Holiday Settlement Schedule

TO: All NASD Members and Municipal Securities Bank Dealers

ATTN: All Operations Personnel

Securities markets and the NASDAQ System will be closed on Good Friday, April 1, 1983. "Regular-Way" transactions made on the business days immediately preceding that day will be subject to the following schedule.

Trade Date-Settlement Date Schedule For "Regular-Way" Transactions

The foregoing settlement dates should be used by brokers, dealers, and municipal securities dealers for purposes of clearing and settling transactions pursuant to the Association's Uniform Practice Code and Municipal Securities Rulemaking Board Rule G-12 on Uniform Practice. Questions concerning the application of these settlement dates to a particular situation should be directed to the Uniform Practice Department of the NASD at (212) 839-6257.

National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
(202) 728-8000

March 23, 1983

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549

Attention: Mr. George A. Fitzsimmons, Secretary

Re: File No. S7-951

Members of the Commission:

The National Association of Securities Dealers, Inc. ("Association" or "NASD") is pleased to offer comments on the proposal contained in Securities Exchange Act Release No. 19187 (the "Release") to adopt revisions to Rule 12g3-2 (17 CFR 240.12g3-2) under the Securities Exchange Act of 1934 (the "Act") that would, inter alia, terminate the availability of that exemptive rule for foreign issuers with securities quoted on NASDAQ. The net effect of the proposal would be to require full registration with the Commission under Section 12(g) of the Securities Exchange Act of 1934 for all NASDAQ foreign issuers. This proposal has been considered by the Association's Ad Hoc Committee on Foreign Securities and Board of Governors and their views are set forth below.

In sum, the Association opposes the adoption of the amended rules because it believes the underlying premise of the amendment, i.e., voluntary entry into the United States securities markets by NASDAQ issuers, is in error and because the release does not articulate any demonstrated need for the change. More importantly, however, we believe the imposition of a requirement to register under Section 12(g) for the inclusion of foreign securities on NASDAQ would result in a mass exodus of these securities from the system. In this connection, our Ad Hoc Committee has representatives from ADR sponsoring banks of virtually all the ADR's on the system and it is their unqualified opinion that most if not all of the underlying issuers, in addition to the non-ADR issuers, will not register and thereby subject themselves to SEC jurisdiction. Further, over the past one and one-half years the Ad Hoc Committee has addressed the question of adequate disclosure by foreign issuers on the system and made proposals, subsequently approved by the Commission, Release No. 34-19455, which attempted to address previously expressed Commission concerns. These amendments to our rules only became effective on January 27, 1983 and require broader disclosure than previously, certified financials and other regulatory improvements. Their impact is yet unknown. We suggest, therefore, that before any further changes are made to foreign issuer requirements on NASDAQ the rules be given an opportunity to work and to be observed for effectiveness in eliminating the concerns expressed by the Commission.

"VOLUNTARY" ENTRY INTO U.S. CAPITAL MARKETS

The Commission's proposal is based upon the assumption that foreign issuers "voluntarily" seek inclusion in the NASDAQ System and will choose registration rather than risk deletion from the System. We believe both premises are in error. The net effect will be an exodus of foreign issues from NASDAQ, with a resultant impact upon current and prospective shareholders precisely opposite to the Commission's intended purpose.

As to the issue of voluntariness, until very recently (January 1981) foreign issues were included in NASDAQ without the necessity of any affirmative application by the issuer. Even today, no formal application process is in effect. Rather, a simple letter from the issuer requesting inclusion will suffice. With respect to ADR's, the inclusion of which are sought by depositary banks, a letter of non-objection to inclusion by the underlying foreign issuer will suffice. The element of voluntariness is absent even as to the required NASDAQ issuer fees which may be paid by ADR banks. Thus, a substantial number of foreign issues and ADR's now included in the NASDAQ System got there through no voluntary action of any kind on the part of the foreign issuer. Even the "bare bones" application requirement since January of 1981 (a letter of request), does not apply to ADR's which will be placed on the system upon application by a sponsoring depositary bank with no objection from the issuer. Accordingly, we do not believe the concept of "voluntary" entry into NASDAQ by foreign issuers has been established or adequately supports the implementation of this proposal. Also, any analogy to exchange listing to support the concept is in error. Many times such call for undertakings and representations to be made by the issuer, among other things. The Commission states its objective in making the proposal is to restore the "availability of the information-supplying exemption to its intended purpose" of not requiring the "burdens of registration and of the attendant obligations upon foreign issuers that had not voluntarily entered the U.S. capital markets." It is submitted that the "intended purpose" still applies to most NASDAQ foreign issues.

