Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change, as Modified by Amendment No. 1, To Clarify the Listing of Additional Shares Notification Process, 33133-33136 [E8-13067]

Download as PDF Federal Register / Vol. 73, No. 113 / Wednesday, June 11, 2008 / Notices sroberts on PROD1PC70 with NOTICES executed against the individual orders and quotes in the leg markets. The Exchange proposes that Lead Market Makers (‘‘LMM’’) not be afforded any guaranteed allocation either in the execution of a complex strategy nor, if present, at the NYSE Arca BBO when a Complex Order executes against the individual leg markets. There is no obligation for LMMs (or any Market Maker) to quote prices for complex strategies; therefore there is no need for a guaranteed allocation. A market participant that establishes a price for a strategy should be rewarded for setting that price by being granted strict time priority. Similarly, the LMM quotes in the individual leg markets are available to all orders but are not advertising a particular strategy. They should not be granted a guaranteed allocation in any of the leg markets resulting from the execution of a Complex Order. Complex Orders will thus execute against the individual legs of the Consolidated Book in strict price time. The Exchange also proposes to continue to allow the individual legs of Complex Orders to be executed in the minimum applicable trading increments in the designated series in order to achieve the total or net debit/credit, consistent with Rule 6.72. For purposes of the firm quote rule, the Complex Order in the Consolidated Book shall be considered ‘‘firm’’ at the posted debit or credit.6 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act 7 in general and furthers the objectives of Section 6(b)(5) of the Act 8 in particular in that it is designed to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. NYSE Arca believes the proposed rule change related to Complex Orders is appropriate in that Complex Orders are widely recognized by market participants as invaluable, both as an investment and for risk management and investment strategy. The proposed rule change would provide the opportunity for a more efficient mechanism for carrying out these strategies. 6 See Rule 602 of Regulation NMS, 17 CFR 242.602. 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). VerDate Aug<31>2005 16:13 Jun 10, 2008 Jkt 214001 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition 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 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 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–NYSEArca–2008–54 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2008–54. 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 PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 33133 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, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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–NYSEArca–2008–54 and should be submitted on or before July 2, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Florence E. Harmon, Acting Secretary. [FR Doc. E8–13066 Filed 6–10–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–57930; File No. SR– NASDAQ–2008–017] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to Proposed Rule Change, as Modified by Amendment No. 1, To Clarify the Listing of Additional Shares Notification Process June 5, 2008. I. Introduction On March 6, 2008, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to modify Nasdaq’s listing of additional 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\11JNN1.SGM 11JNN1 33134 Federal Register / Vol. 73, No. 113 / Wednesday, June 11, 2008 / Notices shares notification process.3 The proposed rule change was published for comment in the Federal Register on April 10, 2008.4 The Commission received no comments on the proposal as published. On May 7, 2008, the Exchange filed Amendment No. 1 to the proposed rule change.5 This order provides notice of the proposed rule change, as modified by Amendment No. 1, and approves the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. sroberts on PROD1PC70 with NOTICES II. Description of the Proposal Pursuant to Nasdaq Rules 4310(c)(17) and 4320(e)(15), a company is required to provide 15 days notice to Nasdaq prior to issuing securities or entering into transactions that would result in the issuance of securities in certain specified situations set forth in the rules. These notification requirements are intended to allow Nasdaq to make compliance determinations regarding stock issuances that are potentially subject to the shareholder approval rules. Nasdaq proposes to make certain modifications to its rules governing the notification process for the listing of additional shares. First, Nasdaq proposes to clarify the timing of the notice requirement contained in Rules 4310(c)(17)(D) and 4320(e)(15)(D). Currently, the rules provide that notifications under these subparagraphs are required prior to ‘‘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. Nasdaq states that, in practice, it has treated this requirement as being satisfied if the company files the required notification 15 days before 3 As part of the proposed rule filing, the Exchange submitted a revised Listing of Additional Shares Notification Form conforming the instructions on the Form to the corresponding proposed rule changes. 