Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change To Modify Nasdaq's Auditor Peer Review Requirement, 61864-61866 [E5-5942]
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61864
Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices
importance of various factors related to
each customer, as it usually has no
knowledge of the actual customer.
NASD disagrees with the arguments
of SIA and Instinet. The recipient
member is certainly entitled to rely on
the routing member to understand the
terms of the order absent any other
direct contact with the customer; with
that allowance noted, the recipient
member is not at any further
disadvantage in complying with the
terms of Rule NASD 2320, and,
consequently, investor protection
requires that recipient members must be
subject to all of the relevant reasonable
diligence factors in determining
whether best execution has occurred as
a matter of fact and circumstance.
Instinet also asserted that the proposal
would create an unfair competitive
disparity between otherwise similarly
situated market centers that execute
orders on an electronic agency basis
because the proposed rule would not
apply to market centers operated by
NASD and other self-regulatory
organizations (‘‘SROs’’). Instinet
requests that NASD revise the proposal
to exclude member-operated Electronic
Communication Networks and
Alternative Trading Systems that
interact with orders on a fully
automated basis, or else apply the same
obligations under the proposal to the
market centers operated by NASD and
other SROs.20 As noted above, NASD
has responded to this comment, as well
as BMA’s, by deleting proposed
references to market centers and simply
using the term ‘‘market.’’ For purposes
of NASD Rule 2320, this term should be
interpreted broadly to include a variety
of different venues, including, but not
limited to, market centers that are
trading a particular security. Finally, in
response to the commenters’ concerns,
in Amendment No. 4, NASD clarified
that a member’s duty to provide best
execution to customer orders received
from other broker-dealers ‘‘arises only
when an order is routed from the
broker-dealer to the member for the
purpose of order handling and
20 Instinet also claims that, in light of Regulation
NMS’ effects on interaction among market centers
and the potential conflicts and interpretive issues,
NASD’s proposal could be interpreted to require a
market center (the recipient broker-dealer) to
consider routing an order to another market center
displaying a better price even though the
originating broker-dealer already has indicated that
it has attempted to access such interest. NASD’s
Best Execution Rule contains a number of factors
that are examined to determine whether a member
or associated person has used reasonable diligence,
including ‘‘accessibility of the quotation.’’
Accordingly, the facts and circumstances
surrounding the ‘‘accessibility of the quotations’’
would be considered to the extent they are
appropriate.
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16:26 Oct 25, 2005
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execution’’ and does not arise when
another broker-dealer is simply
executing against a member’s quote.
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, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2004–026 on the
subject line.
the Commission’s Public Reference
Room. Copies of the filing also will be
available for inspection and copying at
the principal office of NASD. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASD–2004–026 and
should be submitted on or before
November 16, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.21
Jonathan G. Katz,
Secretary.
[FR Doc. E5–5922 Filed 10–25–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52645; File No. SR–NASD–
2005–116]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change To Modify
Nasdaq’s Auditor Peer Review
Requirement
October 20, 2005.
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
September 29, 2005, the National
Paper Comments
Association of Securities Dealers, Inc.
• Send paper comments in triplicate
(‘‘NASD’’), through its subsidiary, The
to Jonathan G. Katz, Secretary,
Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),
Securities and Exchange Commission,
filed with the Securities and Exchange
100 F Street, NE., Washington, DC
Commission (‘‘Commission’’) the
20549–9303.
proposed rule change as described in
All submissions should refer to File
Items I, II, and III below, which Items
Number SR–NASD–2004–026. This file
have been prepared by Nasdaq. The
number should be included on the
subject line if e-mail is used. To help the Commission is publishing this notice to
solicit comments on the proposed rule
Commission process and review your
change from interested persons.
comments more efficiently, please use
only one method. The Commission will I. Self-Regulatory Organization’s
post all comments on the Commission’s Statement of the Terms of Substance of
Internet Web site (https://www.sec.gov/
the Proposed Rule Change
rules/sro.shtml). Copies of the
Nasdaq proposes to modify NASD
submission, all subsequent
Rule 4350(k) to reflect changes to the
amendments, all written statements
oversight of auditors mandated by the
with respect to the proposed rule
Sarbanes-Oxley Act of 2002 (the
change that are filed with the
‘‘Sarbanes-Oxley Act’’) 3 and to make a
Commission, and all written
conforming amendment to NASD Rule
communications relating to the
4200(a). Nasdaq will implement the
proposed rule change between the
proposed rule immediately upon
Commission and any person, other than
those that may be withheld from the
21 17 CFR 200.30–3(a)(12).
