[Federal Register Volume 69, Number 92 (Wednesday, May 12, 2004)]
[Notices]
[Pages 26422-26424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10760]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49660; File No. SR-NASD-2004-070]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Permit Shareholder Action by Written 
Consent

May 6, 2004.
    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 April 23, 2004, 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. Pursuant to 
Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) 
thereunder,\4\ Nasdaq has designated this proposal as non-
controversial, which renders the proposed rule change effective 
immediately upon filing. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to clarify that listed companies may solicit 
written consents from shareholders in lieu of a special shareholder 
meeting.
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are in brackets.\5\
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    \5\ Nasdaq represents that the proposed rule change is marked to 
show changes to NASD Rule 4350(i)(6) as currently reflected in the 
electronic NASD manual available at www.nasd.com. No other pending 
or approved rule filings would affect the text of the Rule.
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* * * * *

4350. Qualitative Listing Requirements for Nasdaq National Market and 
Nasdaq Small Cap Market Issuers Except for Limited Partnerships

     (a)-(h) No Change.
    (i) Shareholder Approval
     (1)-(5) No Change.
    (6) Where shareholder approval is required, the minimum vote which 
will constitute shareholder approval shall be a majority of the total 
votes cast on the proposal. These votes may be cast in person, [or] by 
proxy at a meeting of shareholders or by written consent in lieu of a 
special meeting to the extent permitted by applicable state and federal 
law and rules (including interpretations thereof), including, without 
limitation, SEC Regulations 14A and 14C. Nothing contained in this Rule 
4350(i)(6) shall affect an issuer's obligation to hold an annual 
meeting of shareholders as required by Rule 4350(e).
     (j)-(n) 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
    Nasdaq represents that the proposed rule change is designed to 
clarify that listed companies may solicit written consents from 
shareholders in lieu of a shareholder meeting.
    In general, state law provides two ways in which matters may be 
brought before the shareholders of a corporation for their 
consideration. Shareholders either can take action via a meeting of 
shareholders (voting in person or by proxy) or by written consent of 
shareholders in lieu of a meeting. NASD Rule 4350 contains a number of 
provisions related to shareholder meetings,\6\ proxy solicitations \7\ 
and specific actions and transactions that require shareholder 
approval.\8\ State law and a company's charter and bylaws often require 
shareholder approval of other corporate actions. To the extent an 
issuer seeks shareholder approval by convening a special meeting of 
shareholders, NASD Rule 4350 requires that the issuer provide 
shareholders with a proxy solicitation that conforms to SEC 
requirements, primarily Rule 14a-1 et seq. and Regulation 14A under the 
Act. Many states permit corporate action without a shareholder meeting 
upon the written consent of specified percentage of shareholders. In 
certain circumstances, federal securities laws do not require that the 
corporation solicit the consent of all shareholders. Instead, Section 
14(c) of the Act and Regulation 14C under the Act require that the 
corporation furnish all shareholders with an information statement that 
contains substantially the same disclosure as a proxy prior to the date 
the corporate action is taken.\9\
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    \6\ NASD Rule 4350(e) requires that each issuer must hold an 
annual meeting of shareholders and provide written notice to Nasdaq.
    \7\ NASD Rule 4350(g) requires that each issuer solicit proxies 
and provide proxy statements for all meetings of shareholders and 
provide copies of such proxy solicitations to Nasdaq.
    \8\ NASD Rule 4350(i) requires shareholder approval of a variety 
of transactions including equity compensation plans and 
arrangements, transactions involving a change in control and sales 
of discounted stock and other potentially dilutive transactions.
    \9\ 15 U.S.C. 78n(c) and 17 CFR 240.14C.
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    Nasdaq believes that it is appropriate that its listing standards 
under NASD Rule 4350(i) permit action by written consent in lieu of a 
special meeting when such action is permitted by state and federal law. 
While in the past Nasdaq has interpreted NASD Rule 4350(i) to permit 
action by written

[[Page 26423]]

consent in lieu of a special meeting, this interpretation is not clear 
from the text of the rule. In this regard, Nasdaq believes that its 
interpretation is consistent with standard corporate practice that has 
long been sanctioned by law. Therefore, Nasdaq believes that the 
proposed amendment provides greater transparency by inserting this 
interpretation into the text of the rule. Nasdaq notes that the SEC has 
approved similar proposed rule changes by the New York Stock Exchange, 
Inc. (``NYSE'') and the American Stock Exchange LLC (``Amex'') to 
permit shareholder action by written consent.\10\
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    \10\ See Securities Exchange Act Release Nos. 46654 (October 11, 
2002), 67 FR 64687 (October 21, 2002) (NYSE) and 46904 (November 25, 
2002), 67 FR 7244 (December 4, 2002) (Amex).
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    Nasdaq believes that annual meetings serve a useful purpose by 
providing shareholders with the opportunity to meet with 
representatives of management and the board of directors. Therefore, 
written consent would only be permitted in lieu of special meetings of 
shareholders and NASD Rule 4350(e) will continue to require that 
issuers hold annual meetings of shareholders.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\11\ in general and with 
Section 15A(b)(6) of the Act,\12\ in particular, in that the proposal 
is designed to prevent fraudulent and manipulative acts and practices, 
and, in general, to protect investors and the public interest. 
Specifically, Nasdaq believes that the proposed rule change will 
provide greater clarity to Nasdaq's listing standards, thereby allowing 
it to more efficiently address listing and policy matters that often 
involve investor protection issues and providing greater uniformity 
with the rules of the NYSE and Amex.
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(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

    Nasdaq neither solicited nor received written comments with respect 
to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing proposed rule change has become effective upon filing 
on April 23, 2004 pursuant to Section 19(b)(3)(A)\13\ of the Act and 
Rule 19b-4(f)(6)\14\ thereunder because the proposal: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change at least five business days 
prior to the filing date of the proposed rule change.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ As required under Rule 19b-4(f)(6)(iii), Nasdaq provided 
the Commission with written notice of its intent to file the 
proposed rule change at least five business days prior to the filing 
date.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and public interest. Nasdaq has requested that 
the Commission waive the 30-day pre-operative waiting period to permit 
Nasdaq to implement the amendment immediately, thereby enhancing 
transparency for its listed companies and investors and increasing 
uniformity in listing standards among stock markets.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission, consistent with the protection of investors and the 
public interest, has waived the 30-day operative date requirement for 
this proposed rule change, and has determined to designate the proposed 
rule change as operative on April 23, 2004, the date it was submitted 
to the Commission, in order to implement the rule immediately for 
consistency in listing standards among the NYSE, Amex, and Nasdaq.\17\ 
At any time within 60 days of the filing of the proposed rule change, 
the Commission may summarily abrogate such rule change if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.
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    \17\ For the purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rules 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f)
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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. Comments may be 
submitted by any of the following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number SR-NASD-2004-070 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-070. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
NASD. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASD-2004-070 and should be submitted on or before June 2, 2004.


[[Page 26424]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-10760 Filed 5-11-04; 8:45 am]
BILLING CODE 8010-01-P