[Federal Register Volume 69, Number 233 (Monday, December 6, 2004)]
[Notices]
[Pages 70486-70488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3473]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50753; File No. SR-NASD-2004-147]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval to Amendment 
No. 1 To Modify the Bid Price Compliance Periods on the Nasdaq National 
Market and SmallCap Market and To Require Non-Canadian Foreign Issuers 
To Satisfy the Bid Price and Market Value of Publicly Held Shares 
Requirements Applicable to Domestic Issuers for Continued Listing on 
the SmallCap Market

November 29, 2004.

I. Introduction

    On October 1, 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'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify the bid price compliance periods on the 
Nasdaq National Market and the Nasdaq SmallCap Market and to require 
non-Canadian foreign issuers to satisfy the minimum bid price and 
market value of publicly held shares requirements applicable to 
domestic issuers for continued listing on the Nasdaq SmallCap Market. 
The proposed rule change was published for notice and comment in the 
Federal Register on October 21, 2004.\3\ The Commission received no 
comments on the proposal. On November 24, 2004, Nasdaq filed Amendment 
No. 1.\4\ This order approves the proposed rule change. Simultaneously, 
the Commission provides notice of filing of Amendment No. 1 and grants 
accelerated approval of Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 50541 (October 14, 
2004), 69 FR 61888.
    \4\ In Amendment No. 1, Nasdaq made a technical correction to 
the text of NASD Rule 4450(i)(1).
---------------------------------------------------------------------------

II. Description of the Proposal

A. Modification of the Bid Price Compliance Periods

    Nasdaq rules relating to the minimum bid price requirement were 
approved on a pilot basis by the Commission in February 2002 \5\ and 
modified in March 2003 \6\ and December 2003.\7\ The pilot, which 
expires on December 31, 2004, provides 180 calendar days for a National 
Market issuer trading below $1.00 to regain compliance. Upon the 
expiration of the first 180 calendar days, an issuer able to satisfy 
all initial listing criteria is eligible for an additional grace period 
of another 180 calendar days. Thereafter, a National Market issuer may 
phase down to the SmallCap Market to take advantage of an additional 
grace period if it meets all SmallCap initial listing criteria except 
for bid price.\8\ If a National Market issuer is not in compliance 45 
days before the expiration of its second grace period, Nasdaq would 
send a warning letter to the issuer and the issuer could request a 
hearing at that time, if one were desired.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 45387 (February 4, 
2002), 67 FR 6306 (February 11, 2002) (SR-NASD-2002-13).
    \6\ See Securities Exchange Act Release No. 47482 (March 11, 
2003), 68 FR 12729 (March 17, 2003) (SR-NASD-2003-34).
    \7\ See Securities Exchange Act Release No. 48991 (December 23, 
2003), 68 FR 75677 (December 31, 2003) (SR-NASD-2003-44), amended by 
Securities Exchange Act Release No. 48991A (February 5, 2004), 69 FR 
6707 (February 11, 2004).
    \8\ See infra Section III.
---------------------------------------------------------------------------

    The current pilot also provides 180 calendar days for a SmallCap 
Market issuer to regain compliance. Upon the expiration of the first 
180-day grace period, an issuer satisfying all initial

[[Page 70487]]

listing criteria for the SmallCap Market is eligible for an additional 
grace period of 180 days. Thereafter, an issuer can receive a third 
grace period, up to the time of its next shareholders meeting (but not 
more than two years from the original notice of deficiency), if the 
issuer seeks shareholder approval for a reverse stock split at that 
meeting and implements the reverse stock split promptly afterward.
    Having reviewed its experience with the pilot program, Nasdaq 
proposes to modify the bid price rules and seeks permanent Commission 
approval of the revised rules. Under the proposal, a National Market 
issuer would now have 180 days to regain compliance on the National 
Market, after which it could transfer to the SmallCap Market if it 
complied with all SmallCap initial inclusion requirements except for 
bid price.\9\ The new rules would provide a SmallCap issuer with an 
initial 180-calendar-day period to regain compliance. Thereafter, the 
issuer could receive a second 180-day grace period if it complied with 
all initial SmallCap inclusion requirements except for bid price. The 
third grace period under the pilot rules, which allows a SmallCap 
issuer to remain listed while it seeks shareholder approval of a 
reverse stock split, would be eliminated. An issuer in a compliance 
period under the pilot rules at the time the new rules become effective 
would be able to finish that period, but thereafter could only use 
grace periods afforded by the new rules.
---------------------------------------------------------------------------

    \9\ See NASD Rule 4450(i). See also infra Section III.
---------------------------------------------------------------------------

B. Nasdaq SmallCap Market Continued Listing Requirements for non-
Canadian Foreign Issuers

    Nasdaq proposes to amend NASD Rule 4320 to require non-Canadian 
foreign issuers to satisfy the minimum bid price and market value of 
publicly held shares requirements applicable to domestic issuers for 
continued listing on the SmallCap Market. Currently no such continued 
listing requirements apply to SmallCap non-Canadian foreign 
issuers.\10\ To allow these issuers sufficient time to take any 
necessary action to achieve compliance, Nasdaq proposes that this 
requirement be effective 18 months after approval by the Commission.
---------------------------------------------------------------------------

    \10\ A rule change to impose such requirements for initial 
listing by non-Canadian foreign issuers was approved in September 
2004. Under this change, all non-Canadian foreign issuers are 
required to meet the same initial inclusion bid price and market 
value of publicly held shares requirements as domestic and Canadian 
issuers. See Securities Exchange Act Release No. 50458 (September 
28, 2004), 69 FR 59286 (October 4, 2004).
---------------------------------------------------------------------------

