Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Allow Nasdaq To Issue Public Reprimand Letters, 74392-74395 [E5-7384]
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Federal Register / Vol. 70, No. 240 / Thursday, December 15, 2005 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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 Exchange 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–CBOE–2005–89 on the
subject line.
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 also will be
available for inspection and copying at
the principal office of the Exchange. 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–CBOE–2005–89 and should
be submitted on or before January 5,
2006.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to modify NASD
Rules 4801, 4803, 4804 and 4811 to
permit Nasdaq to issue public
reprimand letters to listed companies
for certain rule violations when a
determination is made that delisting is
not an appropriate sanction. Nasdaq
would implement the proposed rule
change upon notice by the Commission.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.5
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For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.8
Jonathan G. Katz,
Secretary.
[FR Doc. E5–7370 Filed 12–14–05; 8:45 am]
4801. Definitions
(a)–(j) No change.
(k) The term ‘‘Staff Determination’’
shall mean either:
(1) a written determination by the
Listing Department to limit or prohibit
the initial or continued listing of an
issuer’s securities pursuant to Rule
4804[.]; or
(2) a public reprimand letter in a case
where the Listing Department has
determined that the issuer has violated
a Nasdaq corporate governance or
notification listing standard (other than
one required by Rule 10A–3 of the
Securities Exchange Act of 1934) and
that delisting is not an appropriate
sanction. In determining whether to
issue a public reprimand letter, the
Listing Department shall consider
whether the violation was inadvertent,
whether the violation materially
adversely affected shareholders’
interests, whether the violation has been
cured, whether the issuer reasonably
relied on an independent advisor and
whether the issuer has demonstrated a
pattern of violations.
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BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52899; File No. SR–NASD–
2005–136]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Allow Nasdaq To
Issue Public Reprimand Letters
December 6, 2005.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
Paper Comments
notice is hereby given that on November
• Send paper comments in triplicate
17, 2005, the National Association of
to Jonathan G. Katz, Secretary,
Securities Dealers, Inc. (‘‘NASD’’),
Securities and Exchange Commission,
through its subsidiary, The Nasdaq
Station Place, 100 F Street, NE.,
Stock Market, Inc. (‘‘Nasdaq’’), filed
Washington, DC 20549–9303.
with the Securities and Exchange
All submissions should refer to File
Commission (‘‘Commission’’) the
Number SR–CBOE–2005–89. This file
proposed rule change as described in
number should be included on the
Items I and II below, which Items have
subject line if e-mail is used. To help the been prepared by Nasdaq. Nasdaq filed
Commission process and review your
this proposal pursuant to section
comments more efficiently, please use
19(b)(3)(A) of the Act 3 and Rule 19b–
only one method. The Commission will 4(f)(6) thereunder 4 as non-controversial,
post all comments on the Commission’s and therefore the proposed rule change
Internet Web site (https://www.sec.gov/
is effective immediately upon filing.
rules/sro.shtml). Copies of the
The Commission is publishing this
submission, all subsequent
notice to solicit comments on the
amendments, all written statements
proposed rule change from interested
with respect to the proposed rule
persons.
change that are filed with the
Commission, and all written
8 17 CFR 200.30–3(a)(12).
communications relating to the
1 15 U.S.C. 78s(b)(1).
proposed rule change between the
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
Commission and any person, other than
4 17 CFR 240.19b–4(f)(6).
those that may be withheld from the
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4803. Staff Review of Deficiency
(a) Whenever staff of the Listing
Department determines that an issuer
does not meet a listing standard set forth
in the Rule 4000 Series, staff shall
immediately notify the issuer. The
issuer shall make a public
announcement through the news media
disclosing the receipt of this notice,
including the Rule(s) upon which it was
based. Prior to the release of the public
announcement, the issuer shall provide
such disclosure to Nasdaq’s
MarketWatch Department, the Listing
Department, and the Hearings
Department. The public announcement
5 The proposed rule change is marked to show
changes from the rules as they appear in the
electronic NASD Manual available at https://
www.nasd.com.
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Federal Register / Vol. 70, No. 240 / Thursday, December 15, 2005 / Notices
shall be made as promptly as possible,
but not more than four business days
following receipt of the notice from the
Listing Department.
