[Federal Register Volume 69, Number 232 (Friday, December 3, 2004)]
[Notices]
[Pages 70299-70302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3452]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50740; File No. SR-NASD-2004-140]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto To Eliminate Entry and Application Fees for Exchange-
Listed Issuers Transferring Listings to Nasdaq

November 29, 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 September 20, 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. On November 
12, 2004, Nasdaq amended 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    \3\ See Amendment No. 1 replaced and superseded the original 
filing in its entirety.

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[[Page 70300]]

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to eliminate the entry and application fees imposed 
upon issuers listed on a national securities exchange that transfer 
their listing to Nasdaq. Nasdaq will make the proposed rule change 
effective retroactively for any issuer listing on Nasdaq on or after 
September 20, 2004 (the date Nasdaq originally filed this proposal with 
the Commission). Accordingly, an issuer that switches its listing to 
Nasdaq between September 20, 2004 and such date as Commission approval 
of the filing may occur would receive a refund of the entry and 
application fee paid.
    The text of the proposed rule change is below. Proposed new 
language is in italics.\4\
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    \4\ Changes are marked to the rule text that appears in the 
electronic NASD Manual found at http://www.nasd.com. No pending rule 
filings would affect the portions of these rules amended herein.
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4510. The Nasdaq National Market

(a) Entry Fee
    (1)-(5) No change.
    (6) The fees described in this Rule 4510(a) shall not be applicable 
to any issuer that is listed on a national securities exchange and that 
transfers its listing to the Nasdaq National Market.
    (b)-(e) No change.

4520. The Nasdaq SmallCap Market

(a) Entry Fee
    (1)-(5) No change.
    (6) The fees described in this Rule 4520(a) shall not be applicable 
to any issuer that is listed on a national securities exchange and that 
transfers its listing to the Nasdaq SmallCap 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
    Nasdaq is proposing to eliminate the entry and application fees 
under NASD Rules 4510(a) and 4520(a) for any company listed on a 
national securities exchange (an ``exchange'') that transfers its 
listing to the Nasdaq National Market or the Nasdaq SmallCap Market 
(i.e., the issuer becomes listed on Nasdaq and ceases to be listed on 
an exchange). Nasdaq believes that the elimination of such fees is 
justified on several grounds. An issuer that already paid initial 
listing fees to an exchange when it became a publicly traded company is 
reluctant to pay a second initial listing fee to another listing venue, 
even if it concludes that Nasdaq offers the issuer and its investors 
superior services and market quality. With the benefit of statistics 
mandated by Rule 11Ac1-5 under the Act,\5\ an issuer seeking the better 
market may compare the execution speed and quality on its current venue 
with speed and quality of comparable stocks trading on Nasdaq and 
conclude that a change in listing would be beneficial. Nevertheless, 
the benefits of the switch must currently be weighed against the cost 
of initial inclusion, which ranges from $25,000 to $150,000, depending 
on the issuer's market tier and the number of shares outstanding. Since 
the expected benefits of the switch would be diffused among the 
issuers' investors and realized over time, but the initial listing fees 
must be paid by the issuer immediately, Nasdaq is concerned that 
issuers that stand to benefit may nevertheless opt to forgo a switch. 
As such, Nasdaq believes that assessing the initial fees against 
issuers that have already paid fees to list on another market imposes a 
burden on the competition between exchange markets and markets other 
than exchange markets, a competition that Nasdaq believes is one of the 
central goals of the national market system.\6\
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    \5\ 17 CFR 240.11Ac1-5.
    \6\ See 15 U.S.C. 78k-1.
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    Nasdaq's concern as to the undue burden on competition imposed by a 
duplicative initial listing fee is especially acute in the case of New 
York Stock Exchange (``NYSE'') listed companies, whose opportunities to 
effect a switch have, until recently, been constrained by NYSE Rule 
500.\7\ Nasdaq had long advocated the repeal of NYSE Rule 500, in favor 
of a competitive environment in which significant barriers to listing 
transfers do not exist and listed companies can move quickly and easily 
to the market that best suits their needs. In January 2004, Nasdaq 
announced a program to allow NYSE companies to take advantage of the 
repeal of NYSE Rule 500 by adding a second listing on Nasdaq and 
thereby undertake a focused comparison of the services and market 
quality offered by each listing venue. To date, seven companies have 
taken advantage of this program. The explicit goal of this program has 
always been to encourage the eventual switch of companies that dual 
list, once they have experienced first-hand the benefits of their 
Nasdaq listing.\8\ For that reason, Nasdaq adopted a one-year waiver of 
entry, annual, and listing of additional shares fees for NYSE companies 
that dual list, and a waiver of entry fees (the same fees that are the 
subject of this proposed rule change) for any issuer that switches its 
listing between January 12, 2004, and December 31, 2004.\9\ Without a 
waiver for switches, companies that have dual listed would nevertheless 
be forced to weigh the benefits of a Nasdaq listing against the 
requirement to pay a duplicative entry fee. In effect, NYSE Rule 500 
would have been replaced with a burden on listing transfers imposed by 
Nasdaq itself. To avoid such an incongruous result, Nasdaq believes 
that the temporary fee waiver for switches adopted earlier this year 
should be made permanent.
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    \7\ See Securities Exchange Act Release No. 48720 (October 30, 
2003), 68 FR 62645 (November 5, 2003) (SR-NYSE-2003-23).
    \8\ It is Nasdaq's expectation that a comparison of the 
performance of issuers in the dual listing program may also prove 
instructive to other NYSE issuers and issuers listed on other 
markets, but that full scale entry fees may impede such issuers from 
switching.
    \9\ Securities Exchange Act Release No. 49286 (February 19, 
2004), 69 FR 8999 (February 26, 2004) (SR-NASD-2004-04). Nasdaq 
notes that in SR-NASD-2004-04, it indicated that a dually listed 
company that transfers to Nasdaq after December 31, 2004 would pay 
``the entry fee or a portion thereof.'' As indicated in this filing, 
however, Nasdaq has now concluded that the imposition of a 
duplicative entry fee is inequitable to switching issuers and places 
an undue burden on competition.
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    Nasdaq also believes that the proposed rule change is justified 
from the standpoint of Nasdaq's experience with regard to the time and 
effort required to review applications of issuers that are already 
listed on an exchange. Although companies that switch their listings 
are reviewed for compliance with Nasdaq listing standards in the same 
manner as any other company applying for listing on Nasdaq, Nasdaq 
believes that the average application of a switching issuer is less 
likely to involve time-consuming

