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Self-Regulatory Organizations; Order Approving a Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to the Definition of “Public Offering” for Purposes of Nasdaq's Shareholder Approval Rules

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Start Preamble November 13, 2000.

On August 11, 2000, The National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its wholly owned subsidiary, The Nasdaq Stock Marker, Inc. (“Nasdaq”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] a proposed rule change regarding the adoption of interpretive material defining “Public Offering” for purposes of Nasdaq's shareholder approval rules.[2] On October 4, 2000, the Nasdaq filed Amendment No. 1 to the proposed rule change.[3] The proposed rule change was noticed in the Federal Register.[4] On October 13, 2000, the NASD filed Amendment No. 2 to the proposed rule change.[5] No comments were submitted on the proposed rule change. This order approves the proposed rule change, as amended.

I. Background

Nasdaq rules require shareholder approval for stock issuances of 20 percent or more of an issuer's total shares outstanding, offered at less than the greater of book or market value. The applicable rules further provide, however, that shareholder approval is not required for a “public offering,” although that term is not defined in the rules. Recently, a number of issuers have inquired as to whether certain large, below-market offerings were Start Printed Page 69596“public offerings” because the transactions, which were initiated pursuant to exceptions to the registration requirements, were registered with the Commission prior to closing the transactions.[6] Historically, for purposes of assessing the applicability of the shareholder approval rules, Nasdaq staff has interpreted “public offering” as a broadly distributed, registered offering based on a firm commitment underwriting. Conversely, Nasdaq staff does not consider a transaction to be a “public offering” for these purposes when the transaction is of limited distribution and/or is not based on a firm commitment underwriting, even if the offering was registered. Because the offerings described had limited distributions and, in some cases, the offerees were pre-determined by the issuer, Nasdaq believed that these transactions were not “public offerings” for purposes of the shareholder approval rules.

To help to ensure that all issuers understand how Nasdaq will determine whether a transaction is a “public offering” for purposes of the shareholder approval rules, Nasdaq has prepared the proposed Interpretative Material. Determinations as to whether a transaction is a “public offering” for purposes of these rules will be made based on the facts and circumstances surrounding each particular transaction. The proposed Interpretative Material identifies a number of factors that will be considered when determining whether an offering is a “public offering,” including the type of offering; the marketing of the offering; the extent of the offering's distribution; the offering price; and the extent to which the issuer controls the offering and its distribution.

II. Discussion

The Commission finds that the proposed rule change is consistent with the provisions of Section 15A(b)(6) [7] of the Act, which requires, among other things, that the Association's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.[8] The Commission believes the Interpretative Material is designed to educate issuers and other interested parties as to how Nasdaq defines a “public offering” in order to ensure that issuers are aware as to which transactions require shareholder approval under the NASD's rules, thus promoting just and equitable principles of trade and protecting investors and the public interest.

It Is Therefore ordered, pursuant to Section 19(b)(2) of the Act,[9] that the proposal, SR-NASD-00-50, as amended, be and hereby is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[10]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


2.  The American Stock Exchange, Inc. filed a similar proposed rule change SR-Amex-00-46. See Securities Exchange Act Release No. 43419 (Oct. 6, 2000), 65 FR 61206 (Oct. 16, 2000).

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3.  Amendment No. 1 changed the section under which the proposed rule change was filed from Section 19(b)(3) to Section 19(b)(2) of the Act and made other technical changes. See Letter from Edward Knight, Executive Vice President and Chief Legal Officer, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), SEC (Oct. 2, 2000).

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4.  Securities Exchange Act Release No. 43420 (Oct. 6, 2000), 65 FR 61011 (Oct. 13, 2000).

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5.  Amendment No. 2 made a minor technical change to the interpretation. See Letter from Arnold P. Golub, Senior Attorney, Nasdaq, to Katherine A. England, Assistant Director, Division, SEC (Oct. 11, 2000). Because the amendment is technical, it does not need to be published for comment.

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6.  The Commission believes that this activity is not appropriate under Section 5 of the Securities Act of 1933. See 15 U.S.C. 77e.

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8.  In approving the proposal, the Commission has considered the rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 00-29466 Filed 11-16-00; 8:45 am]