On October 19, 1999, the National Association of Securities Dealers, Inc. (“NASD”), through its wholly owned subsidiary the Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
Notice of the proposed rule change was published for comment in the
The Commission recently approved a rule change filed by the NASD to modify the fee rate structures and notification requirements applicable to issuers listing additional shares on the NNM and NSCM.
To further simplify the administration of the Listing of Additional Shares (“LAS”) Program, the NASD is modifying notification procedures applicable to issuers of additional shares, and Nasdaq's monitoring and assessment of fees on the listing of such additional shares.
Nasdaq staff employ the LAS Program to monitor compliance by issuers with Nasdaq listing rules governing shareholder approval, public interest concerns, reverse mergers, and voting rights. Since 1992, all Nasdaq issuers have been required to file a notification form upon the creation of a stock option, employee stock purchase, or other stock remuneration plan, or upon the issuance of additional shares of any class of securities included in Nasdaq.
The NASD believes that the current LAS Program is difficult and unduly time-consuming to administer. Specifically, the NASD believes that, under the current LAS Program, it is difficult for an issuer to calculate the number of shares to be reported for LAS purposes: an issuer must track the number of shares approved by Nasdaq according to current LAS criteria (a number not otherwise monitored by issuers and which has often proved difficult for Nasdaq staff and issuers to reconcile) instead of the total number of shares outstanding reported in periodic reports required to be filed with the Commission. Furthermore, the timing of the notifications required by the current LAS Program varies depending on the nature of the action undertaken by an issuer and, as a result, has proved confusing to issuers and their counsel. This in turn has led to delays in filing or failures to comply with LAS Program notification and fee requirements.
To remedy these deficiencies, the NASD proposal makes the following changes to the current LAS Program:
1. In order to address the problem of monitoring the number of fee-assessable shares, the billing aspect of the LAS Program will be separated from required compliance reviews. Issuers will be billed each quarter for any increase in their total shares outstanding (“TSO”) as reported in publicly available periodic reports required to be filed with the Commission.
2. To address the uncertainty which has surrounded issuers' LAS notification requirements, the process of reporting to Nasdaq will be streamlined by confining issuers' notification requirements to those transactions implicated by the Nasdaq's corporate governance compliance requirements.
(a) a stock option plan, purchase plan or other arrangement is established without shareholder approval; or
(b) the issuer enters into a transaction that may result in a change of control; or
(c) the issuer issues common stock or a security convertible into 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 an interest of 5% or more (or if a group of such persons collectively holds an interest of 10% or more) in the company to be acquired or in the consideration to be paid; or
(d) the issuer enters into a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) representing more than 10% of either the total shares outstanding or voting power outstanding on a pre-transaction basis.
Under the proposed rule change, all LAS notifications will be required to be filed 15 calendar days prior to issuance (except for stock splits and dividends
The NASD believes that these changes will improve Nasdaq's administration of the LAS Program by focusing on the TSO reported publicly in periodic reports required to be filed with the Commission instead of relying on a calculated number of approved shares. In addition, the NASD believes that the changes will streamline the filing requirements imposed on issuers by reducing the filing burden to the extent that no filings will be required for issuances that do not raise corporate governance concerns, while simultaneously streamlining the notification filing time frame. Finally, the NASD believes that the changes will allow Nasdaq staff to focus on larger and more complex transactions in its review of issuers' compliance with corporate governance rules and other continued listing standards by eliminating the requirement that issuers file information about issuances that do not raise corporate governance concerns.
The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the NASD. Specifically, the Commission finds that the rule change is consistent with the provisions of Sections 15A(b)(5) and (6) of the Act.
The Commission finds that the rule change is consistent with the Act, in general, and in particular with Sections 15A(b)(5) and (6) of the Act.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.