Aside from considerations of voluntariness, we believe the potential impact of the proposal must be closely considered including whether the net effect will be a reduction in the amount of information available to investors, lessened liquidity of the holdings of existing investors and wider quotation spreads.

Commission will not have to face procedural burdens which it might face under the provisions of the bill as introduced. 2/

In 1965, prior to the adoption of current Rule 12g3-2 implementing the exemptive provision of the statute, the Commission presented a very broad regulatory proposal for comment. This proposal would have required more specific and regular reporting by exempt issuers, would have applied sanctions against traders who traded foreign securities that were neither registered nor exempt, and would have required broker/dealers to furnish information to the SEC and the NASD regarding exempt foreign issuers. These proposals were commented on by persons and companies to be directly affected by the rules and by foreign governments. Among other comments, the Commission was advised that the proposals may violate international law, would have presented technical difficulties in superimposing the SEC requirements on the issuers' existing domestic law, and would have had the effect of retarding the development of effective regulation in the home countries of the issuers. In the face of such criticism, the Commission adopted the much narrower Rule 12g3-2, the so-called information-supplying exemption which is available to foreign issuers as long as they supply to the Commission that information required in their home country.

The exemption provided by Rule 12g3-2 has been in effect for approximately fifteen years. During this period, relatively few specific instances of abuse have been communicated to the NASD by the Commission staff. Rather, such communications centered upon inadequacies in the substance and presentation of certain of the information required under the rule, as well as the jurisdictional authority of the Commission with respect to foreign issuers, to wit, it can only suspend an issuer for one 10 day suspension period under Section 12(k) of the Act. Only relatively recently has the general application of the exemptive provision of the rule to foreign issuers emerged as a problem and been communicated to the Association.

The primary thrust of the Commission staff's earlier concerns as expressed to the Association was that promoters of certain of the foreign companies on NASDAQ may have been taking advantage of the absence of 1934 Act reporting regarding their companies and the increased exposure NASDAQ companies enjoy to create order demand and unjustifiable price levels. We recognize this problem with respect to certain foreign issuers and have attempted to deal with it in our amended rules referred to above which the Commission has approved. We are unaware of any generalized problem with respect to foreign issues that would justify the proposal which applies not only to those issues in respect to which concern has been expressed but also to the many high quality foreign issues on the NASDAQ system.

To the extent that concern was expressed generally with respect to the amount and quality of disclosure by foreign issuers and other jurisdictional problems, the Association responded with revisions to its rules which provide greater disclosure of information and assure its availability to the fullest extent possible within the United States. Thus, our new rules require certified financial statements by issuers and the dissemination of material information to investors. Also, in respect to the Commission's jurisdictional concerns, the Association's new rules attempted to provide a vehicle for coordination with the Commission to prevent the continued trading of a foreign security which has been the subject of a 10 day suspension by the Commission. Our new rule makes such a suspension grounds for complete removal from the NASDAQ system. In making the determination whether under such circumstances to revoke or suspend a foreign issuer from NASDAQ, the Association pledges its complete cooperation and coordination with the Commission's Division of Enforcement. We believe many of the Commission's concerns can be alleviated in this manner. The Association's new rules also require that a foreign issuers' domiciliary regulator, i.e. exchange, coordinate its activities with the Association in order for any of that foreign exchange's listed securities to remain on NASDAQ. The effect of this provision, which was directly related to the Commission's earlier concerns, is yet to be seen.

* * * *

To summarize the above, most NASDAQ issuers have not voluntarily entered the United States marketplace. Given that and the advice of people we believe to be expert in the area of foreign securities in the United States marketplace, it is our view that many, if not most, foreign issuers on NASDAQ will leave the system rather than submit to Section 12(g) registration. We recognize and accept that there may be problems as to certain issuers but such does not exist across the broad spectrum of NASDAQ foreign issuers generally. Therefore, the more restrictive rule should not be adopted. As to the problem issuers, in addition to awaiting experience under our new rules, a concentrated joint effort by our respective enforcement staffs we believe would be most productive and effective. Perhaps, as well, there are regulatory approaches that can yet be explored by the Association. In this connection, we would like to join with your staff in attempting to define such an approach short of full Section 12(g) registration. We believe this would result in achieving the ends desired by the Commission, preserve the presence of foreign issues on NASDAQ and be in the public interest.

