Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. to Apply Nasdaq's Recently Amended Independent Director and Audit Committee Listing Requirements to Limited Partnerships

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) , and Rule 19b-4 thereunder, notice is hereby given that on May 26, 2000, the National Association of Securities Dealers, Inc. (“NASD” or “Association”) through its wholly owned subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq has filed with the Commission a proposed rule change to apply its recently amended independent director and audit committee listing requirements to limited partnerships. Below is the text of the proposed rule change. Proposed new language is italicized and proposed deletions are in [brackets].

Rule 4470. Non-Quantitative Designation Criteria for Issuers That Are Limited Partnerships

(a) No change.

(b) No change.

(c) Corporate General Partner/Independent Directors.

Each [NNM] issuer that is a limited partnership shall maintain a corporate general partner or co-general partner, which shall have the authority to manage the day-to-day affairs of the partnership. Such corporate general or co-partner shall maintain [two independent directors on its board of directors] a sufficient number of independent director son its board of directors to satisfy the audit committee requirements set forth in Rule 4460(d)(2). [An issuer that is a limited partnership may be designated for inclusion in the Nasdaq National market upon demonstrating that it has one independent director and undertaking to elect a second such director within 12 month of designation. For purposes of this section, “independent director” shall mean a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.]

(d) Audit Committee.

The corporate general partner or co-general partner of each [NNM] issuer that is a limited partnership [shall establish and maintain an Audit Committee, a majority of the members of which shall be independent directors.] must satisfy the audit committee requirements set forth in Rule 4460(d).

(e)-(i) No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

In 1993, Nasdaq established corporate governance standards, including independent director and audit committee requirements, for limited partnerships that were similar to those for other issuers. Last year, the Commission approved amendments to the independent director and audit committee listing requirements for corporations quoted on Nasdaq. Nasdaq believes that although there are few limited partnerships currently quoted on Nasdaq, the new independent director and audit committee requirements should also be applied to limited partnerships to provide investors with the same protections enjoyed by the shareholders of other issuers. Therefore, Nasdaq is proposing this rule change to extend the recent amendments to its independent director and audit committee listing standards for corporations to limited partnerships.

Implementation. In order to minimize disruption to existing limited partnership audit committees, to permit current audit committee members to serve out their terms, and to allow adequate time for the recruitment of the requisite members, Nasdaq proposes to provide limited partnerships eighteen months after the proposed rule change is approved by the Commission to meet the audit committee structure and membership requirements.

Additionally, Nasdaq proposes that limited partnerships listed on the effective date of the rule be provided within six months following the date the proposed rule change is approved by the Commission to adopt a formal written audit committee charter.

Further, for limited partnerships that applied for listing prior to the effective date of the rule, Nasdaq proposes that they be able to qualify for listing under the listing standards in force at the time of their application, and receive the same grace periods provided to current limited partnerships. Also, in order to avoid prejudicing limited partnerships that transfer to Nasdaq from the American Stock Exchange LLC and the New York Stock Exchange, it is proposed that these limited partnerships be afforded the same grace periods they would have received under their previous market's implementation schedule.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act because the proposal is designed to prevent fraudulent and manipulative acts and practices, to protect investors and the public interest. As noted above, Nasdaq's proposed rule change is aimed at improving the effectiveness of audit committees of limited partnerships quoted on Nasdaq, which, Nasdaq believes, is consistent with these goals.

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) by order approve such proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the NASD. All submissions should refer to File No. SR-NASD-00-31 and should be submitted by July 18, 2000.