4 See Securities Exchange Act Release No. 57616 (April 3, 2008), 73 FR 19540. 5 In Amendment No. 1, the Exchange modified the proposed notice requirement in Rules 4310(c)(17)(A) and 4320(e)(15)(A) relating to companies relying on the exception to shareholder approval for inducement grants to new employees contained in Rule 4350(i)(1)(A)(iv). In the original filing, Nasdaq proposed that notice of such an inducement grant would be required no later than five calendar days after entering into the agreement to issue securities. In Amendment No. 1, Nasdaq proposed to modify this notification requirement so that notice of an inducement grant must be provided no later than the earlier of: (1) Five calendar days after entering into the agreement to issue securities; or (2) the date of the public announcement of the award required by Rule 4350(i)(1)(A)(iv). VerDate Aug<31>2005 16:13 Jun 10, 2008 Jkt 214001 issuing the securities, rather than 15 days prior to entering into the transaction. Because such interpretation is not transparent from the rule, Nasdaq proposes to revise these provisions so that it is clear that notice will instead be required prior to ‘‘issuing’’ such securities. Second, Nasdaq proposes to modify the notice requirement contained in Rules 4310(c)(17)(A) and 4320(e)(15)(A) as it relates to companies relying on the exception to shareholder approval for inducement grants to new employees contained in Rule 4350(i)(1)(A)(iv).6 Currently, the rule provides that an issuer is required to notify Nasdaq at least 15 calendar days prior to establishing or materially amending a stock option plan, purchase plan or other equity compensation arrangement pursuant to which stock may be acquired by officers, directors, employees, or consultants without shareholder approval. Nasdaq asserts that, because inducement grants can be made at the time the employment offer is accepted, companies may not be able to provide 15 days of advance notice. Therefore, Nasdaq proposes to modify the notice requirement to require notification of such inducement grants no later than the earlier of: (1) Five calendar days after entering into the agreement to issue the securities; or (2) the date of the public announcement of the award required by Rule 4350(i)(l)(A)(iv).7 Third, Nasdaq proposes to amend Rules 4310(c)(17) and 4320(e)(15) to clarify that the notifications required by these rules must be made on a Listing of Additional Shares (‘‘LAS’’) Notification Form 8 and that Nasdaq encourages companies to file the form as soon as practicable. In addition, in an effort to provide transparency to the consequences of failing to timely file LAS notifications, Nasdaq proposes to amend the rules to specifically state that if a company fails to timely file the LAS notification, Nasdaq may issue a Staff Determination (pursuant to the Rule 4800 Series) that is a public reprimand letter or a delisting determination. Nasdaq notes that, in determining whether to issue a Staff Determination, and whether such a Staff Determination would be a delisting determination or a 6 Rule 4350(i)(1)(A)(iv) allows an exception to the requirement to obtain shareholder approval for equity compensation for certain ‘‘issuances to a person not previously an employee or director of the company, or following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with the company.’’ 7 See Amendment No. 1, supra note 5. 8 See supra note 3. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 public reprimand letter, Nasdaq would consider whether the issuer has demonstrated a pattern of late filings, the length of such filing delays, the reason for the delays, whether the issuer has been contacted concerning previous violations, whether the underlying transactions were themselves noncompliant, and whether the issuer has taken steps to assure that future violations will not occur. III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with Section 6(b)(5) of the Act,9 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest.10 The Commission believes that amending the timing requirement in Rules 4310(c)(17)(D) and 4320(e)(15)(D) to require that notification be made 15 days prior to issuing securities, rather than prior to entering into the specified transactions, will provide issuers certainty as to what point in a transaction the latest notification can be provided under Nasdaq’s rule, as well as eliminate any ambiguity surrounding the application of this rule. Further, this proposed rule change will make the timing requirement in subparagraph (D) of Rules 4310(c)(17) and 4320(e)(15) consistent with the timing requirement