public in accordance with the
1 15 U.S.C. 78s(b)(1)
2 17 CFR 240.19b–4
provisions of 5 U.S.C. 552, will be
3 Pub. L. 107–204, 116 Stat. 745 (2002).
available for inspection and copying in
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Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices
Commission approval. The text of the
proposed rule change is below.
Proposed new language is in italics;
proposed deletions are in [brackets].
*
*
*
*
*
*
4200. Definitions
(a) For purposes of the Rule 4000
Series, unless the context requires
otherwise:
(1) No change.
(2) Reserved. [‘‘AICPA’’ means the
American Institute of Certified Public
Accountants.]
(3)–(38) No change.
(b) No change.
*
*
*
*
*
4350. Qualitative Listing Requirements
for Nasdaq National Market and
Nasdaq SmallCap Market Issuers
Except for Limited Partnerships
(a)–(j) No change.
(k) [Peer Review] Auditor Registration
[(1)] Each listed issuer must be
audited by an independent accountant
that[:] Is registered as a public
accounting firm with the Public
Company Accounting Oversight Board,
as provided for in Section 102 of the
Sarbanes-Oxley Act of 2002 [15 U.S.C.
7212].
[(A) has received an external quality
control review by an independent
public accountant (‘‘peer review’’) that
determines whether the auditor’s system
of quality control is in place and
operating effectively and whether
established policies and procedures and
applicable auditing standards are being
followed; or]
[(B) is enrolled in a peer review
program and within 18 months receives
a peer review that meets acceptable
guidelines.]
[(2) The following guidelines are
acceptable for purposes of this
paragraph:]
[(A) The peer review should be
comparable to AICPA standards
included in Standards for Performing on
Peer Reviews, codified in the AICPA’s
SEC Practice Section Reference
Manual;]
[(B) The peer review program should
be subject to oversight by an
independent body comparable to the
organizational structure of the Public
Oversight Board as codified in the
AICPA’s SEC Practice Section Reference
Manual; and]
[(C) The administering entity and the
independent oversight body of the peer
review program must, as part of their
rules of procedure, require the retention
of the peer review working papers for 90
days after acceptance of the peer review
report and allow Nasdaq access to those
working papers.]
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Jkt 208001
(l)–(n) 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
1. Purpose
NASD Rule 4350(k) currently requires
that issuers be audited by an
independent public accountant that has
received an external quality control
review by another independent public
accountant (a ‘‘peer review’’) or is
enrolled in a peer review program.
However, as part of the Sarbanes-Oxley
Act, Congress created the Public
Company Accounting Oversight Board
(the ‘‘PCAOB’’) and prohibited
accounting firms that are not registered
with the PCAOB from preparing or
issuing audit reports on U.S. public
companies and from participating in
such audits.4 The Sarbanes-Oxley Act
also requires the PCAOB to conduct a
continuing program of inspections of
registered public accounting firms.5
Pursuant to these requirements, the
PCAOB is required to conduct
inspections annually for firms that
provide audit reports for more than 100
issuers and at least triennially for firms
that provide audit reports for fewer
issuers.6
In light of these new requirements,
the American Institute of Certified
Public Accountants (‘‘AICPA’’) has
modified its peer review program. The
new AICPA peer review program, which
succeeds the SEC Practice Section Peer
Review Program currently referred to in
NASD Rule 4350(k), is designed to
review and evaluate only the non-SEC
issuer practice of the firm.7 As a result,
4 Section 102 of the Sarbanes-Oxley Act, 15
U.S.C. 7212.
5 Section 104 of the Sarbanes-Oxley Act, 15
U.S.C. 7214.
6 See Section 104 of the Sarbanes-Oxley Act, 15
U.S.C. 7214(b).
