[Federal Register Volume 70, Number 72 (Friday, April 15, 2005)]
[Notices]
[Pages 19980-19982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1785]



[[Page 19980]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51511; File No. SR-NASD-2005-044]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to NASD Rules 4510(a) and 4520(a) to Clarify Rule Language 
Regarding Entry and Application Fees for Issuers Listed on a National 
Securities Exchange That Transfer Their Listing to Nasdaq

April 8, 2005.
    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 4, 2005, 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. Nasdaq filed 
this proposal pursuant to Section 19(b)(3)(A)(i) \3\ of the Act and 
Rule 19b-4(f)(1) thereunder as constituting a stated policy, practice, 
or interpretation with respect to the meaning, administration, or 
enforcement of an existing rule,\4\ which renders the proposal 
effective upon filing with the Commission. 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)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is amending NASD Rules 4510(a) and 4520(a) to clarify rule 
language regarding entry and application fees for issuers listed on a 
national securities exchange that transfer their listing to Nasdaq. The 
text of the proposed rule change is below. Proposed new language is in 
italics; proposed deletions are in brackets.\5\
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    \5\ 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] with respect to any securities that (i) are 
listed on a national securities exchange but not listed on Nasdaq, or 
(ii) are listed on the New York Stock Exchange and Nasdaq, if the 
issuer of such securities [and that] transfers [its] their listing 
exclusively to the Nasdaq National Market.
    (7) No change.
    (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] with respect to any securities that (i) are 
listed on a national securities exchange but not listed on Nasdaq, or 
(ii) are listed on the New York Stock Exchange and Nasdaq, if the 
issuer of such securities [and that] transfers [its] their listing 
exclusively to the Nasdaq SmallCap Market.
    (7) No change.
    (b) No change.
    (c) Annual Fee
    (1)-(4) No change.
    (5) Total shares outstanding means the aggregate of all classes of 
equity securities included in The Nasdaq SmallCap Market as shown in 
the issuer's most recent periodic report required to be filed with the 
issuer's appropriate regulatory authority or in more recent information 
held by Nasdaq. In the case of foreign issuers, total shares 
outstanding shall include only those shares issued and outstanding in 
the United States.
    [(5)] (6) In lieu of the fees described in Rule 4510(c)(1), the 
annual fee shall be $15,000 for each issuer (i) whose securities are 
listed on the New York Stock Exchange and designated as national market 
securities pursuant to the plan governing New York Stock Exchange 
securities at the time such securities are approved for listing on 
Nasdaq, and (ii) that maintains such listing and designation after it 
lists such securities on Nasdaq. Such annual fee shall be assessed on 
the first anniversary of the issuer's listing on Nasdaq.
    (d) 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 its proposal and discussed any 
comments it received regarding the proposal. 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
    In January 2005, the Commission approved a proposed rule change by 
Nasdaq to eliminate the entry and application fees under NASD Rules 
4510(a) and 4520(a) for companies listed on a national securities 
exchange (an ``exchange'') that transfer their listing to the Nasdaq 
National Market or the Nasdaq SmallCap Market.\6\ Nasdaq has determined 
that the text of NASD Rules 4510(a)(6) and 4520(a)(6) (the ``Transfer 
Rules'') may be ambiguous when applied to issuers transferring between 
the Nasdaq SmallCap Market and the Nasdaq National Market, and is 
submitting this proposed rule change to ensure that the rule text more 
clearly reflects Nasdaq's interpretation of the Transfer Rules.
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    \6\ Securities Exchange Act Release No. 51004 (January 10, 
2005), 70 FR 2917 (January 18, 2005) (SR-NASD-2004-140).
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    The intent of the Transfer Rules was to remove disincentives for 
issuers whose primary listing is on a national securities exchange to 
drop their exchange listing and switch to Nasdaq, thereby promoting 
competition between Nasdaq and exchange markets. Thus, an issuer whose 
securities are listed exclusively on an exchange, or whose securities 
are dually listed on the New York Stock Exchange and Nasdaq,\7\ would 
pay no entry fee if the issuer dropped its exchange listing and moved 
exclusively to Nasdaq.
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    \7\ See NASD Rule 4400 and IM-4400. As provided in IM-440, 
transactions in such dually listed securities are reported under the 
Consolidated Tape Association plan, rather than the Nasdaq UTP Plan.
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    As originally filed, however, the Transfer Rules arguably could be 
read to offer a fee waiver to issuers that ``phase up'' from the Nasdaq 
SmallCap Market to the Nasdaq National Market (or ``phase down'' from 
the National Market to the SmallCap Market) if such issuers happen to 
have a secondary listing on an exchange that they relinquish at the 
time of their transfer. Accordingly, Nasdaq is amending the Transfer 
Rules to make it clear that they do not apply in such circumstances.\8\
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    \8\ The proposed rule change also corrects a typographical error 
in NASD Rule 4520(c).
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    In addition to the fact that the Transfer Rules were never intended 
to apply to phase up or phase down scenarios, it should be noted that 
the policy rationale for the Transfer Rules