(1) In the case of
(A) all quantitative deficiencies from
standards that do not provide a
compliance period;
(B) deficiencies from the standards of
Rules 4350(c) or (d) or 4360(c) or (d)
where the cure period of the Rule is not
applicable; or
(C) deficiencies from the standards of
Rules 4350(f), (h), (i), (k), or (n), 4360(f)
or (i), or 4351;
staff’s notice shall provide the issuer
with fifteen calendar days to submit a
plan to regain compliance with the
listing standard; provided, however,
that the issuer shall not be provided
with an opportunity to submit such a
plan if review under the Rule 4800
Series of a prior Staff Determination
(other than a Staff Determination that
serves as a public reprimand letter as
described in Section 4801(k)(2)) with
respect to the issuer is already pending.
Subject to the restrictions of paragraph
(b), staff may extend this deadline upon
good cause shown. Upon receipt of the
issuer’s plan, staff in the Listing
Department may request such additional
information from the issuer as is
necessary to make a determination
regarding the likelihood that the plan
will allow the issuer to meet the listing
standard at issue.
(2)–(3) No change.
(b) Unless review under the Rule 4800
Series of a prior Staff Determination
(other than a Staff Determination that
serves as a public reprimand letter as
described in section 4801(k)(2)) with
respect to the issuer is already pending,
the Listing Department may grant the
issuer additional time to regain
compliance with a listing standard
described in paragraph (a)(1); provided,
however, that the additional time
provided by all such exceptions shall
not exceed 105 calendar days from the
date of staff’s notification pursuant to
paragraph (a). The Listing Department
shall prepare a written record describing
the basis for granting any exception, and
shall provide the issuer with written
notice as to the terms of the exception.
If the issuer does not regain compliance
within the time period provided by all
applicable exceptions, the Listing
Department shall immediately issue a
Staff Determination pursuant to Rule
4804(a). If the Listing Department
determines not to grant the issuer
additional time to regain compliance,
the Listing Department shall
immediately issue a Staff Determination
pursuant to Rule 4804(a) that includes
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a description of the basis for denying
the exception.
4804. Written Notice of Staff
Determination
(a) If the Listing Department reaches
a determination to limit or prohibit the
initial or continued listing of an issuer’s
securities or to issue a public reprimand
letter, it shall prepare and provide to the
issuer a Staff Determination that shall
describe the specific grounds for the
determination, identify the quantitative
standard or qualitative consideration set
forth in the Rule 4000 Series that the
issuer has failed to satisfy, and provide
notice that upon request the issuer shall
be provided an opportunity for a
hearing under this Rule 4800 Series.
(b) An issuer that receives a Staff
Determination [to prohibit continued
listing of the issuer’s securities] under
Rule 4804(a) shall make a public
announcement through the news media
disclosing the receipt of the Staff
Determination, including the Rule(s)
upon which the Staff Determination was
based. Prior to the release of the public
announcement, an issuer shall provide
such disclosure to Nasdaq’s
MarketWatch Department, the Listing
Department, and the Hearings
Department. The public announcement
shall be made as promptly as possible,
but not more than four business days
following receipt of the Staff
Determination.
(c) If review under the Rule 4800
Series of a Staff Determination
described in Rule 4801(k)(1) is pending
and the Listing Department identifies
the existence of one or more additional
deficiencies with respect to the issuer,
the Listing Department shall prepare
and provide to the issuer a Staff
Determination with respect to such
additional deficiencies. If the new Staff
Determination is issued prior to a Panel
hearing with respect to the original Staff
Determination, the new Staff
Determination shall notify the issuer
that it should present its views with
respect to the additional deficiencies at
the Panel hearing. If the new Staff
Determination is issued after a Panel
hearing with respect to the original Staff
Determination, the new Staff
Determination shall inform the issuer
that it should present its views with
respect to the additional deficiencies in
writing within the period specified in
the Staff Determination, to allow review
of the additional deficiencies as
provided under Rule 4802(d).
(d) If review under the Rule 4800
Series of a public reprimand letter is
pending and the Listing Department
identifies the existence of one or more
additional deficiencies with respect to
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74393
the issuer, the Listing Department shall
review the additional deficiencies as
provided in Rule 4803.
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4811. Record on Review; Contents of
Decisions
(a)–(d) No change.