7 See Web site for the AICPA’s Center for Public
Company Audit Firms Peer Review Program at:
https://www.aicpa.org/centerprp/index.htm.
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61865
this peer review program is no longer
relevant with respect to the audits of
Nasdaq-listed issuers.
Given these changes to the oversight
and inspection of auditors, the proposed
rule change is designed to modify
existing NASD Rule 4350(k) to reflect
the new role of the PCAOB and change
the existing requirement to a
requirement that each issuer’s auditor
be registered as a public accounting firm
with the PCAOB. As a result, auditors
of Nasdaq companies will be subject to
the PCAOB’s program of continuing
inspections.8
Under the proposed rule change, an
issuer seeking to list on Nasdaq would
be permitted to continue to use
historical financial statements that were
audited by a non-registered firm at a
time when the applicant was not a
public company. Nasdaq believes that
this view is consistent with an
interpretation adopted by the PCAOB,
which provides that an auditor does not
have to register with the PCAOB merely
because it issues a consent to include an
audit report for a prior period, if the
auditor does not have or expect to have
an ongoing role in the auditing
engagement.9 Of course, if the issuer
was a public company immediately
prior to listing on Nasdaq, the
company’s financial statements must
have been audited and/or reviewed by
a public accounting firm that was
registered with the PCAOB, as required
by the Sarbanes-Oxley Act and the rules
of the PCAOB.
Finally, Nasdaq proposes to make a
conforming amendment to the language
of NASD Rule 4200(a) to delete the
definition of ‘‘AICPA,’’ which would no
longer be necessary.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,10
in general, and with Section 15A(b)(6)
of the Act,11 in particular, in that the
proposal is designed to remove
impediments to a free and open market
and a national market system, prevent
fraudulent and manipulative acts and
practices, and, in general, to protect
investors and the public interest.
Specifically, the proposed rule change
will remove a redundant listing
requirement, thereby removing an
impediment to a free and open market,
8 See Sections 4000–4012 of the PCAOB Rules.
Note that in the case of non-U.S. auditors, where
the PCAOB determines it appropriate, the PCAOB
may rely instead on non-U.S. inspections. See
Section 4012 of the PCAOB Rules.
9 See PCAOB Rule 2100, Note 2.
10 15 U.S.C. 78o–3.
11 15 U.S.C. 78o–3(b)(6).
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Federal Register / Vol. 70, No. 206 / Wednesday, October 26, 2005 / Notices
and will align Nasdaq’s listing standards
with the requirements of the SarbanesOxley Act, thereby allowing Nasdaq to
further the investor protection goals of
that Act.
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 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 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 proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–116 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NASD–2005–116. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
VerDate Aug<31>2005
16:26 Oct 25, 2005
Jkt 208001
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 also will be
available for inspection and copying at
the principal office of the NASD. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASD–2005–116 and
should be submitted on or before
November 16, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Jonathan G. Katz,
Secretary.
[FR Doc. E5–5942 Filed 10–25–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52638; File No. SR–NYSE–
2005–37]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
Amendments to Certain Sections of
the Exchange Constitution Concerning
the Exchange’s Hearing Board and
Related Amendments to Exchange
Rule 475 and Rule 476
October 19, 2005.
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 23,
2005, the New York Stock Exchange,
Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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have been prepared by the NYSE. On
September 9, 2005, NYSE amended the
proposed rule change (‘‘Amendment No.
1’’).3 The Commission is publishing this
notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Article IX of the Exchange’s
Constitution and NYSE Rules 475 and
476 to modify certain aspects of the
Exchange’s disciplinary procedures and
to provide a structure for a summary
suspension hearing and a ‘‘call-up’’
procedure for review by members of the
Board of Directors (‘‘Board’’), certain
members of the Board of Executives
listed in NYSE Rule 476(f), any member
of the Regulation, Enforcement and
Listing Standards Committee and either
the Division of the Exchange that
initiated the proceedings or the
respondent. The text of the proposed
rule change, as amended, is below.
