01-16559. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to the Listing of Additional Shares

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 May 29, 2001, the National Association of Securities Dealers, Inc. (“NASD” or “Association”) 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq has filed the proposed rule change to amend Nasdaq Marketplace Rules 4320, 4510, and 4520, regarding the listing of additional shares. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets.

* * * * *

Rule 4320. Qualification Requirements for Non-Canadian Foreign Securities and American Depositary Receipts

To qualify for inclusion in Nasdaq, a security of a non-Canadian foreign issuer, an American Depositary Receipt (ADR) or similar security issued in respect of a security of a foreign issuer shall satisfy the requirements of paragraphs (a), (b) or (c), and (d) and (e) of this Rule.

(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)-(14) No change

(15) The issuer of any class of securities included in Nasdaq, except for American Depositary Receipts, shall be required to notify Nasdaq on the appropriate form no later than 15 calendar days prior to:

(A)-(D) No change

(16)-(25) No change

(f) No change

Rule 4510. The Nasdaq National Market

(a) No change

(b) Additional shares

(1) The issuer of each class of security that is a domestic issue which is listed in [t]T he Nasdaq National Market shall pay to The Nasdaq Stock Market, Inc. the fee set forth in subparagraph (2) below in connection with the issuance of additional shares of each class of listed security.

(2) The fee in connection with additional shares shall be $2,000 or $.01 per additional share, whichever is higher, up to a maximum of [$17,500] $22,000 per quarter and an annual maximum of [$35,000] $45,000 per issuer. There shall be no fee, however, for issuances of up to 49,000 additional shares per quarter.

(3) No change

(4) The Board of Directors of The Nasdaq Stock Market, Inc. or its designee may, in its discretion, defer or waive all or any part of the additional shares fee prescribed herein.

(c)-(d) No change

Rule 4520. The Nasdaq SmallCap Market

(a) No change

(b) Additional Shares

(1) The issuer of each class of security that is a domestic issue which is listed in The Nasdaq SmallCap Market shall pay to The Nasdaq Stock Market, Inc. the fee set forth in subparagraph (2) below in connection with the issuance of additional shares of each class of listed security.

(2) The fee in connection with additional shares shall be $2,000 or $.01 per additional share, whichever is higher, up to a maximum of [$17,500] $22,000 per quarter and an annual maximum of [$35,000] $45,000 per issuer. There shall be no fee, however, for issuances of up to 49,000 additional shares per quarter.

(3) No change

(4) The Board of Directors of The Nasdaq Stock Market, Inc. or its designee may, in its discretion, defer or waive all or any part of the additional shares fee prescribed herein.

(c)-(d) No change

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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

1. Purpose

Nasdaq proposes to amend Nasdaq Marketplace Rules 4320, 4510, and 4520, regarding the listing of additional shares (“LAS Program”). These amendments include revising the fees for the listing of additional shares (“LAS”), providing the Board or its designee with the discretion to defer or waive fees relating to the LAS program, and clarifying that American Depositary Receipts are exempt from the LAS notification requirements contained in Nasdaq Marketplace Rule 4320(e)(15).

The LAS program involves notification and fee requirements for the issuance of additional shares. In January 2000, the notification process was simplified so that today issuers must notify Nasdaq only of a transaction that may implicate Nasdaq's corporate governance requirements contained in Nasdaq Marketplace Rules 4310(c)(25) and 4320(e)(21).^[3] The LAS fee schedule was also amended last year to provide that the fees for the issuance of additional shares would be $0.01 per share or a minimum of $2,000, whichever is higher, based upon quarterly changes in total shares outstanding, subject to a cap of $17,500 per quarter and $35,000 per year.^[4]

Since the LAS fee schedule was amended, Nasdaq has received several complaints from issuers regarding these changes. Specifically, issuers have noted that the $2,000 minimum fee results in a significant per share cost for minor issuances. Issuers have further indicated that many of these minor issuances have resulted from employees exercising stock options, a circumstance over which issuers have no control. As such, several issuers have requested that their LAS fees be waived.

In response to these concerns, Nasdaq proposes to amend Nasdaq Marketplace Rules 4510(b)(2) and 4520(b)(2) to provide a “carve-out” for issuances of up to 49,999 shares per quarter. To offset the loss in revenues resulting from this “carve-out,” Nasdaq proposes to change the maximum quarterly fee from $17,500 to $22,500 and the maximum annual fee from $35,000 to $45,000. These changes will alleviate issuers' concerns regarding small issuances while maintaining the revenues generated by the current LAS fee schedule.

Nasdaq also proposes to amend Nasdaq Marketplace Rules 4510(b)(4) and 4520(b)(4) to give the Board of Directors, or its designee, the ability to defer or waive all or any part of the fees relating to the LAS program. Nasdaq believes that it is appropriate for its Board to have the ability to defer or waive LAS fees in those situations where such action would be justified to achieve an equitable result, consistent with Nasdaq's current ability to defer or waive entry and annual fees.^[5]

Lastly, Nasdaq proposes to clarify the LAS notification requirement for foreign issuers. Originally, Nasdaq Marketplace Rule 4320(e)(15) excluded American Depositary Receipts (ADRs) from the LAS notification requirements for foreign issuers because it is very difficult to track the creation as well as unwinding of ADRs and their creation may not implicate any Nasdaq regulatory requirements. When the notification requirements were amended in January 2000,^[6] the exclusion of ADRs was inadvertently omitted from Rule 4320(e)(15). As such, Nasdaq proposes to amend this Rule to add that ADRs are not subject to the LAS notification requirement.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of section 15A(b)(5) and (6) of the Act.^[7] The proposed rule change is consistent with section 15A(b)(5) in that it provides for the equitable allocation of reasonable dues, fees, and other charges among issuers using the Nasdaq system. Specifically, the LAS program fees were adopted to fund issuer-related operations that include educational initiatives, issuer service initiatives and NASD surveillance measures.^[8] The proposed rule change is also consistent with Section 15A(b)(6) in that it is designed to promote just and equitable principles of trade and does not permit unfair discrimination between customers, issuers, brokers or dealers. As previously mentioned, the LAS program fees are used to fund various operations relating to issuers.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

Written comments were not solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which Nasdaq consents, the Commission will:

(A) by order approve such proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 the 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-2001-38 and should be submitted by July 23, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See Securities Exchange Act Release No. 42351 (January 20, 2000), 65 FR 1210 (January 7, 2000).

4.  See Securities Exchange Act Release No. 42300 (December 30, 1999), 65 FR 4457 (January 27, 2000).

5.  See Nasdaq Marketplace Rules 4510(a)(3), 4510(c)(2), 4520(a)(2), and 4520(c)(2).

6.  See Securities Exchange Act Release No. 42351 (January 20, 2000), 65 FR 4457 (January 27, 2000).

7.  15 U.S.C. 78 o-3(b)(5) and (6).

8.  See Securities Exchange Act Release No. 31586, 53 S.E.C. Docket 2 (December 11, 1992).

9.  17 CFR 200.30-3(a)(12).