for notification of other types of issuances of stock under the rules, which require notification 15 days prior to the issuance of securities.11 At the same time, Nasdaq has assured the Commission that 15 days notice prior to issuance should continue to give 9 15 U.S.C. 78f(b)(5). approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 11 In particular, paragraph (B) of Rules 4310(c)(17) and 4320(e)(15) require issuers to notify Nasdaq 15 calendar days prior to issuing securities that may potentially result in a change of control of the issuer. Further, paragraph (C) requires issuers to notify Nasdaq 15 calendar days prior to issuing any 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 in the company to be acquired or in the consideration to be paid. (emphasis added) 10 In E:\FR\FM\11JNN1.SGM 11JNN1 Federal Register / Vol. 73, No. 113 / Wednesday, June 11, 2008 / Notices sroberts on PROD1PC70 with NOTICES Nasdaq enough time to review the LAS notifications to ensure that stock issuances comply with the Nasdaq rules and, in particular, Nasdaq’s shareholder approval requirements. As such, the Commission believes that the proposed rule change is consistent with the protection of investors and the public interest. The Commission also notes that the proposed rule language and the instructions to the LAS Notification Form urge issuers to file the form as soon as practicable, even if all of the relevant terms of the transaction or required documentation are not yet available. The Commission would hope that issuers would provide the required LAS Notification Form to Nasdaq as soon as possible to ensure timely compliance with any shareholder approval that may be required. The Commission also believes that the modification to the timing requirement for companies making an inducement grant is appropriate for this narrow category of stock issuances. The Commission notes that Nasdaq has represented that, as a practical matter, it often is not possible for companies to provide advance notice of inducement grants, because such grants are often made at the time the employment offer is accepted. Accordingly, modifying the timing requirement to require companies to provide notice to Nasdaq no later than the earlier of: five calendar days after entering into the agreement to issue the securities; or the date of the public announcement of the award,12 should make it more feasible for companies to timely meet the notification requirement. At the same time, the Commission believes that the modified timing requirement is consistent with the protection of investors and the public interest because such inducement grants are permitted without shareholder approval pursuant to Nasdaq Rule 4350(i)(1)(A)(iv). Therefore, unlike other stock issuances under Nasdaq’s shareholder approval rules, Nasdaq does not need to make a compliance determination as to whether shareholder approval is required prior to the issuance. The Commission notes, however, that Nasdaq still would need to make a determination that the inducement grant meets the requirements of the exception provided in Nasdaq Rule 4350(i)(1)(A)(iv).13 As 12 See Nasdaq Rule 4350(i)(1)(A)(iv), which requires that, promptly following the issuance of any employment inducement grant made in reliance on the exception in such rule, a company must disclose in a press release the material terms of the grant. 13 Specifically, Rule 4350(i)(1)(A)(iv) provides that shareholder approval is not required for VerDate Aug<31>2005 16:13 Jun 10, 2008 Jkt 214001 such, the Commission believes that the modified timing requirement for inducement grants is appropriate and balances the timing needs of issuers relying on the inducement grant exception with Nasdaq’s compliance responsibility to ensure that the issuer is appropriately relying on the inducement grant exception, and has met the Rule 4350(i)(1)(A)(iv) requirements for doing so. Finally, the Commission believes that the additional proposed changes provide clarity and transparency to the operation of the notification requirements. In particular, the proposed changes clarify that notifications must be made on the LAS Notification Form and that Nasdaq encourages companies to file the form as soon as practicable even if all of the relevant terms are not yet known. The Commission also notes that it reviewed Nasdaq’s revised LAS Notification Form and believes that the instructions on the form appropriately reflect the corresponding proposed rule changes. Further, the proposed changes clarify the consequences of failing to timely file the form by expressly stating that in such instances, Nasdaq may issue a Staff Determination that is either a public reprimand letter or a delisting determination. In this regard, the Commission notes that it expects Nasdaq to carefully monitor compliance with the notification requirements and to take appropriate action as necessary. In particular, because of the importance of shareholder approval, the Commission expects that in cases where failure to