III. Amendment No. 1

    In Amendment No. 1 Nasdaq modified the text of NASD Rule 4450(i)(1) 
to provide that a National Market issuer deemed not in compliance prior 
to the expiration of the compliance period for bid price may transfer 
to SmallCap Market if it meets all applicable requirements for initial 
inclusion on the SmallCap Market. The prior text of the rule referred 
to requirements for ``continued'' rather than ``initial'' inclusion.
    According to Nasdaq, Amendment No. 1 corrects an inconsistency in 
both the existing and proposed rule concerning the appropriate standard 
pursuant to which an issuer may transfer between the Nasdaq National 
Market and the SmallCap Market. This inconsistency first arose 
following the approval of SR-NASD-2003-44.\11\ In SR-NASD-2003-44, 
Nasdaq proposed that a SmallCap issuer must meet all initial inclusion 
requirements for the SmallCap Market to be eligible for an additional 
compliance period.\12\ As such, an issuer that transferred from the 
National Market would not be eligible for an additional compliance 
period on the SmallCap Market unless it met all SmallCap initial 
inclusion standards.
---------------------------------------------------------------------------

    \11\ Securities Exchange Act Release No. 48991 (December 23, 
2003), 68 FR 75677 (December 31, 2003).
    \12\ Prior to approval of this rule change, issuers listed on 
the SmallCap Market (including those that transfer from the Nasdaq 
National Market) were eligible for an additional compliance period 
based on meeting only the core initial inclusion requirements 
contained in NASD Rule 4310(c)(2)(A) and the remaining continued 
inclusion requirements for the SmallCap Market.
---------------------------------------------------------------------------

    In addition, NASD Rules 4310(c)(8)(D) and 4320(e)(2)(E)(ii) would 
permit an issuer to qualify for a second 180-day compliance period on 
the SmallCap Market only if that issuer met all criteria for initial 
inclusion (except for the bid price requirement) on the SmallCap 
Market. Thus, even if an issuer were permitted to transfer to the 
SmallCap Market based on the continued inclusion criteria at the end of 
its compliance period on the National Market, the issuer would be 
subject to immediate delisting because it would be ineligible for any 
additional compliance periods with respect to its bid price deficiency.
    The text of NASD Rule 4450(i)(1) as Nasdaq is proposing to amend it 
is below. New text is in italics and deletions are in brackets.

    If a National Market issuer has not been deemed in compliance 
prior to the expiration of [a] the compliance period for bid price 
provided in Rule 4450(e)(2), it may transfer to The Nasdaq SmallCap 
Market, provided that it meets all applicable requirements for 
[continued] initial inclusion on the SmallCap Market set forth in 
Rule 4310(c) [(other than the minimum bid price requirement of Rule 
4310(c)(4))] or Rule 4320(e), as applicable, other than the minimum 
bid price requirement. A Nasdaq National Market issuer transferring 
to The Nasdaq SmallCap Market must pay the entry fee set forth in 
Rule 4520(a). The issuer may also request a hearing to remain on The 
Nasdaq National Market pursuant to the Rule 4800 Series.

IV. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, as 
amended, and finds that it is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities association.\13\ In particular, the Commission believes that 
the proposal is consistent with Section 15A(b)(6) of the Act,\14\ which 
requires that an association's rules be designed to prevent fraudulent 
and manipulative acts and practices, promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of, a free and open market and, in general, protect investors and the 
public interest.
---------------------------------------------------------------------------

    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The Commission believes that a 180-day grace period for bid price 
compliance on the Nasdaq National Market and a 360-day grace compliance 
period on the SmallCap Market will allow a reasonable period for 
issuers to regain compliance with the bid price rules before being 
subject to delisting. These time frames are generally consistent with 
bid price compliance periods available on other markets that have been 
approved by the Commission.\15\ The Commission also believes that 
requiring non-Canadian foreign issuers to satisfy the same continued 
listing standards for minimum bid price and market value of publicly 
held shares applicable to domestic issuers is reasonable and will 
establish consistent standards applicable to all SmallCap issuers.
---------------------------------------------------------------------------

    \15\ See, e.g., NYSE Listed Company Manual, Rule 802.01C (Price 
Criteria for Capital or Common Stock); Securities Exchange Act 
Release No. 42194 (December 1, 1999), 64 FR 69311 (December 10, 
1999) (SR-NYSE-99-29); Securities Exchange Act Release No. 44481 
(June 27, 2001), 66 FR 35303 (July 3, 2001) (SR-NYSE-2001-02).
---------------------------------------------------------------------------

    The Commission finds good cause for approving proposed Amendment 
No. 1 before the 30th day after the date of publication of notice of 
filing thereof in the Federal Register. NASD Rule

[[Page 70488]]

4450(i)(1) currently states that a National Market issuer deemed not in 
compliance prior to the expiration of the compliance period may 
transfer to the SmallCap Market if it meets all applicable requirements 
for continued inclusion on the SmallCap Market. Nasdaq contends that 
use of the word ``continued'' in Rule 4450(i)(1) is inadvertent and has 
provided evidence that the rule language instead should have used the 
word ``initial'' from its inception. The Commission agrees and finds 
good cause for accelerating approval of Amendment No. 1, thereby 
allowing the text of NASD Rule 4450(i)(1) to mirror the original intent 
of the rule without delay.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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-2004-147 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-2004-147. 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 Amendment No. 1 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-2004-147 and should be 
submitted on or before December 27, 2004.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (File No. SR-NASD-2004-147) be, 
and it hereby is, approved, and that Amendment No. 1 to the proposed 
rule change be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3473 Filed 12-3-04; 8:45 am]
BILLING CODE 8010-01-P