NASD Files Amendment to Shelf Registration Rule Proposal

May 2, 2006

On May 2, 2006, the National Association of Securities Dealers, Inc. (the “NASD”) posted on its website proposed Amendment No. 4 (the “Proposed Amendment”) to its original shelf registration rule change proposal filed with the Securities and Exchange Commission (the “SEC”) on February 3, 2004 (File No. SR-NASD-2004-022). The Proposed Amendment attempts to address the concerns of various commenters on the original proposal with respect to certain technical exemptions from the filing requirements of NASD Conduct Rule 2710 in connection with shelf offerings filed with the SEC pursuant to Rule 415 under the Securities Act of 1933 and to more fully take into account the impact of the SEC’s Securities Offering Reform amendments, which became effective December 1, 2005. The SEC is expected to publish the Proposed Amendment for further public comment shortly.

If approved in its current form, the Proposed Amendment would (among other things) provide:

  • New exemptions from the filing requirements for shelf offerings of certain issuers including

    • Offerings of foreign governments.

    • Offerings of so-called “WKSIs” or issuers that meet the SEC’s requirements for “well-known seasoned issuers”.
  • “Life of Shelf” Clearance, pursuant to which an issuer would be granted clearance for an entire shelf offering after the initial filing of the shelf documents with the NASD (assuming certain other requirements are met).

  • New exemption from the filing requirements for certain shelf “takedowns” that are more in the course of ordinary market transactions rather than “distributions”. This exemption --which would apply individually to each participating NASD member, so that each member participating in a takedown could rely on any filing exemption for which it is eligible -- would be subject to a number of conditions, including the following:

    • The offering is not an initial public offering and does not occur within 90 days of the issuer’s initial public offering.

    • The issuer is an up-to-date reporting company and has been so for at least 90 days prior to the offering.

    • The participating NASD member has not entered any distribution or other agreement with the issuer or any selling securityholder with respect to the securities offered.

    • Principal and solicited agency trades do not exceed certain volume thresholds (similar to those set forth in SEC Rule 144(e)).

  • Automatic Review and Clearance (“ARC”) process for offerings by otherwise exempt issuers (e.g., WKSIs or issuers with investment grade debt) that are required to be filed with the NASD because of the participation of an affiliated NASD member (pursuant to the NASD’s conflicts of interest rule, NASD Rule 2720). The ARC process would provide “instant” clearance as soon as the required information has been filed by the participating affiliated NASD member.

The full text of the Proposed Amendment may be found on the NASD’s website at: Please feel free to call any of your regular contacts at the firm or any of our partners and counsel listed under Capital Markets in the Our Practice section of our web site if you have any questions.