[Federal Register: April 15, 2005 (Volume 70, Number 72)]
[Notices]
[Page 19980-19982]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap05-93]
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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 rule-comments@sec.gov. 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