Very truly yours,

Frank J.Wilson
Executive Vice President
and General Counsel

IMPACT OF PROPOSAL

The Association believes implementation of this proposal will result in the withdrawal of substantial numbers of foreign issuers from the NASDAQ System. Even assuming the validity of the Commission's voluntariness premise, which we do not concede, if the proposal is adopted Section 12(g) registration would not be required as to the withdrawn issues and they could still be traded over-the-counter. The natural result of this would be (1) impairment of liquidity for shares of those issues, (2) a widening of spreads and deterioration in the quality of the execution of transactions, (3) a reversal of the advances made with respect to the quality of disclosure by foreign issuers as evidenced by the NASD's new rules, and (4) a removal of the withdrawing foreign issues from the NASDAQ Market Surveillance umbrella. Surveillance by the Association would continue, of course, but in a general way rather than in the more intensive, sophisticated manner presently performed as a result of the technology in the NASDAQ System. Thus, as to the withdrawing issues there would be a reduction in regulatory protection for the investing public. This seems hardly to be a step forward in the regulation of foreign issuers. Also, the effect on the holdings of existing investors in the withdrawn issues could, and in our view would, be substantial.

Our views on withdrawal are not lightly made and they are not NASD staff conclusions formulated on a basis of resistance to change or to reducing the number of securities on NASDAQ. Rather, they represent the conclusions of our Ad Hoc Committee members possessing expertise in the area of foreign securities trading and sponsorship of ADR's. Correspondence received from dealers in foreign securities, ADR banks, and counsel for foreign issuers also support that conclusion as does direct contact with various foreign issuers. Our Ad Hoc Committee is comprised of representatives of the following institutions or broker/dealers: Morgan Guaranty Trust Co., Irving Trust Co., Goldman, Sachs & Co., Carl Marks & Co., Inc., Sherwood Securities Corp., and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The unanimous opinion of these Committee members is that adoption of a requirement for the registration of foreign issuers under Section 12(g) would clearly result in the withdrawal of most, if not all, substantial foreign issuers from the NASDAQ System.

NO DEMONSTRATED NEED FOR RULE AMENDMENT

Perhaps additional regulation of foreign issuers whose securities are traded in the United States is necessary. However, the Association does not believe the Commission should adopt its very far reaching proposal without first demonstrating the need for such in relation to the broad spectrum of foreign securities on NASDAQ and what, in our view, appears to be an inconsistency with Congressional intent.

Congress, in adopting the Securities Acts amendments of 1964 (1964 Act), which first mandated Section 12 registration of over the counter securities and attendant disclosure requirements, was nevertheless concerned with maintaining the existing markets in foreign securities. In this connection, the Senate in its report on the 1964 Act stated:

To prevent the securities of such issuers from being traded in the U.S. markets would seriously effect American holders of millions of dollars of such foreign securities.

. . . As already noted, the Commission has administered the Exchange Act so as to avoid undue interference with the trading markets for foreign securities in the United States. It is assumed that the Commission will treat over-the-counter foreign issuers in essentially the same way. 1/

In the Senate version of the 1964 Act, the magnitude of the concern for continuation of trading of such securities was manifested by the fact that an absolute exemption from registration would have been provided for foreign securities traded in the United States. The bill would have authorized the Commission to remove the exemption as to particular issuers or classes of issuers if the exemption as to them was found no longer to be in the public interest or consistent with the protection of investors.

In the House version of the bill, which was ultimately adopted into law, the Senate's provisions which were originally part of the House bill were altered by reversing the exemption procedurally. Thus, foreign securities were not exempted except by Commission rule, regulation or order which finds such exemption to be in the public interest and consistent with the protection of investors. In changing the approach, the House did not intend to modify the position with respect to the preservation of existing trading markets for foreign securities. Rather, the amendment was made merely to mitigate procedural burdens upon the Commission. On this point, the House report stated:

By giving the Commission broad exemptive authority and empowering it to deal flexibly with the problem, the Commission will be able to weigh the various considerations and to exempt, partially or completely, foreign securities and certificates of deposit therefor (or classes of such securities and certificates) when such action is appropriate. By making the procedural change, the Committee feels that, in covering foreign securities that should be covered, the

* Pursuant to Section 4(c)(2) of Regulation T of the Federal Reserve Board, a broker-dealer must promptly cancel or otherwise liquidate a purchase transaction in a cash account if full payment is not received within seven (7) business days of the date of purchase or, pursuant to Section 4(c)(6), make application to extend the time period specified. The date members must take such action is shown in the column entitled "Regulation T Date".

1/ S. Rep. No. 379, 88th Congress, 1st Session, 29-30 (1963).

2/ H. Rep. No. 1418, 88th Congress, 2nd Session, 11 (1964).