[Federal Register Volume 59, Number 21 (Tuesday, February 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2124]
[[Page Unknown]]
[Federal Register: February 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33510; File No. SR-NASD-93-4]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to Issuer
Disclosure of Material Information to the Public and to the NASD
January 24, 1994.
On February 3, 1993, the National Association of Securities
Dealers, Inc. (``NASD'' or ``Association'') filed with the Securities
and Exchange Commission (``SEC'' or ``Commission'') a proposed rule
change pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'')\1\ and Rule 19b-4 thereunder.\2\ The proposal amends
Schedule D, Part II, Sections 1(c)(17) and 2(e)(16), and the
Interpretation ``Notification to NASD of News Releases.''\3\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\See NASD Manual, (CCH) 1803, 1806A.
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Notice of the proposed rule change, together with its terms of
substance, appeared in the Federal Register on March 16, 1993.\4\ No
comments were received on the proposal. This order approves the
proposed rule change.
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\4\Securities Exchange Act Release No. 31972 (March 10, 1993),
58 FR 14234.
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The NASD is amending the issuer disclosure requirements of Schedule
D to conform its rules to reflect current NASD practice with regard to
market surveillance, trading halts, and the confidentiality of
information provided to the NASD, and to clarify issuers' obligations
to respond to NASD inquiries and to disclose information to the public
in certain circumstances under NASD rules. Currently, Nasdaq issuers
must provide full and prompt responses to ``all requests for
information'' by the NASD. Nevertheless, as a matter of practice, the
NASD only makes request to issuers for information relating to unusual
market activity or to events that may have a material impact on the
trading of the issuer's securities in the Nasdaq System. In particular,
the rule change also clarifies that the Market Surveillance Department
is required to maintain the confidentiality of non-public information
provided by Nasdaq issuers, including denial of rumors, and to use such
information only for regulatory purposes.
The NASD is amending Schedule D to provide that issuers need not
make public disclosure of material events where it is possible to
maintain confidentiality of those events and immediate disclosure would
prejudice the ability of the issuer to pursue its objectives. The rule
change provides that if rumors or unusual market activity indicate that
information on impending developments has become known, a clear public
announcement may be required with respect to such developments. In
addition, the NASD believes that it may be appropriate in certain
circumstances for the issuer publicly to deny false or inaccurate
rumors which are likely to have, or have had, an effect on the trading
of its securities, or would likely have a bearing on investment
decisions.\5\
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\5\Of course, as the Commission has noted,
[w]henever an issuer makes a public statement or responds to an
inquiry from a stock exchange official concerning rumors, unusual
market activity, possible corporate developments or any other
matter, the statement must be materially accurate and complete. If
the issuer is aware of nonpublic information concerning acquisition
discussions that are occurring at the time the statement is made,
the issuer has an obligation to disclose sufficient information
concerning the discussions to prevent the statements made from being
materially misleading.
In the Matter of Carnation Company, Securities Exchange Act
Release No. 22214 (July 8, 1985), 33 SEC Doc. 874, 877.
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The Commission believes that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, the requirements
of Section 15A(b)(6) of the Act.\6\ The rule change will provide Nasdaq
issuers with useful guidance regarding disclosure obligations under the
Nasdaq listing agreement with respect to confidential information.
Nevertheless, the Commission cautions issuers and counsel that the
requirements of Schedule D regarding issue disclosure of material
information are not interpretations of the disclosure requirements of
federal and state securities laws,\7\ and that federal and state law
requirements should also be carefully considered regarding the
disclosure of material non-public information.\8\ As the Commission has
stated, ``[t]he importance of accurate and complete issuer disclosure
to the integrity of the securities markets cannot be overemphasized. To
the extent that investors cannot rely upon the accuracy and
completeness of issuer statements, they will be less likely to invest,
thereby reducing the liquidity of the securities markets to the
detriment of investors and issuers alike * * *.''\9\
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\6\15 U.S.C. 78o-3(b)(6). Section 15A(b)(6) requires that the
NASD's rules be designed to promote just and equitable principles of
trade, to foster cooperation and coordination with persons engaged
in regulating, clearing and settling, processing information with
respect to, and facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market
and a national market system, and, in general, to protect investors
and the public interest.
\7\See also NASD Manual, Schedule D to the By-Laws, Part II,
Sec. 1(c)(18), (CCH) 1803 (``The issuer shall comply with any
obligation of any person regarding filing or disclosure of
information material to the issuer or the security, whether such
obligation arises under the federal securities laws and the rules
and regulations promulgated thereunder or other applicable federal
or state statutes or rules.''). See also NASD Manual, Schedule D to
the By-Laws, Part II, Sec. 2(e)(17), (CCH) 1804.
\8\The rule change reflects that the NASD bases its
determination of materiality on a ``reasonable'' shareholder
standard--that is, would a reasonable shareholder consider the
information important in deciding whether to purchase or sell
securities.
\9\See Carnation Company, 33 SEC Doc. at 877 (footnotes
omitted).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the rule change in SR-NASD-93-4 be, and hereby is, approved,
effective April 15, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2124 Filed 1-31-94; 8:45 am]
BILLING CODE 8010-01-M
