Notice To Members 85-6

Amendment to Corporate Financing Filing Requirements Effective March 1, 1985

Published Date:

TO: All NASD Members and Other Interested Persons

ATTN: Corporate Financing Department

The Board of Governors has adopted amendments to the filing requirements of the Interpretation of the Board of Governors — "Review of Corporate Financing," which will be effective on March 1, 1985. The text of the amendments is attached to this notice. The amendments will exempt from the filing requirement offerings of issuers whose senior debt is rated "investment grade." All debt and equity offerings of securities offered by a corporate, foreign government, or foreign government agency issuer which has senior non-convertible debt or preferred securities rated by a nationally recognized statistical rating organization in one of its four highest generic rating categories, will be exempt from the filing requirements. The amendments will also delete the current exemption from the filing requirements for straight debt rated "B" or better. The amendments relate only to the filing requirements and do not constitute an exemption from the substantive requirements of the Corporate Financing Interpretation. Members will still be expected to assure compliance with those requirements in any offerings in which they participate. Additionally, the exemption does not extend to offerings which are subject to Schedule E to Article IV, Section 2 of the NASD By-Laws concerning offerings by members of their own securities or those of affiliates.

In early 1982, the Association determined to review the filing requirements under the Corporate Financing Interpretation. The new amendments are a result of this review. In order to qualify for the new exemption, an issuer must have senior non-convertible debt or preferred equity securities rated by a nationally recognized statistical rating organization in one of its four highest generic rating categories, e.g. "AAA" through "BBB" by Standard & Poor's and "Aaa" through "Baa" by Moody's. The investment grade rating is required with respect to an outstanding or a current offering of debt securities which is senior to other debt security obligations of the corporation. This requirement could also be satisfied by an investment grade rating of non-convertible preferred equity securities of the corporation. If an issuer has such a rating on its senior non-convertible debt or preferred equity securities, then any offering of debt or equity securities by that issuer would be exempt from the filing requirements.

The amendment also eliminates the present exemption for debt securities rated "B" or better. The exemption for offerings of debt securities rated "B" or better reflected the nature of the debt market during the late 1960's when the filing requirements were developed. At that time, the volume of issues rated "B" or better was small. With the increase of such issues, the Association believes that it is appropriate to require their filing and subsequent review of the underwriting terms and arrangements. Therefore, offerings of debt securities rated "B" or "BB" by Standard & Poor's and "B" or "Ba" by Moody's which previously were exempt are now required to be filed for review.

The amendments to the filing requirements will be effective on March 1, 1985. It is suggested that members closely examine these amendments. This change will relieve certain issuers previously filing from the obligation of compliance with the filing requirement, and will require filings from certain issuers who were previously exempt. Members are reminded that the Corporate Financing Interpretation filing exemption does not extend to offerings subject to Schedule E to Article IV, Section 2 of the Association's By-Laws.

Any questions concerning this notice may be directed to either Harry E. Tutwiler or Suzanne E. Rothwell of the Corporate Financing Department at (202) 728-8258.

Sincerely,

Frank J.Wilson
Executive Vice President
Legal and Compliance

Attachment

Filing Requirements1

All documents and other information required to be filed with the Association, or any communications or inquiries pertaining thereto, shall be submitted to the Director, Corporate Financing Department at the Executive Office of the Association, 1735 K Street, N.W., Washington, D.C. 20006.

* * * *

Documents relating to the following issues need not be filed with the Association:

(1) securities which pursuant to the provisions of Section 3(a)(12) of the Securities Exchange Act of 1934 are exempt securities;
(2) securities of investment companies as defined in Section 3 of the Investment Company Act of 1940 (except issues of closed-end management companies);
(3) variable contracts; and
(4) securities offered by a corporate, foreign government, or foreign government agency issuer which has senior non-convertible [straight] debt or preferred securities [issues] rated ["B" or better] by a nationally recognized statistical rating organization [service.] in one of its four highest generic rating categories.

1. NASD Manual (CCH) ¶ 2151, pp. 2024-2025. New material is underlined. Deleted material is in brackets.