(e) If a Panel Decision, Listing Council
Decision, or decision of the NASD Board
concludes that the issuer has failed to
satisfy the quantitative standards or
qualitative considerations set forth in
the Rule 4000 Series, the decision shall
either:
(1) grant an exception to the Rule
4000 Series as permitted by Rule
4802(b);
(2) limit or prohibit the initial or
continued listing of the issuer’s
securities; or
(3) serve as a public reprimand letter
in a case where the Adjudicatory Body
determines that the issuer has violated
a Nasdaq corporate governance or
notification listing standard (other than
one required by Rule 10A–3 of the
Securities Exchange Act of 1934) and
that delisting is not an appropriate
sanction. In determining whether to
issue a public reprimand letter, the
Adjudicatory Body shall consider
whether the violation was inadvertent,
whether the violation materially
adversely affected shareholders’
interests, whether the violation has been
cured, whether the issuer reasonably
relied on an independent advisor and
whether the issuer has demonstrated a
pattern of violations.
(f) An issuer that receives an
Adjudicatory Body decision that serves
as a public reprimand letter as
described in Rule 4811(e)(3) shall make
a public announcement through the
news media disclosing the receipt of the
decision, including the Rule(s) upon
which the decision was based. Prior to
the release of the public announcement,
an issuer shall provide such disclosure
to Nasdaq’s MarketWatch Department,
the Listing Department, and the
Hearings Department. The public
announcement shall be made as
promptly as possible, but not more than
four business days following receipt of
the decision.
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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
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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 is proposing to allow the
issuance of a public reprimand letter to
a listed company upon a determination
that the company has violated a Nasdaq
corporate governance or notification
listing standard and that delisting is not
an appropriate sanction. The
Commission recently approved a
proposed rule change to Nasdaq’s
procedures associated with denying or
limiting companies’ initial or continued
listing on Nasdaq.6 Under these new
procedures, the staff of Nasdaq’s Listing
Qualifications Department (‘‘Listing
Department’’) provides written notice to
an issuer of a deficiency when a
determination has been made that a
listing requirement has not been
satisfied. Depending upon the nature of
the deficiency, the notice takes the form
of a Staff Determination, which initiates
proceedings to deny or limit listing, or
a deficiency letter that provides the
issuer with 15 days to submit a plan to
regain compliance with the listing
standard.7 If an issuer receives a Staff
Determination, it may then request a
hearing before a Listing Qualifications
Panel (‘‘Panel’’). Upon receiving a
decision from the Panel (‘‘Panel
Decision’’), the issuer may appeal the
decision to the Nasdaq Listing and
Hearing Review Council (‘‘Listing
Council’’). The final decision of the
Listing Council (‘‘Listing Council
Decision’’) is subject to review by the
NASD Board of Directors and the
Commission.
Under the current rules, a Staff
Determination initiates proceedings to
deny or limit listing. In monitoring the
compliance of listed companies with
Nasdaq’s corporate governance rules,
Nasdaq has identified circumstances
where delisting would be
disproportionate to the underlying
6 See Securities Exchange Act Release No. 52342
(August 26, 2005), 70 FR 52456 (September 2, 2005)
(SR–NASD–2004–125).
7 Under NASD Rule 4803, upon the expiration of
the 15 day period provided in a deficiency notice,
the staff is required either to initiate delisting
proceedings or grant an issuer up to 105 days to
regain compliance with the listing standard. The
staff’s authority to grant an exception does not
apply to quantitative listing standards that, by their
terms, specify a cure period.
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deficiency. Nasdaq believes that the
availability of a lesser sanction in the
form of a public reprimand letter would
ensure that investors are not harmed by
the premature delisting of companies in
certain limited situations where
violations involve a relatively minor
infraction of certain Nasdaq corporate
governance standards or notice
requirements.8
The proposed rule change, thus,
would modify NASD Rule 4801(k) to
provide that, depending on the nature of
the deficiency, a Staff Determination
may take the form of either: (1) A
written determination to limit or
prohibit the initial or continued listing
of an issuer’s securities or (2) a public
reprimand letter. Under the proposed
rule change, the Listing Department
could issue a public reprimand letter to
an issuer only upon a determination
that the issuer violated a Nasdaq
corporate governance or notification
listing standard (other than one required
by Rule 10A–3 under the Act 9) and that
delisting is not an appropriate sanction.
In determining whether to issue a public
reprimand letter, the Listing Department
would consider whether the violation
was inadvertent, whether the violation
materially adversely affected
shareholders’ interests, whether the
violation has been cured, whether the
issuer reasonably relied on an
independent advisor, and whether the
issuer has demonstrated a pattern of
violations.
