Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc., Amending Its Rules for the Listing of Additional Shares

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42214; File No. SR-NASD-99-61]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the National Association of Securities Dealers, Inc.,

Amending Its Rules for the Listing of Additional Shares

December 9, 1999.

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 October 19, 1999, the National Association of Securities Dealers,

Inc. (``NASD''), through its wholly owned 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 the NASD.

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\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The NASD is proposing to modify the notification requirements under

the Nasdaq's Listing of Additional Shares (``LAS'') Program and to make

conforming changes to procedures for calculating the related LAS fee.

Below is the text of the proposed rule change. Proposed new language

appears in italic; proposed deletions are bracketed.

* * * * *

4310. Qualification Requirements for Domestic and Canadian

Securities

To qualify for inclusion in Nasdaq, a security of a domestic or

Canadian issuer shall satisfy all applicable requirements contained in

paragraphs (a) or (b), and (c) hereof.

(a) No change.

(b) No change.

(c) In addition to the requirements contained in paragraph (a) or

(b) above, and unless otherwise indicated, a security shall satisfy the

following criteria for inclusion in Nasdaq:

(1)-(16) No change.

(17) The issuer shall be required to [file on a form designated by

Nasdaq notification of the creation of a stock option, employee stock

purchase or other stock remuneration plan or the issuance of additional

shares of any class of securities included in Nasdaq, except for the

issuance of additional shares under a stock option, employee stock

purchase or other stock remuneration plan, no later than 15 calendar

days prior to the creation of the plan or the issuance of additional

shares.] notify Nasdaq on the appropriate form no later than 15

calender days prior to:

(A) establishing a stock option plan, purchase plan or other

arrangement pursuant to which stock may be acquired by officers or

directors without shareholder approval; or

(B) issuing securities that may potentially result in a change of

control of the issuer; or

(C) issuing any common stock or security convertible into common

stock in connection with the acquisition of the stock or assets of

another company, if any officer or director or substantial shareholder

of the issuer has a 5% or greater interest (or if such persons

collectively have a 10% or greater interest) in the company to be

acquired or in the consideration to be paid; or

(D) entering into a transaction that may result in the potential

issuance of common stock (or securities convertible into common stock)

greater than 10% of either the total shares outstanding or the voting

power outstanding on a pre-transaction basis.

(18)-(28) No change.

(d) No change.

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 paragraph (a), (b)

or (c), and (d), the security shall satisfy the following criteria for

inclusion in Nasdaq:

(1)-(14) No change.

(15) The issuer shall be required to [file on a form designated by

Nasdaq notification of creation of a stock option, employee stock

purchase or other stock remuneration plan or the issuance of additional

shares of any class of securities included in Nasdaq, except for the

issuance of additional shares under a stock option, employee stock

purchase or other stock remuneration plan, no later than 15 calendar

days prior to the creation of the plan or the issuance of additional

shares.] notify Nasdaq on the appropriate form no later than 15

calendar days prior to:

[[Page 70310]]

(A) establishing a stock option plan, purchase plan or other

arrangement pursuant to which stock may be acquired by officers or

directors without shareholder approval; or

(B) issuing securities that may potentially result in a change of

control of the issuer; or

(C) issuing any common stock or security convertible into common

stock in connection with the acquisition of the stock or assets of

another company, if any officer or director or substantial shareholder

of the issuer has a 5% or greater interest (or if such persons

collectively have a 10% or greater interest) in the company to be

acquired or in the consideration to be paid; or

(D) entering into a transaction that may result in the potential

issuance of common stock (or securities convertible into common stock)

greater than 10% of either the total shares outstanding or the voting

power outstanding on a pre-transaction basis.

(16)-(24) No change.

(f) No change.

4510. The Nasdaq National Market \3\

(a) Entry fee

No change.

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\3\ The NASD has filed a proposed rule change with the

Commission to revise the fees it charges issuers listing additional

shares on the Nasdaq National Market or Nasdaq SmallCap Market.