Proposed new language is in italics;
proposed deletions are in brackets.4
*
*
*
*
*
Disciplinary Rules (Rules 475—477)
Rule 475. Prohibition or Limitation with
Respect to Access to Services Offered by
the Exchange or a Member or Member
Organization—Summary Proceedings
(a) Except as provided [is] in
subsection (b) of this Rule, the Exchange
shall not prohibit or limit any person
with respect to access to services offered
by the Exchange or any member or
member organization thereof unless the
Exchange shall have notified such
person in writing of, and shall have
given such person, upon not less than
15 days prior written notice, an
opportunity to be heard upon, the
specific grounds for such prohibition or
limitation. The Exchange shall keep a
record of any proceeding pursuant to
this Rule. Any determination by the
Exchange to prohibit or limit any person
with respect to access to services offered
by the Exchange or a member or
member organization thereof shall be
supported by a statement setting forth
3 See Amendment No.1 filed on September 9,
2005. In Amendment No. 1, the Exchange made
technical corrections to proposed rule text
contained in Exhibit 5 of the original filing.
4 The rule as set forth herein reflects several
minor revisions to the proposal’s rule text that the
Exchange has committed to incorporate in an
amendment to the filing. Telephone conversation
between Peggy Kuo, Chief Hearing Officer, NYSE
and Cyndi N. Rodriquez, Special Counsel, Division
of Market Regulations (‘‘Division’’), Commission on
September 29, 2005.
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]]>Agencies
[Federal Register Volume 70, Number 206 (Wednesday, October 26, 2005)]
[Notices]
[Pages 61864-61866]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5942]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52645; File No. SR-NASD-2005-116]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change To Modify
Nasdaq's Auditor Peer Review Requirement
October 20, 2005.
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 September 29, 2005, the National Association of Securities Dealers,
Inc. (``NASD''), 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1)
\2\ 17 CFR 240.19b-4
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to modify NASD Rule 4350(k) to reflect changes to
the oversight of auditors mandated by the Sarbanes-Oxley Act of 2002
(the ``Sarbanes-Oxley Act'') \3\ and to make a conforming amendment to
NASD Rule 4200(a). Nasdaq will implement the proposed rule immediately
upon
[[Page 61865]]
Commission approval. The text of the proposed rule change is below.
Proposed new language is in italics; proposed deletions are in
[brackets].
---------------------------------------------------------------------------
\3\ Pub. L. 107-204, 116 Stat. 745 (2002).
---------------------------------------------------------------------------
* * * * *
4200. Definitions
(a) For purposes of the Rule 4000 Series, unless the context
requires otherwise:
(1) No change.
(2) Reserved. [``AICPA'' means the American Institute of Certified
Public Accountants.]
(3)-(38) No change.
(b) No change.
* * * * *
4350. Qualitative Listing Requirements for Nasdaq National Market and
Nasdaq SmallCap Market Issuers Except for Limited Partnerships
(a)-(j) No change.
(k) [Peer Review] Auditor Registration
[(1)] Each listed issuer must be audited by an independent
accountant that[:] Is registered as a public accounting firm with the
Public Company Accounting Oversight Board, as provided for in Section
102 of the Sarbanes-Oxley Act of 2002 [15 U.S.C. 7212].
[(A) has received an external quality control review by an
independent public accountant (``peer review'') that determines whether
the auditor's system of quality control is in place and operating
effectively and whether established policies and procedures and
applicable auditing standards are being followed; or]
[(B) is enrolled in a peer review program and within 18 months
receives a peer review that meets acceptable guidelines.]
[(2) The following guidelines are acceptable for purposes of this
paragraph:]
[(A) The peer review should be comparable to AICPA standards
included in Standards for Performing on Peer Reviews, codified in the
AICPA's SEC Practice Section Reference Manual;]
[(B) The peer review program should be subject to oversight by an
independent body comparable to the organizational structure of the
Public Oversight Board as codified in the AICPA's SEC Practice Section
Reference Manual; and]
[(C) The administering entity and the independent oversight body of
the peer review program must, as part of their rules of procedure,
require the retention of the peer review working papers for 90 days
after acceptance of the peer review report and allow Nasdaq access to
those working papers.]