timely file the notification form is coupled with a failure to meet the shareholder approval requirements, Nasdaq will take action that is suitable for violations of such rules. The Commission finds good cause for approving the proposed rule change, as modified by Amendment No. 1, before the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. In Amendment No. 1, the Exchange modified the proposed notice requirement for companies issuing inducement grants to new employees. In the original filing, issuances to a person not previously an employee or director of the company, or following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with the company, provided such issuances are approved by either the issuer’s independent compensation committee or a majority of the issuer’s independent directors. Promptly following an issuance of any employment inducement grant in reliance on this exception, a company must disclose in a press release the material terms of the grant, including the recipient(s) of the grant and the number of shares involved. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 33135 Nasdaq proposed that notice of such an inducement grant would be required no later than five calendar days after entering into the agreement to issue securities. In Amendment No. 1, Nasdaq proposed to modify this notification requirement so that notice of an inducement grant must provided no later than the earlier of: (1) Five calendar days after entering into the agreement to issue securities; or (2) the date of the public announcement of the award required by Rule 4350(i)(1)(A)(iv). The Commission believes that the changes in Amendment No. 1 ensure that Nasdaq receives appropriate notice about an inducement grant no later than the date that the public is notified about such issuance pursuant to Rule 4350(i)(1)(A). As such, the Commission believes that Amendment No. 1 raises no new or novel regulatory issues and is consistent with the protection of investors and the public interest. Accordingly, the Commission finds good cause, consistent with Section 19(b)(2) of the Act,14 to approve the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. 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 modified by Amendment No. 1, 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–NASDAQ–2008–017 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2008–017. 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 14 15 E:\FR\FM\11JNN1.SGM U.S.C. 78s(b)(2). 11JNN1 33136 Federal Register / Vol. 73, No. 113 / Wednesday, June 11, 2008 / Notices 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, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. 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– NASDAQ–2008–017 and should be submitted on or before July 2, 2008. V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,15 that the proposed rule change (SR–NASDAQ– 2008–017), as modified by Amendment No. 1, be, and hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Florence E. Harmon, Acting Secretary. [FR Doc. E8–13067 Filed 6–10–08; 8:45 am] BILLING CODE 8010–01–P [Release No. 34–57921; File No. SR– NYSEArca-2008–46] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Accelerated Approval of Proposed Rule Change Relating to the Listing and Trading of Shares of the NETS ISEQ 20 Index Fund (Ireland) June 4, 2008. sroberts on PROD1PC70 with NOTICES I. Introduction On May 8, 2008, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’), through its wholly owned subsidiary, NYSE Arca Equities, Inc. (‘‘NYSE Arca Equities’’), filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 16 17 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). VerDate Aug<31>2005 16:13 Jun 10, 2008 II. Description of the Proposal The Exchange proposes to list and trade the Shares pursuant to NYSE Arca Equities Rule 5.2(j)(3), the Exchange’s listing standards for Investment Company Units (‘‘ICUs’’).4 The Fund is an ‘‘index fund’’ that seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly-traded securities in the aggregate in the Irish market, as represented by the ISEQ 20 (‘‘Index’’). The primary market for securities in the Index is the Irish Stock Exchange. The Exchange represents that the Index for the Fund does not meet all of the ‘‘generic’’ listing requirements of Commentary .01(a)(B) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the listing of ICUs based on international or global indexes.5 Specifically, the Index meets all such requirements except for those set forth in Commentary .01(a)(B)(3).6 The Exchange represents 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 57805 (May 8, 2008), 73 FR 28178. 4 ICUs are securities that represent interests in a registered investment company that holds securities comprising, or otherwise based on or representing an interest in, an index or portfolio of securities (or holds securities in another registered investment company that holds securities comprising, or otherwise based on or representing an interest in, an index or portfolio of securities). See NYSE Arca Equities Rule 5.2(j)(3). 