Under the proposed rule change, the NASD seeks to modify its Rules

4510 and 4520 as they relate to the calculation of LAS fees. The

language of Rules 4510 and 4520 as it appears here has been marked

to show changes to the language published for comment in SR-NASD-99-

40. See Commission File No. SR-NASD-99-40 and Securities Exchange

Act Release No. 42108 (Nov. 4, 1999), 64 FR 61678 (Nov. 12, 1999).

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(b) Additional Shares

(1) The issuer of each class of security that is a domestic issue

which is listed in the 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 per [notification] quarter and an annual maximum of $35,000 per

issuer.

(3) [Calculation of the fee will be] The fee will be calculated and

assessed quarterly based on the [issuer notification to Nasdaq of the

issuance of additional shares of securities as required under

provisions of Rule 4310(c)(17)] issuer's total shares outstanding as

reported on its periodic reports filed with the SEC.

(c)-(d) No change.

4520. The Nasdaq SmallCap Market

(a) Entry Fee

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 per [notification] quarter and an annual maximum of $35,000 per

issuer.

(3) [Calculation of the fee will be] The fee will be calculated and

assessed quarterly based on [issuer notification to the Association of

the issuance of additional shares of securities as required under

provisions of Rule 4310(c)(17).] the issuer's total shares outstanding

as reported on its periodic reports filed with the SEC.

(c)-(d) 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, 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

text 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

1. Purpose

The LAS Program has been employed by Nasdaq staff to monitor

compliance by issuers with Nasdaq listing rules governing shareholder

approval, public interest concerns, reverse mergers, and voting rights.

Since 1992, all Nasdaq issuers have been required to file a

notification upon the creation of a stock option, employee stock

purchase, or other stock remuneration plan, or upon the issuance of

additional shares of any class of securities included in Nasdaq.\4\ The

NASD has reviewed the current LAS Program and is filing this proposed

rule change to improve efficiency and to eliminate certain

administrative burdens for Nasdaq staff and issuers arising from the

requirements of the current LAS program.

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\4\ See NASD Rules 4310(c)(17) and 4320(e)(15). The Commission

issued an order granting permanent approval to the LAS Program in

1993. See Securities Exchange Act Release No. 31859 (February 16,

1993), 58 FR 9584 (Feb. 22, 1993), (SR-NASD-92-27).

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The NASD believes that the current LAS Program is difficult and

unduly time-consuming to administer. Specifically, the timing of the

notification required by the current LAS Program varies depending on

the nature of the specific action undertaken by an issuer and, as a

result, has proved confusing to issuers and their counsel. This in turn

has led to delays in filing or failures to comply with LAS Program

notification and fee requirements. Furthermore, the NASD believes that,

under the current LAS Program, it is difficult for an issuer to

calculate the number of shares to be reported for LAS purposes because

in order to do so an issuer must track the number of shares approved by

Nasdaq according to current LAS criteria (a number not otherwise

monitored by issuers and which has often proved difficult for Nasdaq

staff and issuers to reconcile) instead of the total number of shares

outstanding reported in periodic reports required to be filed with the

Commission.

The NASD proposes to make the following changes to the current LAS

Program:

1. The billing aspect of the LAS Program would be separated from

required compliance reviews. Under the proposal, issuers will be billed

each quarter for any increase in their total shares outstanding

(``TSO'') as reported in publicly available periodic reports required

to be filed with the Commission.\5\ This modification would ensure that

the LAS Program is administered based on a publicly disclosed TSO

number rather than on the number of approved shares currently

calculated by Nasdaq according to existing LAS criteria. This

modification would thereby eliminate the current procedure of

establishing a baseline number of shares upon an issuer's initial

listing as well as the

[[Page 70311]]

resultant confusion surrounding when transactions resulting in new

shares being issued must be reported to Nasdaq. This modification would

also permit Nasdaq staff to rely on the publicly reported TSO when

performing reconciliations.