Because a public reprimand letter
would be considered a Staff
Determination, it would be subject to
appeal in the same manner as a notice
to deny or limit listing. The proposed
rule change also would modify NASD
Rule 4804(b) to clarify that once a
public reprimand letter is issued, a
company would be required to make a
public announcement through the news
media disclosing the receipt of the
letter, including the basis for the staff’s
determination. The timetable for the
public announcement would be the
same as for a deficiency or delisting
letter—as promptly as possible, but not
later than four business days following
receipt of the public reprimand letter.
8 Examples of some circumstances where Nasdaq
could determine to issue a public reprimand letter
include those where: (1) The staff determines that
a company engaged in a pattern of failing to provide
advance notice of press releases to the Nasdaq
StockWatch department; (2) the staff becomes aware
that a company with a December 31 fiscal year end
has not held an annual meeting for the prior year
as of early January, but the company has filed a
proxy to hold the meeting in the next few weeks;
or (3) the staff determines that an independent
director resigned from the company and was
replaced with another independent director, but the
company did not provide prior notice to Nasdaq.
9 17 CFR 240.10A–3.
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Nasdaq also proposes to amend NASD
Rules 4803, 4804(c), and 4804(d) to
clarify that if an appeal of a public
reprimand letter is pending, an issuer
would not be disqualified from
receiving an exception with respect to
any additional deficiencies under NASD
Rule 4803. If a Staff Determination is
under review when the staff issues an
additional deficiency notice, the current
rules do not permit the staff to provide
additional time to the issuer to cure the
violation or to submit a plan to regain
compliance with the listing standards.
Instead, staff must issue a new Staff
Determination with respect to the
additional deficiencies under NASD
Rule 4804(c) and notify the issuer that
it should present its views with respect
to the new deficiencies at the Panel
hearing or, if the Panel hearing has
occurred, in writing. Because public
reprimand letters generally would
involve minor rule violations and are
intended to be a lesser sanction than
delisting, Nasdaq believes it would not
be appropriate to deny issuers that
appeal such a letter the benefit of the
exception provided by NASD Rule 4803
in the event an additional deficiency is
identified.
Nasdaq also proposes to modify
NASD Rule 4811 to provide that a Panel
Decision, Listing Council Decision, or
decision of the NASD Board could, in
addition to granting an exception or
limiting or prohibiting the initial or
continued listing of an issuer’s
securities, serve as a public reprimand
letter. Under the proposed rule change,
like the Listing Department, the
appropriate Adjudicatory Body 10 could
issue a public reprimand letter to an
issuer only upon a determination that
the issuer violated a Nasdaq corporate
governance or notification listing
standard (other than one required by
Rule 10A–3 under the Act 11) and that
delisting is not an appropriate sanction.
In determining whether to issue a public
reprimand letter, the Adjudicatory Body
would be required to consider the same
criteria as the Listing Department. As in
the case of a public reprimand letter
issued by the staff, an issuer that
receives a public reprimand letter
issued by an Adjudicatory Body would
be required to make a public
announcement through the news media
disclosing receipt of the letter.
Nasdaq continues to believe that
delisting is the appropriate sanction for
companies that fall below the
quantitative listing requirements, violate
10 NASD Rule 4801(b) defines ‘‘Adjudicatory
Body’’ to mean a Panel, the Listing Council, or the
NASD Board.
11 17 CFR 240.10A–3.
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Nasdaq listing standards, or raise public
interest concerns. Nasdaq believes,
however, that the authority to issue
public reprimand letters would provide
Nasdaq with the ability to impose lesser
sanctions on issuers in limited
circumstances, when delisting is not
appropriate.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of section 15A of the Act,12
in general, and with section 15A(b)(6) of
the Act,13 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, remove impediments to a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Nasdaq believes that this proposed rule
change would increase the objectivity
and transparency of its process of
sanctioning companies for violations of
listing standards and would promote
public confidence in Nasdaq and the
quality of Nasdaq’s listed companies.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change would 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
Nasdaq neither solicited nor received
written comments.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
This proposal has become effective
pursuant to section 19(b)(3)(A) of the
Act 14 and subparagraph (f)(6) of Rule
19b–4 thereunder 15 because the
proposal: (1) Does not significantly
affect the protection of investors or the
public interest, (2) does not impose any
significant burden on competition, and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest.
Nasdaq has requested that the
Commission waive the requirement that
12 15
U.S.C. 78o–3.
U.S.C. 78o–3(b)(6).
14 15 U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f)(6).