5 NYSE Arca Equities may approve a series of ICUs based on equity security components for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to Rule 19b– 4(e) under the Act, if such series of ICUs satisfies the ‘‘generic’’ listing requirements that are set forth under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3) and have been approved by the Commission. See Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3); 17 CFR 240.19b–4(e). 6 The Exchange states that the Index satisfies the first requirement under Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3) that the most heavily weighted component stock shall not exceed 25% of the weight of the index or portfolio. However, the Index fails to meet the second requirement of Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3) that the five most heavily weighted component stocks shall not exceed 60% of the weight of the Index. The Exchange states that, as of April 18, 2008, the five most heavily weighted component stocks represented 68.7% of the Index weight. 2 17 SECURITIES AND EXCHANGE COMMISSION 15 15 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade the shares (‘‘Shares’’) of the NETS ISEQ 20 Index Fund (Ireland) (‘‘Fund’’) issued by the NETS Trust (‘‘Trust’’). The proposed rule change was published for comment in the Federal Register on May 15, 2008 for a 15-day comment period.3 The Commission received no comments on the proposal. This order approves the proposed rule change on an accelerated basis. Jkt 214001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 that: (1) Except for the requirement under Commentary .01(a)(B)(3) to NYSE Arca Equities Rule 5.2(j)(3) relating to the five most heavily weighted component stocks, the Shares of the Fund currently satisfy all of the generic listing standards under NYSE Arca Equities Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to ICUs will apply to the Shares; and (3) the Trust is required to comply with Rule 10A–3 under the Act 7 for the initial and continued listing of the Shares. In addition, the Exchange represents that the Shares will comply with all other requirements applicable to ICUs including, but not limited to, requirements relating to the dissemination of key information such as the Index value and Intraday Indicative Value, rules governing the trading of equity securities, trading hours, trading halts, surveillance, and Information Bulletin to ETP Holders, as set forth in prior Commission orders approving the generic listing rules applicable to the listing and trading of ICUs.8 III. Discussion and Commission’s Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of Section 6 of the Act 9 and the rules and regulations thereunder applicable to a national securities exchange.10 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,11 which requires, among other things, that the Exchange’s rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change should not significantly affect the protection of investors or the public interest or 7 See 17 CFR 240.10A–3. e.g., Securities Exchange Act Release Nos. 55621 (April 12, 2007), 72 FR 19571 (April 18, 2007) (SR–NYSEArca–2006–86) (approving generic listing standards for ICUs based on international or global indexes); 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (SR–PCX–2001–14) (approving generic listing standards for ICUs and Portfolio Depositary Receipts); and 41983 (October 6, 1999), 64 FR 56008 (October 15, 1999) (SR–PCX–98–29) (approving rules for the listing and trading of ICUs). 9 15 U.S.C. 78f. 10 In approving this proposed rule change the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 11 15 U.S.C. 78f(b)(5). 8 See, E:\FR\FM\11JNN1.SGM 11JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 73, Number 113 (Wednesday, June 11, 2008)]
[Notices]
[Pages 33133-33136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-13067]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57930; File No. SR-NASDAQ-2008-017]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
Approval to Proposed Rule Change, as Modified by Amendment No. 1, To 
Clarify the Listing of Additional Shares Notification Process

 June 5, 2008.

I. Introduction

    On March 6, 2008, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify Nasdaq's listing of additional

[[Page 33134]]

shares notification process.\3\ The proposed rule change was published 
for comment in the Federal Register on April 10, 2008.\4\ The 
Commission received no comments on the proposal as published. On May 7, 
2008, the Exchange filed Amendment No. 1 to the proposed rule 
change.\5\ This order provides notice of the proposed rule change, as 
modified by Amendment No. 1, and approves the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ As part of the proposed rule filing, the Exchange submitted 
a revised Listing of Additional Shares Notification Form conforming 
the instructions on the Form to the corresponding proposed rule 
changes.
