[Federal Register Volume 59, Number 186 (Tuesday, September 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23843]
[[Page Unknown]]
[Federal Register: September 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34690; File No. SR-NASD-94-38]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to the
Addition of Listing Requirements to Prohibit Immediate Withdrawal of
Units From Inclusion on Nasdaq
September 20, 1994.
On July 28, 1994, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') a proposed rule
change\1\ pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'')\2\ and Rule 19b-4 Thereunder.\3\ The rule change
amends the listing requirements found in Parts II and III of Schedule D
to the NASD By-Laws to include additional requirements for units.
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\1\The proposed rule change was initially submitted on June 21,
1994, and was amended twice prior to the publication of the Notice;
once on July 22, 1994, and again on July 28, 1994.
\2\15 U.S.C. 78s(b)(1).
\3\17 CFR 240.19b-4.
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Under the rule as amended, in order to be included on the National
Association of Securities Dealers Automated Quotation Service
(``Nasdaq''), units included for quotation on Nasdaq must continue to
be included for a minimum period of 30 days from the first day of
inclusion, barring suspension or withdrawal for regulatory purposes.
The rule also requires those issuers or underwriters seeking to
withdraw units from inclusion to provide the NASD with notice of their
intent at least 15 days prior to withdrawal. In addition, an issuer of
units will be required to include in its prospectus or other offering
document a statement disclosing any intention to withdraw the units
immediately after the minimum inclusion period.
Notice of the proposed rule change, together with its terms of
substance was provided by issuance of a Commission release\4\ and by
publication in the Federal Register.\5\
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\4\Securities Exchange Act Rel. No. 34515 (August 10, 1994).
\5\59 FR 42626 (August 18, 1994).
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No comments were received in response to the notice. This order
approves the proposed rule change.
The new listing requirements have been proposed in response to the
concerns of the NASD related to issuers that list and then almost
immediately thereafter withdraw units from inclusion after trading has
commenced.\6\ As the NASD indicated in its rule filing, problems have
arisen in instances where, shortly after certain units had been
included for quotation and trading had commenced, the issuers or their
underwriters suddenly withdrew their units from inclusion without any
prior disclosure of their intention or advance notice to investors,
market makers, or Nasdaq. Because active trading in these securities
had commenced with the expectation that the units would continue to be
included on Nasdaq, the sudden withdrawal from quotation significantly
and adversely affected the market makers and investors who traded in
these securities.
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\6\Generally, units are created by combining common stock of a
corporation already quoted on Nasdaq with warrants for the same
common stock.
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The practice of immediate withdrawal of units from inclusion
without adequate disclosure clearly poses harm to traders and investors
in these securities and adversely affects the integrity of the Nasdaq
Stock Market. The practice leads to confusion because market
participants who have purchased the units are left without a liquid
market in which to trade these securities.
Moreover, if the lead underwriter involved in an offering also
dominates or controls the market in the units, concerns regarding
manipulation of the security may arise. A sudden withdrawal may cause
difficulties for investors and market makers alike who may have
established short positions in the units. These traders may be unable
to cover their short positions after the withdrawal 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 withdrawal. In fact, in
situations where warrants have not been issued separately from the
unit, it may be impossible to ``recreate'' the unit so as to cover the
short position.
To address these concerns, the NASD's proposal makes three changes
to its inclusion criteria for units. As noted, for both Nasdaq Small
CapSM units and National Market units, the proposal will impose a
minimum 30-day period within which the units may not be withdrawn,
absent a legitimate regulatory interest in so doing. In addition, the
amendment will require issuers and underwriters seeking to withdraw
units from inclusion to provide the NASD with at least 15 days notice
of their intention to withdraw, so that the NASD may provide adequate
notice to investors and market makers before the withdrawal occurs.
Issuers having any intention to withdraw the units immediately after
the minimum inclusion period also will have to disclose their intention
in the prospectus or other offering document.
The Commission has determined to approve the NASD's proposal. The
Commission finds that the rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the NASD, including the requirements of Section 15A(b)(6)
of the Act.\7\ Section 15A(b)(6) requires, in part, that the rules of a
national securities association be designed to prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; 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. The proposed
rule change addresses concerns regarding the trading and inclusion
process for units and enhances the integrity of Nasdaq listings. With
the minimum inclusion requirement of 30 days for units, the amendment
enhances the likelihood that an orderly trading market in these
securities will exist. Similarly, requiring both a 15-day advance
notice of withdrawal and an adequate disclosure of an issuer's
intention to withdraw its units from inclusion promotes proper
disclosure of information of use to all market participants.
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\7\15 U.S.C. 78o-3(b)(6).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-94-38 be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23843 Filed 9-26-94; 8:45 am]
BILLING CODE 8010-01-M
