Notice To Members 94-98

SEC Approves NASD Listing Requirements Proposal To Prohibit Immediate Delistings Of Units

Published Date:

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Executive Summary

On September 20, 1994, the Securities and Exchange Commission approved a proposed rule change by the NASD that amends the listing requirements in Parts II and III of Schedule D to the NASD By-Laws to impose specific delisting requirements for units listed on the Nasdaq National Market® and The Nasdaq SmallCap Market™. The new requirements, which are effective immediately, specifically require:

  • All units included for quotation on Nasdaq® must continue to be included for quotation for a minimum of 30 days from the first day of inclusion, barring suspension or withdrawal for regulatory purposes;

  • Issuers or underwriters seeking to withdraw units from inclusion must provide Nasdaq with notice of intent 15 days before withdrawal; and

  • Issuers of units are required to include in the prospectus or other offering document a statement disclosing any intention to withdraw the units immediately after the minimum inclusion period.

The NASD and The Nasdaq Stock Market, Inc., believe that these changes will diminish confusion, promote orderly trading markets, and enhance the integrity of Nasdaq listings. The text of the amendments, as approved by the SEC, follows the discussion below.

Background And Description Of The Rule Change

The NASD determined the integrity of The Nasdaq Stock MarketSM could be harmed by instances where units were withdrawn without previous notice almost immediately after initially being included for quotation on Nasdaq. The sudden withdrawal, after trading begins, could adversely affect investors and market makers who had taken positions in these securities. In addition, the NASD was concerned that certain issuers and underwriters of units could be engaged in potentially manipulative activity related to immediate delisting of units. The NASD proposed several amendments to the listing criteria for units included for quotation in the Nasdaq National Market and The Nasdaq SmallCap Market. These changes were approved by the SEC.1

Minimum 30-Day Listing Requirement

One of the critical problems with the immediate delisting of units was the uncertainty that units would continue to be available for trading for a reasonable period of time after initial listing. To counteract this problem, the new unit listing requirements include a minimum 30-day period for inclusion. Once the issuer and underwriter have obtained a listing on Nasdaq, the units must continue to be listed for 30 days thereafter. This change allows investors and others some certainty that the units will continue in the marketplace for a period of time. Of course, if there are regulatory problems with the units, the NASD retains the authority to remove the listings from trading before the 30-day minimum period expires.

15-Day Advance Notice Of Withdrawal

In a related vein, the lack of advance notice to market participants regarding withdrawal of units from listing harmed investors and others. Another change to the units requirements mandates that the issuer or underwriter of the units provide Nasdaq with 15-days notice that it intends to withdraw the units from listing. This notice period, coupled with the 30-day minimum period, should allow investors and market makers sufficient advance opportunity to make reasoned decisions concerning market activity in the units.

Prospectus Notice Requirement

Finally, the new rules include a provision that specifies the issuers obligation to provide adequate notice of any intention to withdraw units from listing shortly after final listing. Any such intention should be discussed as material information in the issuer's prospectus or other offering document to provide investors with adequate disclosure of a likely event that would materially affect the value of the securities.

Questions regarding this Notice should be directed to Eugene A. Lopez, Senior Attorney, Office of General Counsel, at (202) 728-6998.

1See Securities Exchange Act Release No. 34-34515 (August 10, 1994); 59 FR 42626 (August 18, 1994).

Text Of Amendments To Schedule D To The NASD By-Laws

(Note: New language is underlined.)

Schedule D

Part II

Sec. 1(c)(10)(a) No Change.

(b) In the case of units, the minimum period for inclusion of the units shall be 30 days from the first day of inclusion, except the period may be shortened if the units are suspended or withdrawn for regulatory purposes. Issuers and underwriters seeking to withdraw units from inclusion must provide the Association with notice of such intent at least 15 days prior to withdrawal.

Sec. 1(c)(11)–(20) No Change.

Sec. 1(c)

(21) The issuer of units shall include in its prospectus or other offering document used in connection with any offering of securities that is required to be filed with the Commission under the federal securities laws and the rules and regulations thereunder a statement regarding any intention to delist the units immediately after the minimum inclusion period.

Sec. 1(c)(22) – Sec. 4 No Change.

Sec. 5

(1) Units
(1) Minimum Inclusion Period and Notice of Withdrawal

In the case of units, the minimum period for inclusion of the units shall be 30 days from the first day of inclusion, except the period may be shortened if the units are suspended or withdrawn for regulatory purposes. Issuers and underwriters seeking to withdraw units from inclusion must provide the Association with notice of such intent at least 15 days prior to withdrawal.
(2) Disclosure Requirements for Units

Each Nasdaq/NM issuer of units shall include in its prospectus or other offering document used in connection with any offering of securities that is required to be filed with the Commission under the federal securities laws and the rules and regulations promulgated thereunder a statement regarding any intention to delist the units immediately after the minimum inclusion period.