    \4\ See Securities Exchange Act Release No. 57616 (April 3, 
2008), 73 FR 19540.
    \5\ In Amendment No. 1, the Exchange modified the proposed 
notice requirement in Rules 4310(c)(17)(A) and 4320(e)(15)(A) 
relating to companies relying on the exception to shareholder 
approval for inducement grants to new employees contained in Rule 
4350(i)(1)(A)(iv). In the original filing, Nasdaq proposed that 
notice of such an inducement grant would be required no later than 
five calendar days after entering into the agreement to issue 
securities. In Amendment No. 1, Nasdaq proposed to modify this 
notification requirement so that notice of an inducement grant must 
be provided no later than the earlier of: (1) Five calendar days 
after entering into the agreement to issue securities; or (2) the 
date of the public announcement of the award required by Rule 
4350(i)(1)(A)(iv).
---------------------------------------------------------------------------

II. Description of the Proposal

    Pursuant to Nasdaq Rules 4310(c)(17) and 4320(e)(15), a company is 
required to provide 15 days notice to Nasdaq prior to issuing 
securities or entering into transactions that would result in the 
issuance of securities in certain specified situations set forth in the 
rules. These notification requirements are intended to allow Nasdaq to 
make compliance determinations regarding stock issuances that are 
potentially subject to the shareholder approval rules.
    Nasdaq proposes to make certain modifications to its rules 
governing the notification process for the listing of additional 
shares. First, Nasdaq proposes to clarify the timing of the notice 
requirement contained in Rules 4310(c)(17)(D) and 4320(e)(15)(D). 
Currently, the rules provide that notifications under these 
subparagraphs are required prior to ``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. Nasdaq states that, in practice, it has treated this 
requirement as being satisfied if the company files the required 
notification 15 days before issuing the securities, rather than 15 days 
prior to entering into the transaction. Because such interpretation is 
not transparent from the rule, Nasdaq proposes to revise these 
provisions so that it is clear that notice will instead be required 
prior to ``issuing'' such securities.
    Second, Nasdaq proposes to modify the notice requirement contained 
in Rules 4310(c)(17)(A) and 4320(e)(15)(A) as it relates to companies 
relying on the exception to shareholder approval for inducement grants 
to new employees contained in Rule 4350(i)(1)(A)(iv).\6\ Currently, the 
rule provides that an issuer is required to notify Nasdaq at least 15 
calendar days prior to establishing or materially amending a stock 
option plan, purchase plan or other equity compensation arrangement 
pursuant to which stock may be acquired by officers, directors, 
employees, or consultants without shareholder approval. Nasdaq asserts 
that, because inducement grants can be made at the time the employment 
offer is accepted, companies may not be able to provide 15 days of 
advance notice. Therefore, Nasdaq proposes to modify the notice 
requirement to require notification of such inducement grants no later 
than the earlier of: (1) Five calendar days after entering into the 
agreement to issue the securities; or (2) the date of the public 
announcement of the award required by Rule 4350(i)(l)(A)(iv).\7\
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    \6\ Rule 4350(i)(1)(A)(iv) allows an exception to the 
requirement to obtain shareholder approval for equity compensation 
for certain ``issuances to a person not previously an employee or 
director of the company, or following a bona fide period of non-
employment, as an inducement material to the individual's entering 
into employment with the company.''
    \7\ See Amendment No. 1, supra note 5.