(l)-(n) 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
1. Purpose
NASD Rule 4350(k) currently requires that issuers be audited by an
independent public accountant that has received an external quality
control review by another independent public accountant (a ``peer
review'') or is enrolled in a peer review program. However, as part of
the Sarbanes-Oxley Act, Congress created the Public Company Accounting
Oversight Board (the ``PCAOB'') and prohibited accounting firms that
are not registered with the PCAOB from preparing or issuing audit
reports on U.S. public companies and from participating in such
audits.\4\ The Sarbanes-Oxley Act also requires the PCAOB to conduct a
continuing program of inspections of registered public accounting
firms.\5\ Pursuant to these requirements, the PCAOB is required to
conduct inspections annually for firms that provide audit reports for
more than 100 issuers and at least triennially for firms that provide
audit reports for fewer issuers.\6\
---------------------------------------------------------------------------
\4\ Section 102 of the Sarbanes-Oxley Act, 15 U.S.C. 7212.
\5\ Section 104 of the Sarbanes-Oxley Act, 15 U.S.C. 7214.
\6\ See Section 104 of the Sarbanes-Oxley Act, 15 U.S.C.
7214(b).
---------------------------------------------------------------------------
In light of these new requirements, the American Institute of
Certified Public Accountants (``AICPA'') has modified its peer review
program. The new AICPA peer review program, which succeeds the SEC
Practice Section Peer Review Program currently referred to in NASD Rule
4350(k), is designed to review and evaluate only the non-SEC issuer
practice of the firm.\7\ As a result, this peer review program is no
longer relevant with respect to the audits of Nasdaq-listed issuers.
---------------------------------------------------------------------------
\7\ See Web site for the AICPA's Center for Public Company Audit
Firms Peer Review Program at: https://www.aicpa.org/centerprp/
index.htm.
---------------------------------------------------------------------------
Given these changes to the oversight and inspection of auditors,
the proposed rule change is designed to modify existing NASD Rule
4350(k) to reflect the new role of the PCAOB and change the existing
requirement to a requirement that each issuer's auditor be registered
as a public accounting firm with the PCAOB. As a result, auditors of
Nasdaq companies will be subject to the PCAOB's program of continuing
inspections.\8\
---------------------------------------------------------------------------
\8\ See Sections 4000-4012 of the PCAOB Rules. Note that in the
case of non-U.S. auditors, where the PCAOB determines it
appropriate, the PCAOB may rely instead on non-U.S. inspections. See
Section 4012 of the PCAOB Rules.
---------------------------------------------------------------------------
Under the proposed rule change, an issuer seeking to list on Nasdaq
would be permitted to continue to use historical financial statements
that were audited by a non-registered firm at a time when the applicant
was not a public company. Nasdaq believes that this view is consistent
with an interpretation adopted by the PCAOB, which provides that an
auditor does not have to register with the PCAOB merely because it
issues a consent to include an audit report for a prior period, if the
auditor does not have or expect to have an ongoing role in the auditing
engagement.\9\ Of course, if the issuer was a public company
immediately prior to listing on Nasdaq, the company's financial
statements must have been audited and/or reviewed by a public
accounting firm that was registered with the PCAOB, as required by the
Sarbanes-Oxley Act and the rules of the PCAOB.
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\9\ See PCAOB Rule 2100, Note 2.
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Finally, Nasdaq proposes to make a conforming amendment to the
language of NASD Rule 4200(a) to delete the definition of ``AICPA,''
which would no longer be necessary.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\10\ in general, and with
Section 15A(b)(6) of the Act,\11\ in particular, in that the proposal
is designed to remove impediments to a free and open market and a
national market system, prevent fraudulent and manipulative acts and
practices, and, in general, to protect investors and the public
interest. Specifically, the proposed rule change will remove a
redundant listing requirement, thereby removing an impediment to a free
and open market,
[[Page 61866]]
and will align Nasdaq's listing standards with the requirements of the
Sarbanes-Oxley Act, thereby allowing Nasdaq to further the investor
protection goals of that Act.
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\10\ 15 U.S.C. 78o-3.
\11\ 15 U.S.C. 78o-3(b)(6).
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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 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 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 proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-116 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-116. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 also will be available for inspection and copying at the
principal office of the NASD. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASD-2005-116 and should be submitted on or before
November 16, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-5942 Filed 10-25-05; 8:45 am]
BILLING CODE 8010-01-P