13 15
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the proposed rule change not become
operative for 30 days after the date of
the filing. The Commission notes that
the proposed rule change is
substantially similar to New York Stock
Exchange Rule 303A.13,16 which was
previously approved by the Commission
after notice and comment and, therefore,
does not raise any new regulatory
issues.17 For this reason, the
Commission designates the proposal to
be effective and operative upon filing
with the Commission.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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–2005–136 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–NASD–2005–136. 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
16 See Securities Exchange Release No. 48745
(November 4, 2003), 68 FR 64154 (November 12,
2003) (SR–NYSE–2002–33).
17 Rule 19b–4(f)(6) also requires a self-regulatory
organization to give written notice of a proposed
rule change filed pursuant to this subsection at least
five business days prior to filing. Nasdaq complied
with this requirement.
18 For purposes only of waiving the operative
delay for this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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74395
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 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–2005–136 and
should be submitted on or before
January 5, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.19
Jonathan G. Katz,
Secretary.
[FR Doc. E5–7384 Filed 12–14–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52921; File No. SR–NYSE–
2005–84]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Revisions to the Study Outline and
Selection Specifications for the
Limited Principal—Registered Options
(Series 4) Examination Program
December 7, 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 November
30, 2005, the New York Stock Exchange,
Inc. (‘‘NYSE’’ or ‘‘Exchange’’) 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 Exchange.
The Exchange has designated the
proposed rule change as constituting a
stated policy, practice, or interpretation
with respect to the meaning,
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\15DEN1.SGM
15DEN1
]]>Agencies
[Federal Register Volume 70, Number 240 (Thursday, December 15, 2005)]
[Notices]
[Pages 74392-74395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-7384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52899; File No. SR-NASD-2005-136]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Allow Nasdaq To Issue Public Reprimand Letters
December 6, 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 November 17, 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 and
II below, which Items have been prepared by Nasdaq. Nasdaq filed this
proposal pursuant to section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder \4\ as non-controversial, and therefore the proposed
rule change is effective immediately upon filing. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to modify NASD Rules 4801, 4803, 4804 and 4811 to
permit Nasdaq to issue public reprimand letters to listed companies for
certain rule violations when a determination is made that delisting is
not an appropriate sanction. Nasdaq would implement the proposed rule
change upon notice by the Commission.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.\5\
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\5\ The proposed rule change is marked to show changes from the
rules as they appear in the electronic NASD Manual available at
https://www.nasd.com.
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* * * * *
4801. Definitions
(a)-(j) No change.
(k) The term ``Staff Determination'' shall mean either:
(1) a written determination by the Listing Department to limit or
prohibit the initial or continued listing of an issuer's securities
pursuant to Rule 4804[.]; or
(2) a public reprimand letter in a case where the Listing
Department has determined that the issuer has violated a Nasdaq
corporate governance or notification listing standard (other than one
required by Rule 10A-3 of the Securities Exchange Act of 1934) and that
delisting is not an appropriate sanction. In determining whether to
issue a public reprimand letter, the Listing Department shall consider
whether the violation was inadvertent, whether the violation materially
adversely affected shareholders' interests, whether the violation has
been cured, whether the issuer reasonably relied on an independent
advisor and whether the issuer has demonstrated a pattern of
violations.
* * * * *
4803. Staff Review of Deficiency
(a) Whenever staff of the Listing Department determines that an
issuer does not meet a listing standard set forth in the Rule 4000
Series, staff shall immediately notify the issuer. The issuer shall
make a public announcement through the news media disclosing the
receipt of this notice, including the Rule(s) upon which it was based.
Prior to the release of the public announcement, the issuer shall
provide such disclosure to Nasdaq's MarketWatch Department, the Listing
Department, and the Hearings Department. The public announcement
[[Page 74393]]
shall be made as promptly as possible, but not more than four business
days following receipt of the notice from the Listing Department.
(1) In the case of
(A) all quantitative deficiencies from standards that do not
provide a compliance period;
(B) deficiencies from the standards of Rules 4350(c) or (d) or
4360(c) or (d) where the cure period of the Rule is not applicable; or
(C) deficiencies from the standards of Rules 4350(f), (h), (i),
(k), or (n), 4360(f) or (i), or 4351;
staff's notice shall provide the issuer with fifteen calendar days to
submit a plan to regain compliance with the listing standard; provided,
however, that the issuer shall not be provided with an opportunity to
submit such a plan if review under the Rule 4800 Series of a prior
Staff Determination (other than a Staff Determination that serves as a
public reprimand letter as described in Section 4801(k)(2)) with
respect to the issuer is already pending. Subject to the restrictions
of paragraph (b), staff may extend this deadline upon good cause shown.
