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Self-Regulatory Organizations; Order Granting Approval of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to Issuer Disclosure of Material Information

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Information about this document as published in the Federal Register.

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Start Preamble November 25, 2002.

I. Introduction

On June 26, 2002, 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”), 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 rules pertaining to issuer disclosure of material information. The proposed rule change was published for notice and comment in the Federal Register on August 7, 2002.[3]

The Commission received one comment on the proposed rule change.[4] On October 16, 2002, Nasdaq filed a letter in response to comments on the proposal.[5] This order approves the proposed rule change.

II. Summary of Comments

The PR Newswire Letter

In its comment letter, PR Newswire (“Commenter”) submits that the filing of a Form 8-K via EDGAR, without more, does not achieve the goal of providing Start Printed Page 72012investors with timely access to material corporate information.[6] According to the Commenter, when an issuer files a Form 8-K with the Commission, investors will receive the information only if investors (1) know when to anticipate the disclosure; (2) know where to find the information; and (3) have access to the Commission's Web site or a site carrying EDGAR content.[7] The Commenter believes that allowing only the filing of a Form 8-K in satisfaction of disclosure requirements would reduce the possible dissemination of information to the investing public.[8]

The Commenter suggests that requiring the filing of a Form 8-K in tandem with a news release distributed by a commercial newswire service and posted on an issuer's Web site will “fully address the desired goals.”[9] Additionally, the Commenter believes that the scope of dissemination of such a press release should “correspond to dissemination that the issuer normally effects with respect to its results of operations.”[10] The Commenter suggests that disclosure through a press release should require dissemination of the entire text of the press release, to avoid providing limited and selective disclosure, in contrast to the information obtained by those who obtain the complete press release.[11]

Nasdaq's Response Letter

Nasdaq believes that the filing of a Form 8-K provides “effective, broad and non-exclusionary public disclosure,” and that requiring the issuance of a press release in tandem with filing a Form 8-K would place a burden on issuers while providing “no significant benefit to investors.”[12] Nasdaq states that filings made with the Commission via EDGAR are available on “most major financial news Web sites and Web portals,” and lists a number of Web sites that have direct links to issuers' filings.[13] In addition to obtaining this information via the Internet, Nasdaq notes that filing of a Form 8-K may result in media coverage, and that under Nasdaq rules, issuers must provide notification of material news announcements, including those made by filing a Form 8-K, to Nasdaq's Market Watch Department before disseminating them to the public. The Market Watch Department evaluates such information for materiality, and implements trading halts for dissemination of news, if appropriate.[14]

Nasdaq maintains that the proposal is “designed to harmonize its disclosure rules with Regulation FD” to enable issuers to reap the benefits of using “current technologies as part of a comprehensive disclosure strategy,” and to address concerns that self-regulatory organization rules override the flexibility provided by Regulation FD.[15]

III. Discussion and Commission Findings

The Commission has reviewed carefully the proposed rule change, the comment letter, and Nasdaq's response to comments, and 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 association [16] and, in particular, the requirements of section 15A(b)(6) of the Act. Section 15A(b)(6) requires rules that are designed to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. The Commission finds that aligning Nasdaq's disclosure rules with Regulation FD should minimize confusion among issuers, while simultaneously allowing issuers to use current technologies to disseminate material information to the public in a broad, inclusive manner. The Commission makes no finding as to whether requiring issuers to provide a news release to be distributed by a commercial newswire service and posted on the issuer's web site, in addition to filing a Form 8-K, will result in expanding the reach of disclosure to the investing public. The Commission is satisfied that the proposal conforms to the requirements for disclosure as delineated in Regulation FD, and as such, finds it is consistent with the requirements of the Act, in general, and specifically, with section 15A(b)(6).

IV. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[17] that the proposed rule change (SR-NASD-2002-85) be, and it hereby is, approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[18]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  See Securities Exchange Act Release No. 46288 (July 31, 2002), 67 FR 51306.

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4.  See August 26, 2002 letter from Charles H. Morin, Chief Executive Officer, PR Newswire, to Margaret H. McFarland, Deputy Secretary, Commission (“PR Newswire Letter”).

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5.  See October 15, 2002 letter from John D. Nachmann, Senior Attorney, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation, Commission (“Nasdaq Response Letter”).

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6.  PR Newswire Letter at p.3.

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8.  Id. at p.4.

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10.  Id. at 5.

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12.  Nasdaq Response Letter at p.2.

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15.  Id. at p.3.

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16.  In approving this proposed rule change, 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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[FR Doc. 02-30538 Filed 12-2-02; 8:45 am]

BILLING CODE 8010-01-P