasdaq to further their efforts to raise capital 
and grow their businesses. Second, Nasdaq had an interest in preventing 
suspect issuers from evading the Penny Stock Reform Act by allowing 
them to list on Nasdaq.\27\ More broadly, Nasdaq has an interest in 
establishing and maintaining investor confidence in the quality of 
securities that it allows to trade on its market. Nasdaq's listing 
regime is an ongoing effort to balance these two considerations, 
particularly with respect to the SmallCap Market, which is designed to 
allow smaller companies access to the capital markets.
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    \25\ Pub. L. 101-429, 104 Stat. 931 (October 15, 1990).
    \26\ See Securities Exchange Act Release No. 29638 (August 30, 
1991), 56 FR 44108, 44109 (September 6, 1991) (approval of SR-NASD-
90-18) (``1991 Approval'').
    \27\ See 1991 Approval, 56 FR at 44111.
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    Nasdaq's original bid price rules allowed a perpetual exemption 
from the $1 bid price minimum if the issuer met heightened requirements 
for the market value of its public float and for the amount of capital 
and surplus.\28\ In 1997, Nasdaq proposed to eliminate this alternative 
method of compliance, providing several reasons for doing so. First, 
Nasdaq believed that removing the exemption and enforcing a maintenance 
standard of a $1 bid price for all Nasdaq issuers would ``provide a 
safeguard against certain market activity associated with low-priced 
securities.'' \29\ Second, Nasdaq pointed out that, when the exemption 
was adopted, it was intended to address ``temporary adverse market 
conditions,'' not to create a permanent means of meeting the listing 
standards.\30\ Third, Nasdaq believed that ``a $1 minimum bid price 
would serve to increase investor confidence and the credibility of its 
market commensurate with its increased prominence.'' \31\
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    \28\ See Securities Exchange Act Release No. 38469 (April 2, 
1997), 62 FR 17262, 17262, 17268 (April 9, 1997) (proposing SR-NASD-
97-16) (``1997 Proposal'') (showing 1991 rules providing exemption 
from bid price maintenance standard). For the SmallCap Market, an 
issuer could use the exemption if the market value of its public 
float was at least $1 million and it had capital and surplus of at 
least $2 million. For the National Market, an issuer could use the 
exemption if the market value of its public float was at least $3 
million and it had capital and surplus of at least $4 million.
    \29\ 1997 Proposal, 62 FR at 17269.
    \30\ Id.
    \31\ Id.
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    Nasdaq's present proposal is in some ways a return to the alternate 
standard that was in effect from 1991 to 1997 since, under both 
regimes, an issuer can remain listed on Nasdaq if it meets heightened 
quantitative standards. Although the Commission found the alternate 
standard to be consistent with the Act in its 1991 approval order, the 
Commission now shares the concerns that prompted Nasdaq to rescind the 
alternative standard in 1997. An investor who purchases a security on 
the Nasdaq Stock Market should have reason to assume that the security 
has met all of the minimum standards to obtain a listing there, 
including the bid price standard. Moreover, as Nasdaq observed in 1997, 
enforcing a minimum bid price helps deter abusive market activity 
sometimes associated with low-priced, thinly capitalized securities. 
The Commission agrees with the NASD's 1997 statement that the $1 
minimum bid price generally ``serve[s] to increase investor confidence 
and the credibility of its market.''\32\
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    \32\ 1997 Proposal, 62 FR at 17269.
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    Furthermore, the Commission echoes Nasdaq's concern in rescinding 
the alternate standard that derogations from the bid price standard are 
meant to address ``temporary adverse market conditions.'' The 
Commission agrees with Nasdaq that ``at times companies experience 
temporary adverse market conditions that cause the share price of their 
security to fall below $1 without having a serious impact on the health 
or viability of the company.''\33\ On that basis, the Commission was 
able to approve the alternate standard of compliance that allowed for 
the original, indefinite exemption from the bid price test. 
Nevertheless, an issuer should not be permitted to rely for an extended 
period of time on an exemption premised on ``temporary adverse market 
conditions.'' The Commission is concerned that the length of the grace 
periods for bid price deficiency in this case raises concerns about 
investor protection. Transparency is one of the fundamental aspects of 
any set of listing standards. If a listing standard is suspended for 
too long, the standard is not transparent and the investor protection 
principles underlying the listing standards could be compromised.
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    \33\ 1991 Approval, 56 FR at 44111.
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    Despite these concerns, the Commission does not presently have 
reason to believe that Nasdaq's proposal is inconsistent with the Act. 
The present proposal differs from the earlier alternative to the bid 
price test in that the grace periods now are only temporary (up to 2.0 
years for the SmallCap Market and 1.5 years for the National Market), 
whereas under the old rules an issuer that met the heightened 
quantitative standards could keep its listing indefinitely despite a 
bid price below $1. The present proposal also requires issuers that 
fail the bid price test to meet all of the initial listing criteria 
(except for the bid price test), whereas the old rules required issuers 
to meet just two heightened quantitative criteria (market value of the 
public float and amount of capital and surplus). These additional 
requirements that an issuer must meet to qualify for the grace periods 
should offer additional

