[Federal Register Volume 63, Number 39 (Friday, February 27, 1998)]
[Notices]
[Pages 10057-10058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5068]
[[Page 10057]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39688; File No. SR-NASD-98-16]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change By the National Association of
Securities Dealers, Inc. Relating to Peer Review of Auditors of Foreign
Issuers Listed on the Nasdaq SmallCap Market
February 20, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 18, 1998, the
National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``Commission'') through its wholly owned subsidiary, the Nasdaq Stock
Market, Inc. (``Nasdaq''), the proposed rule change as described in
Items I and II below, which Items have been prepared by Nasdaq.\2\ 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\ Technical amendments were made to the proposal on the same
date. Telephone conversation between Arnold Golub, Office of General
Counsel, Nasdaq, and Kenneth Rosen, Attorney, Division of Market
Regulation, Commission (February 18, 1998).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is proposing a rule change to NASD Rule 4320 (``Rule 4320'')
to make a technical correction clarifying the application of the peer
review requirement to the auditors of foreign issuers and conforming
the text of Rule 4320 to the text of Rule 4460. Below is the text of
the proposed rule change. Proposed new language is in italics.
Rule 4320. Qualification Requirements for Non-Canadian Foreign
Securities and American Depositary Receipts
(a)-(d) No change.
(e) In addition to the requirements contained in paragraphs (a),
(b), or (c) and (d), the security shall satisfy the following criteria
for inclusion in Nasdaq:
(1)-(2) No change.
(21) Corporate Governance Requirements--No provisions of this
subparagraph or of subparagraph (23) shall be construed to require any
foreign issuer to do any act that is contrary to a law, rule or
regulation of any public authority exercising jurisdiction over such
issuer or that is contrary to generally accepted business practices in
the issuer's country of domicile. Nasdaq shall have the ability to
provide exemptions from the applicability of these provisions as may be
necessary or appropriate to carry out this intent.
Nasdaq shall review the issuer's past corporate governance
activities. This review may include activities taken place while the
issuer is listed on Nasdaq or an exchange that imposes corporate
governance requirements, as well as activities taking place after the
issuer is no longer listed on Nasdaq or an exchange that imposes
corporate governance requirements. Based on such review, Nasdaq may
take any appropriate action, including placing of restrictions on or
additional requirements for listing, or the denial of listing of a
security if Nasdaq determines that there have been violations or
evasions of such corporate governance standards. Determinations under
this subparagraph shall be made on a case-by-case basis as necessary to
protect investors and the public interest.
(A)-(H) No change.
(22)-(23) No change.
(f) 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 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
On August 23, 1997, the SEC approved changes to the listing
requirements for the Nasdaq Stock Market. See Release 34-38961 (Aug.
22, 1997), 62 FR 45895 (Aug. 29, 1997). Among the changes approved was
the extension of the corporate governance requirements that applied to
National Market issuers to the SmallCap Market. In addition, a new
corporate governance requirement was added to both the National Market
and the SmallCap Market that auditors of Nasdaq listed companies be
subject to a practice monitoring program under which the auditor's
quality control system would be reviewed by an independent peer auditor
on a periodic basis (``peer review requirement'').
In general, a corporate governance requirement does not apply to a
foreign issuer if the requirement is contrary to a law, rule or
regulation of any public authority exercising jurisdiction over the
issuer or is contrary to generally accepted business practices in the
issuer's country of domicile. See NASD Rule 4460(a). This provision
expressly applies to the new peer review requirement for National
Market issuers. However, as a result of the way the revised rules were
drafted, the provision could be clarified to more clearly apply to the
peer review requirement for Nasdaq SmallCap issuers. This proposed rule
change makes that clarification by amending Rule 4320(e)(21) to conform
it with Rule 4460, thereby facilitating easier understanding of the
rule. In summary, the proposed rule change clarifies that the peer
review requirement applies in exactly the same manner for a SmallCap
Market issuer as it does for a National Market issuer; a foreign
issuer, whether listed on the Nasdaq National Market or The Nasdaq
SmallCap Market, is required to be audited by an auditor subject to the
peer review requirement to the extent that the requirement is
consistent with the generally accepted business practices in the
issuer's country of domicile.
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act in that the proposed
rule change is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, and to remove impediments to
and perfect the mechanism of a free and open market.
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.
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.
[[Page 10058]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Nasdaq is filing this proposed rule change as a ``non-
controversial'' rule change under Rule 19b-4(e)(6) \3\ because the
proposed change: (1) will not significantly affect the protection of
investors or the public interest; (2) will not impose any significant
burden on competition; and (3) will not become operative for 30 days
after the date of this filing, or such shorter time as the Commission
may designate. The SEC approved the substance of the change for Nasdaq
National Market companies in Release 34-38961 \4\ and, in so doing, did
not find that an exception for foreign issuers would affect
impermissibly the protection of investors or the public interest.
Similarly, the correction in this proposed rule change should not
significantly affect the protection of investors or the public
interest. Because the maintenance requirements approved by the SEC in
Release 34-38961 will take effect for all issuers on the Nasdaq
SmallCap Market on February 23, 1998, Nasdaq requests acceleration of
the operative date of this proposed change to February 23, 1998, The
Commission finds that it is consistent with the protection of investors
and the public interest to permit the proposed rule change to become
operative on February 23, 1998.
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\3\ 17 CFR 240.19b-4(e)(6). In reviewing this rule, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. Sec. 78c(f).
\4\ SR-NASD-97-16 (Aug. 22, 1997), 62 FR 45895 (Aug. 29, 1997).
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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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to the File No. SR-NASD-98-16 and
should be submitted by March 20, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-5068 Filed 2-26-98; 8:45 am]
BILLING CODE 8010-01-M