[[Page 19981]]

does not apply with equal force to such scenarios. An issuer with a 
SmallCap Market or National Market listing whose trades are reported 
under the Nasdaq UTP Plan is already a Nasdaq-listed company in all 
respects, and therefore it cannot be argued that fees or any other 
factor are inhibiting the issuer from becoming listed on Nasdaq. Many 
SmallCap companies that obtain a primary listing on Nasdaq at the time 
of their initial public offerings also list on a national securities 
exchange because the exchange listing provides an exemption from 
``blue-sky laws'' that is not available from a listing on the SmallCap 
Market alone. When such a company becomes eligible for a phase up to 
the National Market, it may decide that its exchange listing is 
superfluous, since a National Market listing confers the same blue-sky 
exemption as an exchange listing, but Nasdaq does not see a competitive 
justification for encouraging such an issuer to drop its exchange 
listing at that time. In fact, these issuers are already familiar with 
the benefits of the Nasdaq marketplace and, therefore, interpreting the 
rule in this manner would result in Nasdaq offering a financial 
incentive focused solely on whether a Nasdaq-listed issuer also pays 
listing fees to a competitor. Similarly, although issuers phasing down 
from the National Market to the SmallCap Market may be less likely to 
have exchange listings at the time of their phase down than issuers 
that are phasing up, Nasdaq sees no competitive justification for 
encouraging such issuers to drop their exchange listing, particularly 
since the listing will provide them the benefit of a blue-sky exemption 
when they move to the SmallCap market. Finally, Nasdaq is concerned 
that a broad application of the Transfer Rules to phase up situations 
could be ``gamed'' by issuers who may find it financially advantageous 
to obtain, and then relinquish, an exchange listing in conjunction with 
a planned phase up application.
    Nasdaq has not observed any difference in the time and effort 
needed to review a phase up or phase down application for an issuer 
that has a secondary listing on an exchange as compared to an issuer 
that has no such secondary listing. Accordingly, there does not appear 
to be a cost justification, let alone a competitive justification, for 
waiving entry fees solely for those phase-up issuers that happen to 
have an exchange listing that they drop at the time of the phase up. 
Similarly, applications of issuers that are phasing down to the 
SmallCap Market are likely to involve more time and effort on the part 
of Nasdaq staff than issuers that join the SmallCap Market after an 
initial public offering, since phase downs are often the result of a 
current or incipient failure to meet the requirements of the Nasdaq 
National Market. Finally, Nasdaq notes that the financial impact of a 
broad waiver for phase up and phase down scenarios could be far more 
significant than the financial impact of the narrower application of 
the Transfer Rules intended by Nasdaq.
    Nasdaq recognizes, however, that some issuers submitting 
applications for phase up or phase down since September 20, 2004, the 
effective date of the Transfer Rules, may have concluded that the 
Transfer Rules would apply to them in the event that they drop their 
exchange listings. Although application of the Transfer Rules to such 
issuers is contrary to the intent underlying the rules, Nasdaq 
recognizes the ambiguity of the rules as originally drafted, and will 
therefore waive entry fees for any issuer (i) listed on Nasdaq and on 
an exchange, (ii) that has had an application for a phase up or phase 
down pending at any time between September 17, 2004, and the effective 
date of this proposed rule change, and (iii) that initiates a process 
to delist from the exchange on which it is listed within five days 
after the date on which such phase up or phase down application is 
approved. The clarification adopted by this proposed rule change will 
apply to all issuers submitting applications after April 4, 2005, the 
effective date of the rule change.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\9\ in general, and with 
Sections 15A(b)(5) and 15A(b)(6) of the Act,\10\ in particular, in that 
it is designed to provide an equitable allocation of reasonable dues, 
fees, and 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. The proposed rule change will ensure that 
issuers moving from one tier of the Nasdaq market to another do not pay 
disparate entry fees merely because they relinquish a pre-existing 
exchange listing.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(5) and (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, 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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \11\ and Rule 19b-4(f)(1) thereunder,\12\ in 
that the proposed rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the self-regulatory organization.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(i).
    \12\ 17 CFR 240.19b-4(f)(1).
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    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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change 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-2005-044 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary,

[[Page 19982]]

Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2005-044. 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 Room. 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-2005-044 and should be submitted on or before May 
6, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1785 Filed 4-14-05; 8:45 am]
BILLING CODE 8010-01-P