[[Page 75680]]

reassurance that the issuer remains a viable business vehicle despite 
its low bid price.
    Nasdaq has provided the Commission with a discussion of its 
surveillance program for securities that fall below a $1 bid price. The 
Commission believes that this program, designed to detect fraudulent 
and abusive trading activity, should further the protection of 
investors and the public interest.
    For these reasons, the Commission is approving this pilot proposal 
for extending the bid price grace periods. As noted above, Nasdaq 
previously has committed to study the effect of the pilot changes to 
its maintenance listing standards.\34\ This data will be essential in 
analyzing--if and when Nasdaq seeks permanent approval for the rules 
allowing bid price grace periods--whether derogations from the bid 
price standards undermine the principles of the Act as they are 
reflected in Nasdaq's listing rules. Previously, the Commission 
required that Nasdaq submit the study six months prior to the 
expiration of the pilot (i.e., by June 30, 2004).\35\ However, because 
only 12 months remain in the pilot period, the Commission now believes 
that it would be appropriate to allow Nasdaq to submit the study three 
months prior to the expiration of the pilot (i.e., by September 30, 
2004). In view of its concerns about the potential for manipulation in 
the market for low-priced, thinly capitalized securities, the 
Commission believes that it would be difficult to permit any extension 
of the pilot provisions without first analyzing the results of Nasdaq's 
study.\36\
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    \34\ See supra note 17.
    \35\ See letter from Florence Harmon, Division of Market 
Regulation, Commission, to Sara Nelson Bloom, Nasdaq, dated April 4, 
2003.
    \36\ In addition, following issuance of this approval order, 
staff of the Commission's Division of Market Regulation will send a 
letter to Nasdaq setting forth in more detail the data that Nasdaq 
should provide in its study.
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B. Accelerated Approval of Amendment No. 3

    Pursuant to Section 19(b)(2) of the Act,\37\ the Commission finds 
good cause for approving the proposal, as revised by Amendment No. 3, 
prior to the thirtieth day after the date that the notice of the 
amended proposal was published in the Federal Register. No comments 
were received on the original proposal, and the Commission believes 
that Amendment No. 3 does not materially alter the proposal and is 
intended only to make certain technical clarifications. Accordingly, 
the Commission is accelerating approval of the proposal, as amended.
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    \37\ 15 U.S.C. 78s(b)(2).
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IV. Text of Amendment No. 3

    In Amendment No. 3, Nasdaq proposed further amendments to NASD Rule 
4310(c), noted below. The base text is that proposed in Amendment No. 2 
(i.e., how the rule would appear if only Amendment No. 2 were approved 
by the Commission). Changes made by Amendment No. 3 are in italic; 
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 shall be 
afforded an additional 180 day compliance period, provided, that on the 
180th day of the first compliance period, the issuer demonstrates that 
it meets the criteria for initial inclusion set forth in Rule 4310(c) 
(except for the bid price requirement set forth in Rule 4310(c)(4)) 
based on the issuer's most recent public 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 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 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 shareholder meeting 
scheduled to occur no later than two years from the original 
notification of the bid price deficiency, provided the issuer commits 
to seek shareholder approval at that meeting for a reverse stock split 
to address 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. Compliance can be achieved during any compliance period 
by meeting the applicable standard for a minimum of 10 consecutive 
business days.
* * * * *
    Amendment No. 3 clarifies that the shareholder meeting referred to 
in the proposed changes to NASD Rule 4310(c)(8)(D) need not be the 
annual shareholder meeting, but could also be a special shareholder 
meeting. A special meeting could be called for the express purpose of 
seeking shareholder approval for a reverse stock split to cure the 
issuer's bid price deficiency within the grace period allowed by 
proposed NASD Rule 4310(c)(8)(D). Nasdaq noted in Amendment No. 3 that, 
in some circumstances, the next annual meeting could fall outside the 
two-year deadline for such action and a special meeting would therefore 
be required.
    Amendment No. 3 also clarifies the meaning of the term 
``extraordinary circumstances'' used in regard to whether Nasdaq would 
exercise its discretion under NASD Rule 4810(b) to grant additional 
exceptions to its bid price maintenance standard.
    Amendment No. 3 can be obtained from the Commission's Public 
Reference Room or from the principal offices of Nasdaq.

[[Page 75681]]

V. Solicitation of Comments on Amendment No. 3

    Interested persons are invited to submit written data, views, and 
arguments on Amendment No. 3, including whether the amendment 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. Comments 
also may be submitted electronically at the following e-mail address: 
[email protected]. All comments should refer to File No. SR-NASD-
2003-44. This file number should be included on the subject line if e-
mail is used. To help the Commission process and review comments more 
efficiently, comments should be sent in hardcopy or by e-mail but not 
by both methods. 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 Nasdaq. All submissions should refer to File No. 
SR-NASD-2003-44 and should be submitted by January 21, 2004.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\38\ that the proposed rule change (SR-NASD-2003-44) and Amendment 
Nos. 1 and 2 are approved, and that Amendment No. 3 is approved on an 
accelerated basis.
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    \38\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-32171 Filed 12-30-03; 8:45 am]
BILLING CODE 8010-01-P