[Federal Register Volume 59, Number 159 (Thursday, August 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20315]
[[Page Unknown]]
[Federal Register: August 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34515; File No. SR-NASD-94-38]
Self-Regulatory Organizations; Notice of Filing of proposed rule
Change by The National Association of Securities Dealers, Inc. Adding
Listing Requirements To Prohibit Immediate Delistings of Units on
Nasdaq
August 10, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on July 28,
1994, the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
NASD.\1\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\The proposed rule change was originally filed on June 21,
1994, and was amended twice; once on July 22, 1994, and again on
July 28, 1994. Both amendments are available for inspection in the
Commission's Public Reference Room.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) of the Act, the NASD
is filing a proposed rule change related to the listing requirements in
Parts II and III of Schedule D to the NASD By-Laws that would require
that: (1) An issuer of units included for quotation on Nasdaq maintain
the listing for a minimum period of 30 days; (2) an issuer provide the
NASD with notice of delisting of the units at least 15 days prior to
such action; and (3) an issuer disclose in the prospectus any intention
to immediately delist the units. Below is the text of the proposed rule
change. Proposed new language is italicized.
Schedule D
Part II
Sec. 1(c)(10(a) * * *
(b) in the case of units, the minimum period for inclusion of
the unites shall be 30 days from the first day of inclusion, except
the period may be shortened if the units are suspended or withdrawn
for regulatory purposes. Issuers and underwriters seeking to
withdraw units from inclusion must provide the Association with
notice of such intent at least 15 days prior to withdrawal.
* * * * *
Sec. 1(c) (21) The issuer of units shall include in its
prospectus or other offering document used in connection with any
offering of securities that is required to be filed with the
Commission under the Federal securities laws and the rules and
regulations thereunder a statement regarding any intention to delist
the units immediately after the minimum inclusion period.
* * * * *
Part III
Sec. 5.
(1) Units
(1) Minimum Inclusion Period and Notice of Withdrawal
In the case of units, the minimum period for inclusion of the
units shall be 30 days from the first day of inclusion, except the
period may be shortened if the units are suspended or withdrawn for
regulatory purposes. Issuers and underwrites seeking to withdraw
units from inclusion must provide the Association with notice of
such intent at least 15 days prior to withdrawal.
(2) Disclosure Requirements for Units
Each Nasdaq/NM issuer of units shall include in its prospectus
or other offering document used in connection with any offering of
securities that is required to be filed with the Commission under
the federal securities laws and the rules and regulations
promulgated thereunder a statement regarding any intention to delist
the units immediately after the minimum inclusion period.
II. Self-Regulatory Organizations's Statement of the Purpose of and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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
test of these statements may be examined at the places specified in
item IV below. The NASD 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
The purpose of the new listing requirements for units is to address
concerns that Nasdaq has experienced related to issuers listing and
then almost immediately thereafter withdrawing units from inclusion
after trading has commenced. In several instances, certain issuers of
units have included such units for quotation on Nasdaq combining as a
unit common stock previously quoted on Nasdaq with previously quoted or
newly-issued warrants for the same common stock. Shortly after the
units are listed and trading has commenced, these issuers, without any
prior disclosure of their intention or advance notice to investors,
market makers, or Nasdaq, delist the units. Because active trading in
these securities has commenced with the expectation that the units will
continue to be listed on Nasdaq, the sudden withdrawal from quotation
significantly and adversely affect both market markers and investors
who have traded in these securities.
The practice of immediate delisting without adequate disclosure
clearly poses harm to traders and investors in those securities and
adversely affects the integrity of the Nasdaq Stock Market. The
practice causes investor confusion because investors who have purchased
the units no longer have a liquid market in which to trade these
securities. Additionally, the sudden withdrawal may cause difficulties
for investors and market makers alike who have established short
positions in the units. These traders may be unable to cover their
short positions after the delisting has occurred, and are likely to be
required to cover these short positions by purchasing the components of
the unit separately, frequently at a premium to the price originally
being quoted prior to the delisting. Indeed, in those situations where
warrants have been issued separately from the unit, it may be
impossible to cover the short position.
The NASD is also concerned because the practice of immediate
delisting of units appears to raise serious regulatory issues regarding
proper disclosure of the issuers' intentions regarding the units and it
poses questions about manipulative practices in the market for the
units. For example, if the prospectus contains no information regarding
the issuer's intention or contemplation of delisting immediately or
shortly after trading commences, it is reasonable to question whether
adequate disclosure of the issuer's plans was made. Moreover, if they
lead underwriter involved in the offering also dominates or controls
the market in the units, concerns regarding manipulation of the
security arise if the intention is to force short selling investors to
cover their short positions at a premium to the unit prices.
To address these concerns and to promote and enhance the integrity
of the Nasdaq Stock Market, the NASD is proposing three changes to its
inclusion criteria for units. As noted, for both Nasdaq SmallCAPSM
units and National Market units, the NASD proposes to impose a minimum
30-day period within which the units may not be delisted, absent a
legitimate regulatory interest in so doing. In addition, the NASD
believes that the issuer and its advisors should provide the NASD with
adequate notice of their intention to delist, so that the NASD may
provide adequate notice to investors and market makers before the
delisting occurs. Because it is important that investors be provided
with sufficient time to obtain the information and assess its effect on
their positions, the NASD is proposing that the issuer provide such
notice to the NASD at least 15 days before the delisting is to occur.
In addition, the NASD is concerned that issuers of units may need
to take additional steps to ensure that adequate disclosure of their
intentions regarding delisting is made to investors prior to the
offering of the units. It would appear to be a reasonable implication
that an issuer that delists within a short period, i.e., a matter of
days, after the initial inclusion on Nasdaq should reasonably have
anticipated that such an event was intended or likely to occur.
Therefore, the NASD proposes to require that issuers make adequate
disclosure of their delisting intentions in their prospectuses.
As noted in a recent Commission release regarding Nasdaq Stock
Market listing requirements,\2\ the NASD has the authority to preserve
and strengthen the quality of and public confidence in its market.
Nasdaq inclusion criteria are intended to promote investor confidence
and support the country's capital formation process. Accordingly,
inclusion of a security in the Nasdaq Stock Market should carry with it
the confidence that the security will continue to be available for
trading once listed, unless regulatory issues with the security arise.
These proposed changes address concerns regarding the trading and
listing process for Nasdaq securities and enhance the integrity of
Nasdaq listings. With the minimum listing requirement of 30 days for
units, the NASD enhances the likelihood that an orderly trading market
in these securities will exist. Similarly, the 15 day advance notice of
delisting and adequate disclosure of an issuer's intent to delist
promotes proper disclosure of material information of use to investors
and to market makers. Consequently, the NASD believes that the proposed
rule change is consistent with Section 15A(b)(6) in that these proposed
changes are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
facilitate transactions in these securities, to remove impediments to
and perfect the mechanism of a free and open market and national market
system, and, in general, to protect investors and the public interest.
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\2\Securities Exchange Act Release No. 34151 (June 3, 1994), 59
FR 29843 (June 9, 1994).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD 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.
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 the NASD 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. In particular, the Commission
invites the written views of interested persons concerning any hardship
encountered by members or other persons due to the unforeseen delisting
of units and whether the proposed rule change will provide effective
protection against such hardship. 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 file number SR-NASD-94-38 and
should be submitted by September 8, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\3\
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\3\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20315 Filed 8-17-94; 8:45am]
BILLING CODE 8010-01-M