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    Third, Nasdaq proposes to amend Rules 4310(c)(17) and 4320(e)(15) 
to clarify that the notifications required by these rules must be made 
on a Listing of Additional Shares (``LAS'') Notification Form \8\ and 
that Nasdaq encourages companies to file the form as soon as 
practicable. In addition, in an effort to provide transparency to the 
consequences of failing to timely file LAS notifications, Nasdaq 
proposes to amend the rules to specifically state that if a company 
fails to timely file the LAS notification, Nasdaq may issue a Staff 
Determination (pursuant to the Rule 4800 Series) that is a public 
reprimand letter or a delisting determination. Nasdaq notes that, in 
determining whether to issue a Staff Determination, and whether such a 
Staff Determination would be a delisting determination or a public 
reprimand letter, Nasdaq would consider whether the issuer has 
demonstrated a pattern of late filings, the length of such filing 
delays, the reason for the delays, whether the issuer has been 
contacted concerning previous violations, whether the underlying 
transactions were themselves non-compliant, and whether the issuer has 
taken steps to assure that future violations will not occur.
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    \8\ See supra note 3.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange 
and, in particular, with Section 6(b)(5) of the Act,\9\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to, and perfect the mechanism of, a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.\10\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    The Commission believes that amending the timing requirement in 
Rules 4310(c)(17)(D) and 4320(e)(15)(D) to require that notification be 
made 15 days prior to issuing securities, rather than prior to entering 
into the specified transactions, will provide issuers certainty as to 
what point in a transaction the latest notification can be provided 
under Nasdaq's rule, as well as eliminate any ambiguity surrounding the 
application of this rule. Further, this proposed rule change will make 
the timing requirement in subparagraph (D) of Rules 4310(c)(17) and 
4320(e)(15) consistent with the timing requirement for notification of 
other types of issuances of stock under the rules, which require 
notification 15 days prior to the issuance of securities.\11\ At the 
same time, Nasdaq has assured the Commission that 15 days notice prior 
to issuance should continue to give

[[Page 33135]]

Nasdaq enough time to review the LAS notifications to ensure that stock 
issuances comply with the Nasdaq rules and, in particular, Nasdaq's 
shareholder approval requirements. As such, the Commission believes 
that the proposed rule change is consistent with the protection of 
investors and the public interest. The Commission also notes that the 
proposed rule language and the instructions to the LAS Notification 
Form urge issuers to file the form as soon as practicable, even if all 
of the relevant terms of the transaction or required documentation are 
not yet available. The Commission would hope that issuers would provide 
the required LAS Notification Form to Nasdaq as soon as possible to 
ensure timely compliance with any shareholder approval that may be 
required.
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    \11\ In particular, paragraph (B) of Rules 4310(c)(17) and 
4320(e)(15) require issuers to notify Nasdaq 15 calendar days prior 
to issuing securities that may potentially result in a change of 
control of the issuer. Further, paragraph (C) requires issuers to 
notify Nasdaq 15 calendar days prior to issuing any 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 in the company to be 
acquired or in the consideration to be paid. (emphasis added)
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    The Commission also believes that the modification to the timing 
requirement for companies making an inducement grant is appropriate for 
this narrow category of stock issuances. The Commission notes that 
Nasdaq has represented that, as a practical matter, it often is not 
possible for companies to provide advance notice of inducement grants, 
because such grants are often made at the time the employment offer is 
accepted. Accordingly, modifying the timing requirement to require 
companies to provide notice to Nasdaq no later than the earlier of: 
five calendar days after entering into the agreement to issue the 
securities; or the date of the public announcement of the award,\12\ 
should make it more feasible for companies to timely meet the 
notification requirement. At the same time, the Commission believes 
that the modified timing requirement is consistent with the protection 
of investors and the public interest because such inducement grants are 
permitted without shareholder approval pursuant to Nasdaq Rule 
4350(i)(1)(A)(iv). Therefore, unlike other stock issuances under 
Nasdaq's shareholder approval rules, Nasdaq does not need to make a 
compliance determination as to whether shareholder approval is required 
prior to the issuance. The Commission notes, however, that Nasdaq still 
would need to make a determination that the inducement grant meets the 
requirements of the exception provided in Nasdaq Rule 
4350(i)(1)(A)(iv).\13\ As such, the Commission believes that the 
modified timing requirement for inducement grants is appropriate and 
balances the timing needs of issuers relying on the inducement grant 
exception with Nasdaq's compliance responsibility to ensure that the 
issuer is appropriately relying on the inducement grant exception, and 
has met the Rule 4350(i)(1)(A)(iv) requirements for doing so.