[[Page 70301]]

regulatory issues than the average application from a company 
conducting an initial public offering or a company that is applying to 
Nasdaq after being delisted by another market. This is, in part, due to 
the ongoing scheme of regulation to which such issuers have been 
subject. Moreover, because such companies are already familiar with the 
standards of conduct imposed upon public companies by listing markets, 
their applications are generally presented with a high degree of 
completeness and accuracy. Finally, and most significant, because such 
companies already satisfy the listing standards of another self-
regulatory organization, there is a higher likelihood that they also 
comply with Nasdaq's listing standards. Thus, although Nasdaq always 
conducts a full and independent review of each issuer's compliance, and 
will continue to do so with respect to issuers switching from 
exchanges, Nasdaq believes the probability that a switching issuer will 
be found not in compliance and therefore denied access to a Nasdaq 
listing is low. As a result, Nasdaq believes the probability that 
Nasdaq staff will be required to devote the time and effort required to 
establish a sufficient record to support a decision to deny listing and 
to defend such a decision against appeal under the NASD Rule 4800 
Series is also low. By contrast, when an applicant is denied a listing, 
Nasdaq receives only a $5,000 application fee (and possibly hearing 
fees under the NASD Rule 4800 Series), but must frequently devote 
resources to defending its decision.
    Nasdaq understands that the effect of this proposed rule change 
will be to impose a lower level of listing fees on switching issuers 
than on some other issuers.\10\ In light of the fact that Nasdaq will 
collect the same level of annual fees and listing of additional shares 
fees from such issuers, however, Nasdaq believes that the difference 
does not constitute an inequitable allocation of fees. Notably, 
Nasdaq's fee schedule and the fee schedules of other self-regulatory 
organizations assess varying levels of fees on issuers based on 
reasoned assessments of the issuers' varying circumstances. For 
example, both entry fees and annual fees are assessed on a sliding 
scale that uses total shares outstanding and the issuer's market tier 
(i.e., Nasdaq National Market or SmallCap Market) as a corollary to the 
complexity of reviewing each issuer's compliance with listing standards 
and each issuer's ability to pay. Inevitably, the use of such a scale 
means that different issuers pay different amounts for their listing on 
Nasdaq. Similarly, issuers listed on Nasdaq are not subjected to entry 
fees under NASD Rules 4510(a) and 4520(a) for listing an additional 
security if they have already paid the maximum entry fee, and annual 
fees for listing of American Depositary Receipts on the Nasdaq National 
Market are significantly lower than annual fees for listing of common 
stock, in recognition of the issuer's payment of listing fees to a 
foreign market. In light of a switching issuer's prior payment to 
another market and the generally lower burdens associated with 
reviewing a switching issuer's eligibility, Nasdaq believes that 
eliminating initial fees for switching issuers is entirely consistent 
with an equitable allocation of listing fees. Finally, Nasdaq notes 
that it does not expect the financial impact of this proposed rule 
change to be material, either in terms of increased levels of annual 
fees from switching issuers or in terms of diminished entry fees. Quite 
simply, even with the proposed rule change in place, Nasdaq understands 
that a change in listing venue is a major step for an issuer, and 
therefore Nasdaq does not expect that the number of switching issuers 
in a given time frame will be sufficient to have a material effect on 
financial resources. Accordingly, the proposed rule change will not 
impact Nasdaq's resource commitment to its regulatory oversight of the 
listing process or its regulatory programs.
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    \10\ See Securities Exchange Act Release No. 50741 (November 29, 
2004) (SR-NASD-2004-142), which established fees for companies with 
a dual listing on the New York Stock Exchange and Nasdaq.
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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,\11\ in general, and with 
sections 15A(b)(5) and 15A(b)(6) of the Act,\12\ in particular, in that 
it is designed to provide an equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using any facility or system which the NASD operates or controls, and 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system. As described above, Nasdaq 
believes the elimination of entry fees for exchange-listed companies 
switching to Nasdaq is equitable and reasonable because requiring these 
companies to pay such fees would impose costs that are duplicative of 
fees that they have already paid to another market, and is also 
justified from the standpoint of Nasdaq's experience with regard to the 
time and effort generally required to process applications of such 
companies. In addition, Nasdaq believes this change will enable 
exchange-listed companies to determine more easily the benefits of 
switching to Nasdaq, thereby eliminating a burden on competition among 
markets in accordance with the provisions of section 11A(a)(1)(C)(ii) 
of the Act.\13\
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(5) and (6).
    \13\ 15 U.S.C. 78k-1(a)(1)(C)(ii).
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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, as amended. Specifically, 
Nasdaq believes that the proposed rule change will enhance competition 
by allowing issuers that are listed on an exchange to move their 
listing to Nasdaq without being required to pay a fee that is 
duplicative of fees already paid to an exchange.

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. 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

[[Page 70302]]

     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2004-140 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-2004-140. 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-2004-140 and should be submitted on or before December 27, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3452 Filed 12-2-04; 8:45 am]
BILLING CODE 8010-01-P