Upon receipt of the issuer's plan, staff in the Listing Department may
request such additional information from the issuer as is necessary to
make a determination regarding the likelihood that the plan will allow
the issuer to meet the listing standard at issue.
(2)-(3) No change.
(b) Unless review under the Rule 4800 Series of a prior Staff
Determination (other than a Staff Determination that serves as a public
reprimand letter as described in section 4801(k)(2)) with respect to
the issuer is already pending, the Listing Department may grant the
issuer additional time to regain compliance with a listing standard
described in paragraph (a)(1); provided, however, that the additional
time provided by all such exceptions shall not exceed 105 calendar days
from the date of staff's notification pursuant to paragraph (a). The
Listing Department shall prepare a written record describing the basis
for granting any exception, and shall provide the issuer with written
notice as to the terms of the exception. If the issuer does not regain
compliance within the time period provided by all applicable
exceptions, the Listing Department shall immediately issue a Staff
Determination pursuant to Rule 4804(a). If the Listing Department
determines not to grant the issuer additional time to regain
compliance, the Listing Department shall immediately issue a Staff
Determination pursuant to Rule 4804(a) that includes a description of
the basis for denying the exception.
4804. Written Notice of Staff Determination
(a) If the Listing Department reaches a determination to limit or
prohibit the initial or continued listing of an issuer's securities or
to issue a public reprimand letter, it shall prepare and provide to the
issuer a Staff Determination that shall describe the specific grounds
for the determination, identify the quantitative standard or
qualitative consideration set forth in the Rule 4000 Series that the
issuer has failed to satisfy, and provide notice that upon request the
issuer shall be provided an opportunity for a hearing under this Rule
4800 Series.
(b) An issuer that receives a Staff Determination [to prohibit
continued listing of the issuer's securities] under Rule 4804(a) shall
make a public announcement through the news media disclosing the
receipt of the Staff Determination, including the Rule(s) upon which
the Staff Determination was based. Prior to the release of the public
announcement, an issuer shall provide such disclosure to Nasdaq's
MarketWatch Department, the Listing Department, and the Hearings
Department. The public announcement shall be made as promptly as
possible, but not more than four business days following receipt of the
Staff Determination.
(c) If review under the Rule 4800 Series of a Staff Determination
described in Rule 4801(k)(1) is pending and the Listing Department
identifies the existence of one or more additional deficiencies with
respect to the issuer, the Listing Department shall prepare and provide
to the issuer a Staff Determination with respect to such additional
deficiencies. If the new Staff Determination is issued prior to a Panel
hearing with respect to the original Staff Determination, the new Staff
Determination shall notify the issuer that it should present its views
with respect to the additional deficiencies at the Panel hearing. If
the new Staff Determination is issued after a Panel hearing with
respect to the original Staff Determination, the new Staff
Determination shall inform the issuer that it should present its views
with respect to the additional deficiencies in writing within the
period specified in the Staff Determination, to allow review of the
additional deficiencies as provided under Rule 4802(d).
(d) If review under the Rule 4800 Series of a public reprimand
letter is pending and the Listing Department identifies the existence
of one or more additional deficiencies with respect to the issuer, the
Listing Department shall review the additional deficiencies as provided
in Rule 4803.
* * * * *
4811. Record on Review; Contents of Decisions
(a)-(d) No change.
(e) If a Panel Decision, Listing Council Decision, or decision of
the NASD Board concludes that the issuer has failed to satisfy the
quantitative standards or qualitative considerations set forth in the
Rule 4000 Series, the decision shall either:
(1) grant an exception to the Rule 4000 Series as permitted by Rule
4802(b);
(2) limit or prohibit the initial or continued listing of the
issuer's securities; or
(3) serve as a public reprimand letter in a case where the
Adjudicatory Body determines that the issuer has violated a Nasdaq
corporate governance or notification listing standard (other than one
required by Rule 10A-3 of the Securities Exchange Act of 1934) and that
delisting is not an appropriate sanction. In determining whether to
issue a public reprimand letter, the Adjudicatory Body shall consider
whether the violation was inadvertent, whether the violation materially
adversely affected shareholders' interests, whether the violation has
been cured, whether the issuer reasonably relied on an independent
advisor and whether the issuer has demonstrated a pattern of
violations.