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    \12\ See Nasdaq Rule 4350(i)(1)(A)(iv), which requires that, 
promptly following the issuance of any employment inducement grant 
made in reliance on the exception in such rule, a company must 
disclose in a press release the material terms of the grant.
    \13\ Specifically, Rule 4350(i)(1)(A)(iv) provides that 
shareholder approval is not required for issuances to a person not 
previously an employee or director of the company, or following a 
bona fide period of non-employment, as an inducement material to the 
individual's entering into employment with the company, provided 
such issuances are approved by either the issuer's independent 
compensation committee or a majority of the issuer's independent 
directors. Promptly following an issuance of any employment 
inducement grant in reliance on this exception, a company must 
disclose in a press release the material terms of the grant, 
including the recipient(s) of the grant and the number of shares 
involved.
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    Finally, the Commission believes that the additional proposed 
changes provide clarity and transparency to the operation of the 
notification requirements. In particular, the proposed changes clarify 
that notifications must be made on the LAS Notification Form and that 
Nasdaq encourages companies to file the form as soon as practicable 
even if all of the relevant terms are not yet known. The Commission 
also notes that it reviewed Nasdaq's revised LAS Notification Form and 
believes that the instructions on the form appropriately reflect the 
corresponding proposed rule changes. Further, the proposed changes 
clarify the consequences of failing to timely file the form by 
expressly stating that in such instances, Nasdaq may issue a Staff 
Determination that is either a public reprimand letter or a delisting 
determination. In this regard, the Commission notes that it expects 
Nasdaq to carefully monitor compliance with the notification 
requirements and to take appropriate action as necessary. In 
particular, because of the importance of shareholder approval, the 
Commission expects that in cases where failure to timely file the 
notification form is coupled with a failure to meet the shareholder 
approval requirements, Nasdaq will take action that is suitable for 
violations of such rules.
    The Commission finds good cause for approving the proposed rule 
change, as modified by Amendment No. 1, before the thirtieth day after 
the date of publication of notice of filing thereof in the Federal 
Register. In Amendment No. 1, the Exchange modified the proposed notice 
requirement for companies issuing inducement grants to new employees. 
In the original filing, Nasdaq proposed that notice of such an 
inducement grant would be required no later than five calendar days 
after entering into the agreement to issue securities. In Amendment No. 
1, Nasdaq proposed to modify this notification requirement so that 
notice of an inducement grant must provided no later than the earlier 
of: (1) Five calendar days after entering into the agreement to issue 
securities; or (2) the date of the public announcement of the award 
required by Rule 4350(i)(1)(A)(iv). The Commission believes that the 
changes in Amendment No. 1 ensure that Nasdaq receives appropriate 
notice about an inducement grant no later than the date that the public 
is notified about such issuance pursuant to Rule 4350(i)(1)(A). As 
such, the Commission believes that Amendment No. 1 raises no new or 
novel regulatory issues and is consistent with the protection of 
investors and the public interest. Accordingly, the Commission finds 
good cause, consistent with Section 19(b)(2) of the Act,\14\ to approve 
the proposed rule change, as modified by Amendment No. 1, on an 
accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).
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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 modified by Amendment No. 1, 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-NASDAQ-2008-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-017. 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

[[Page 33136]]

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, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of Nasdaq. 
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-NASDAQ-2008-
017 and should be submitted on or before July 2, 2008.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASDAQ-2008-017), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-13067 Filed 6-10-08; 8:45 am]
BILLING CODE 8010-01-P

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