SEC Approves Nasdaq's Registration as a National Securities Exchange
July 2006
On June 30, 2006, the Securities and Exchange Commission (“SEC”) approved certain rule changes of the National Association of Securities Dealers, Inc. (“NASD”) relating to the national exchange status of the Nasdaq Stock Market LLC (“Nasdaq”). This change is primarily one of legal form and is unlikely to have any significant impact on Nasdaq companies. There are, however, several minor effects discussed below of which current Nasdaq issuers should be aware.
The SEC had previously approved Nasdaq’s exchange registration on January 13, 2006. Among the rules approved June 30 were those relating to the establishment of The Trade Reporting Facility LLC, an entity jointly owned by the NASD and the publicly traded parent of the Nasdaq Stock Market LLC. The Trade Reporting Facility LLC will be used to report over-the-counter trades of Nasdaq securities. Nasdaq has indicated it intends to begin operating as an exchange as early as the third quarter of 2006. Nasdaq currently operates as an interdealer quotation system exempt from registration as an exchange under Rule 3(a)(1)-1 of the Securities Exchange Act of 1934 because it is operated by the NASD.
Since 1971, Nasdaq has operated under NASD supervision as a wholly-owned (and since June 2000 majority-owned) NASD subsidiary. Upon registration as a national securities exchange, Nasdaq will break from the NASD and become a separate self-regulatory organization, responsible for its own federal securities law compliance and that of its members. Benefits of the split from the NASD have been said to include the removal of a perceived conflict of interest between Nasdaq and the NASD’s regulatory division, as well as the enhanced ability of Nasdaq to compete with other national and international exchanges that comes with being an independent public exchange. Becoming an exchange will also ensure Nasdaq issuers are treated the same as NYSE and AMEX issuers for state law purposes (e.g., the laws of some states require financial institutions and other regulated entities to invest only in securities “listed on an exchange.”)
As a national exchange, all securities listed on Nasdaq will be required to be registered under Section 12(b) of the Securities Exchange Act of 1934. Currently, most securities traded on Nasdaq are registered under Section 12(g) of the 1934 Act. To avoid the administrative cost and inconvenience of thousands of Nasdaq issuers filing registrations under Section 12(b), Nasdaq has requested and received permission from the SEC to file a single Section 12(b) registration for all securities traded on Nasdaq the day before it begins operating as a national exchange. Investment company securities currently exempt from registration under Section 12(g)(2)(B) of the 1934 Act will now be required to register under Section 12(b).
There is no material distinction in the regulatory requirements for issuers between being registered under Section 12(b) or Section 12(g) of the 1934 Act. It should be noted, however, that issuers will need to begin identifying themselves as registered under Section 12(b) where applicable on their 1934 Act filings, such as on the cover of Annual Reports on Form 10-K. The change is not anticipated to have any other disclosure impact. There are, however, minor variations in the delisting process for securities registered under Section 12(b) as compared to those registered under Section 12(g). Finally, ownership reporting forms under Section 16, Schedules 13D and 13G filings and Forms 144 typically must be filed with the exchange on which securities are listed. It is anticipated that filing reports electronically on the SEC’s EDGAR system will satisfy the requirement of filing them with Nasdaq. Any such reports not filed on EDGAR should be mailed to the Nasdaq Listing Qualifications Office. Nasdaq has indicated that its current listing and corporate governance standards will not be materially changed following its registration as a national exchange. Exchange Act and CIK numbers will also remain unchanged.
In other recent activity, Nasdaq has undergone a restructuring that includes a new market category known as The Nasdaq Global Select Market. Effective July 3, 2006, the new market is open to those Nasdaq-listed issuers that can satisfy more stringent listing standards, including those related to market value, liquidity and financial performance. Additional changes included changing the names of the Nasdaq National Market and Nasdaq SmallCap Market to the Nasdaq Global Market and Nasdaq Capital Market, respectively.