(f) An issuer that receives an Adjudicatory Body decision that
serves as a public reprimand letter as described in Rule 4811(e)(3)
shall make a public announcement through the news media disclosing the
receipt of the decision, including the Rule(s) upon which the decision
was based. Prior to the release of the public announcement, an issuer
shall provide such disclosure to Nasdaq's MarketWatch Department, the
Listing Department, and the Hearings Department. The public
announcement shall be made as promptly as possible, but not more than
four business days following receipt of the decision.
* * * * *
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
[[Page 74394]]
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 is proposing to allow the issuance of a public reprimand
letter to a listed company upon a determination that the company has
violated a Nasdaq corporate governance or notification listing standard
and that delisting is not an appropriate sanction. The Commission
recently approved a proposed rule change to Nasdaq's procedures
associated with denying or limiting companies' initial or continued
listing on Nasdaq.\6\ Under these new procedures, the staff of Nasdaq's
Listing Qualifications Department (``Listing Department'') provides
written notice to an issuer of a deficiency when a determination has
been made that a listing requirement has not been satisfied. Depending
upon the nature of the deficiency, the notice takes the form of a Staff
Determination, which initiates proceedings to deny or limit listing, or
a deficiency letter that provides the issuer with 15 days to submit a
plan to regain compliance with the listing standard.\7\ If an issuer
receives a Staff Determination, it may then request a hearing before a
Listing Qualifications Panel (``Panel''). Upon receiving a decision
from the Panel (``Panel Decision''), the issuer may appeal the decision
to the Nasdaq Listing and Hearing Review Council (``Listing Council'').
The final decision of the Listing Council (``Listing Council
Decision'') is subject to review by the NASD Board of Directors and the
Commission.
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\6\ See Securities Exchange Act Release No. 52342 (August 26,
2005), 70 FR 52456 (September 2, 2005) (SR-NASD-2004-125).
\7\ Under NASD Rule 4803, upon the expiration of the 15 day
period provided in a deficiency notice, the staff is required either
to initiate delisting proceedings or grant an issuer up to 105 days
to regain compliance with the listing standard. The staff's
authority to grant an exception does not apply to quantitative
listing standards that, by their terms, specify a cure period.
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Under the current rules, a Staff Determination initiates
proceedings to deny or limit listing. In monitoring the compliance of
listed companies with Nasdaq's corporate governance rules, Nasdaq has
identified circumstances where delisting would be disproportionate to
the underlying deficiency. Nasdaq believes that the availability of a
lesser sanction in the form of a public reprimand letter would ensure
that investors are not harmed by the premature delisting of companies
in certain limited situations where violations involve a relatively
minor infraction of certain Nasdaq corporate governance standards or
notice requirements.\8\
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\8\ Examples of some circumstances where Nasdaq could determine
to issue a public reprimand letter include those where: (1) The
staff determines that a company engaged in a pattern of failing to
provide advance notice of press releases to the Nasdaq StockWatch
department; (2) the staff becomes aware that a company with a
December 31 fiscal year end has not held an annual meeting for the
prior year as of early January, but the company has filed a proxy to
hold the meeting in the next few weeks; or (3) the staff determines
that an independent director resigned from the company and was
replaced with another independent director, but the company did not
provide prior notice to Nasdaq.
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The proposed rule change, thus, would modify NASD Rule 4801(k) to
provide that, depending on the nature of the deficiency, a Staff
Determination may take the form of either: (1) A written determination
to limit or prohibit the initial or continued listing of an issuer's
securities or (2) a public reprimand letter. Under the proposed rule
change, the Listing Department could issue a public reprimand letter to
an issuer only upon a determination that the issuer violated a Nasdaq
corporate governance or notification listing standard (other than one
required by Rule 10A-3 under the Act \9\) and that delisting is not an
appropriate sanction. In determining whether to issue a public
reprimand letter, the Listing Department would consider whether the
violation was inadvertent, whether the violation materially adversely
affected shareholders' interests, whether the violation has been cured,
whether the issuer reasonably relied on an independent advisor, and
whether the issuer has demonstrated a pattern of violations.
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\9\ 17 CFR 240.10A-3.
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Because a public reprimand letter would be considered a Staff
Determination, it would be subject to appeal in the same manner as a
notice to deny or limit listing. The proposed rule change also would
modify NASD Rule 4804(b) to clarify that once a public reprimand letter
is issued, a company would be required to make a public announcement
through the news media disclosing the receipt of the letter, including
the basis for the staff's determination. The timetable for the public
announcement would be the same as for a deficiency or delisting
letter--as promptly as possible, but not later than four business days
following receipt of the public reprimand letter.