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\5\ Billing for all issuers would be conducted on a calendar

year basis and LAS fees would then be assessed on any increase in

the TSO number set forth in an issuer's most recent periodic report

filed with the Commission pursuant to Section 13 or 15(d) of the

Act. Telephone conversation between Arnold Golub, Senior Attorney,

Office of the General Counsel, Nasdaq, and Matthew Boesch,

Paralegal, Division of Market Regulation Commission, on December 6,

1999.

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2. The process of reporting to Nasdaq would be streamlined by

confining issuers' notification requirements to those transactions

implicated by the Nasdaq's corporate governance compliance

requirements.\6\ Consequently, notification would not be required,

unless:

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\6\ See NASD Rules 4310(c)(25) and 4320(e)(21).

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(a) a stock option plan, purchase plan or other arrangement is

established without shareholder approval; or

(b) the issuer enters into a transaction that may result in a

change of control; or

(c) the issuer issues common stock or a security convertible into

common stock in connection with the acquisition of the stock or assets

of another company, if any officer or director or substantial

shareholder of the issuer has an interest of 5% or more (or if a group

of such persons collectively holds an interest of 10% or more) in the

company to be acquired or in the consideration to be paid; or

(d) the issuer enters into a transaction that may result in the

potential issuance of common stock (or securities convertible into

common stock) representing more than 10% of either the total shares

outstanding or voting power outstanding on a pre-transaction basis.

Under the proposed rule change, all LAS notifications would be

required to be filed 15 calendar days prior to issuance (except for

stock splits and dividends which are required to be filed 10 calendar

days prior to the record date pursuant to SEC Rule 10b-17 \7\). This

requirement would eliminate the numerous timing requirements under the

current LAS Program and enable Nasdaq staff to consider the most

current information when evaluating such transactions.

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\7\ 17 CFR 240.10b-17.

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The NASD believes that these proposed changes to the LAS Program,

if approved, will improve Nasdaq's administration of the LAS Program by

focusing on the TSO reported publicly in periodic reports required to

be filed with the Commission instead of relying on a calculated number

of approved shares. In addition, the NASD believes that the proposed

changes will streamline the filing requirements imposed on issuers by

reducing the filing burden to the extent that no filings will be

required for issuances that do not raise corporate governance concerns,

while simultaneously streamlining the notification filing time frame.

Finally, the NASD believes that the proposed changes will allow Nasdaq

staff to focus on larger and more complex transactions in its review of

issuers' compliance with corporate governance rules and other continued

listing standards by eliminating the current requirement that issuers

file information about even those issuances that do not generally raise

these concerns in these respects.

2. Statutory Basis

The NASD believes that the proposed rule change is consistent with

the provisions of Sections 15A(b)(5) and (6) \8\ of the Act. The

proposed rule change is consistent with Section 15A(b)(5) as it

provides for the equitable allocation of reasonable dues, fees, and

other charges among members and issuers using the Nasdaq system. The

proposed rule change will alter the frequency with which Nasdaq

collects LAS fees from issuers by billing these quarterly rather than

per transaction; the change will also simplify the computation of fees

owed by issuers by basing such fees on changes in the TSO rather than

the number of shares approved for issuance according to existing Nasdaq

procedures. The proposed rule change is consistent with Section

15A(b)(6) as it is designed to promote just and equitable principles of

trade and does not permit unfair discrimination between customers,

issuers, brokers or dealers. As noted above, the proposed rule change

is designed to reduce the number of LAS filings required of issuers and

to thereby allow Nasdaq staff more time to review those share issuances

that may be in contravention of Nasdaq corporate governance rules or

listing standards.

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\8\ 15 U.S.C. 78o-3(b)(5) and (6).

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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 self-regulatory organization 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 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, 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 Pubic 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-99-61 and

should be submitted by January 6, 2000.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\9\

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\9\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 99-32557 Filed 12-15-99; 8:45 am]

BILLING CODE 8010-01-M