Nasdaq also proposes to amend NASD Rules 4803, 4804(c), and 4804(d)
to clarify that if an appeal of a public reprimand letter is pending,
an issuer would not be disqualified from receiving an exception with
respect to any additional deficiencies under NASD Rule 4803. If a Staff
Determination is under review when the staff issues an additional
deficiency notice, the current rules do not permit the staff to provide
additional time to the issuer to cure the violation or to submit a plan
to regain compliance with the listing standards. Instead, staff must
issue a new Staff Determination with respect to the additional
deficiencies under NASD Rule 4804(c) and notify the issuer that it
should present its views with respect to the new deficiencies at the
Panel hearing or, if the Panel hearing has occurred, in writing.
Because public reprimand letters generally would involve minor rule
violations and are intended to be a lesser sanction than delisting,
Nasdaq believes it would not be appropriate to deny issuers that appeal
such a letter the benefit of the exception provided by NASD Rule 4803
in the event an additional deficiency is identified.
Nasdaq also proposes to modify NASD Rule 4811 to provide that a
Panel Decision, Listing Council Decision, or decision of the NASD Board
could, in addition to granting an exception or limiting or prohibiting
the initial or continued listing of an issuer's securities, serve as a
public reprimand letter. Under the proposed rule change, like the
Listing Department, the appropriate Adjudicatory Body \10\ could issue
a public reprimand letter to an issuer only upon a determination that
the issuer violated a Nasdaq corporate governance or notification
listing standard (other than one required by Rule 10A-3 under the Act
\11\) and that delisting is not an appropriate sanction. In determining
whether to issue a public reprimand letter, the Adjudicatory Body would
be required to consider the same criteria as the Listing Department. As
in the case of a public reprimand letter issued by the staff, an issuer
that receives a public reprimand letter issued by an Adjudicatory Body
would be required to make a public announcement through the news media
disclosing receipt of the letter.
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\10\ NASD Rule 4801(b) defines ``Adjudicatory Body'' to mean a
Panel, the Listing Council, or the NASD Board.
\11\ 17 CFR 240.10A-3.
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Nasdaq continues to believe that delisting is the appropriate
sanction for companies that fall below the quantitative listing
requirements, violate
[[Page 74395]]
Nasdaq listing standards, or raise public interest concerns. Nasdaq
believes, however, that the authority to issue public reprimand letters
would provide Nasdaq with the ability to impose lesser sanctions on
issuers in limited circumstances, when delisting is not appropriate.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of section 15A of the Act,\12\ in general, and with
section 15A(b)(6) of the Act,\13\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, remove impediments to a free
and open market and a national market system, and, in general, to
protect investors and the public interest. Nasdaq believes that this
proposed rule change would increase the objectivity and transparency of
its process of sanctioning companies for violations of listing
standards and would promote public confidence in Nasdaq and the quality
of Nasdaq's listed companies.
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\12\ 15 U.S.C. 78o-3.
\13\ 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 would 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
Nasdaq neither solicited nor received written comments.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
This proposal has become effective pursuant to section 19(b)(3)(A)
of the Act \14\ and subparagraph (f)(6) of Rule 19b-4 thereunder \15\
because the proposal: (1) Does not significantly affect the protection
of investors or the public interest, (2) does not impose any
significant burden on competition, and (3) by its terms does not become
operative for 30 days after the date of this filing, or such shorter
time as the Commission may designate, if consistent with the protection
of investors and the public interest. Nasdaq has requested that the
Commission waive the requirement that the proposed rule change not
become operative for 30 days after the date of the filing. The
Commission notes that the proposed rule change is substantially similar
to New York Stock Exchange Rule 303A.13,\16\ which was previously
approved by the Commission after notice and comment and, therefore,
does not raise any new regulatory issues.\17\ For this reason, the
Commission designates the proposal to be effective and operative upon
filing with the Commission.\18\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6).
\16\ See Securities Exchange Release No. 48745 (November 4,
2003), 68 FR 64154 (November 12, 2003) (SR-NYSE-2002-33).
\17\ Rule 19b-4(f)(6) also requires a self-regulatory
organization to give written notice of a proposed rule change filed
pursuant to this subsection at least five business days prior to
filing. Nasdaq complied with this requirement.
\18\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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-2005-136 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-136. 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 such
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-2005-136 and should be submitted on or before
January 5, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-7384 Filed 12-14-05; 8:45 am]
BILLING CODE 8010-01-P
