View Whole SectionText only Print Print Manager Link
Previous Next

91-33 Request for Comments on Proposed Nonquantitative Designation Criteria for Partnerships Listed on the Nasdaq National Market System; Last Date for Comments: July 1, 1991

SUGGESTED ROUTING:*

Senior Management
Corporate Finance
Legal & Compliance
Trading
*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

The NASD requests comments on a proposed amendment to Part 111, Section 5 of Schedule D to the NASD By-Laws to provide nonquantitative designation criteria for limited partnerships that list on the Nasdaq National Market System (Nasdaq/NMS). The text of the proposed amendment follows this notice.

BACKGROUND

In the past, the NASD has considered the need to adopt nonquantitative designation criteria for limited partnerships. Such criteria have never been adopted due to the relatively small number of partnerships that list on and trade in the Nasdaq National Market System (Nasdaq/NMS). However, for the following reasons, the Direct Participation Programs/Real Estate Committee has recommended, and the Board of Governors has agreed, that comments should be solicited on proposed listing standards for partnerships that intend to list on Nasdaq/NMS.

The NASD believes that limited partnership investors should be provided with certain protections analogous to those enjoyed by shareholders of corporations whose stock is listed on Nasdaq/NMS. The NASD's concern is prompted by a belief that the absence of "governance" standards leaves limited partners without the benefits and protections that corporate shareholders enjoy such as independent directors, annual and interim reports, an audit committee, and provisions for annual meetings. The NASD is also concerned that compliance with the current nonquantitative designation criteria required of companies whose securities trade in Nasdaq/NMS is not possible for partnerships.

PROPOSED AMENDMENT

Under the proposal, partnerships would be required to distribute an annual report containing audited financial statements to investors. The report would be distributed within a reasonable period of time after the close of the partnership's fiscal year. Similarly, interim reports detailing operating results or operational and financial position would be required.

Partnerships would also be required to establish a corporate general partner and to have two independent directors on the board of the general partner. Partnerships could, however, be admitted to Nasdaq/NMS trading on the election of a single independent director to the board of the corporate general partner, provided they undertake to obtain a second independent director within a 12-month period.

Partnerships would not generally be required to hold annual meetings unless a statute or regulation in the state under which the partnership is formed or does business requires a meeting or the partnership's limited partnership agreement prescribes meeting requirements. In the event of a meeting, a quorum of 33 1/3 percent of the limited partnership interests outstanding would be required, and proxy materials or information statements would be distributed. Proxies would be required to be solicited in connection with meetings in which a majority vote of limited partners would be necessary.

It would be "strongly recommended" but not required that the partnership's corporate general partner maintain an audit committee, a majority of the members of which shall be independent directors.

REQUEST FOR COMMENTS

The Board of Governors asks all members and interested persons to comment on the proposed amendment. The Board also requests comment on the implementation procedures for any requirements that may be adopted. In particular, it must be determined whether partnerships that are currently listed would be exempt or grandfathered from any new requirements and, if not, how much time they would be granted to comply. Comments should be directed to:

Stephen D. Hickman, Secretary
National Association of
Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006-1506.

Comments must be received no later than July 1, 1991. Comments received by this date will be considered by the NASD's Direct Participation Programs/Real Estate Committee, other appropriate standing committees, and the NASD Board of Governors. If the Board approves the proposed amendment to Schedule D, it must be filed with and approved by the Securities and Exchange Commission before it can become effective.

Questions concerning this notice may be directed to Richard J. Fortwengler, Associate Director, or Carl R. Sperapani, Assistant Director, NASD Corporate Financing Department, at (202) 728-8258.

AMENDMENTS TO SCHEDULE D TO NASD BY-LAWS

(Note: New language is underlined.)

Section 5. Non-Quantitative Designation Criteria (a) Applicability

No provision of this Section 5 shall be construed to require any foreign issuer to do any act that is contrary to a law, rule, or regulation of any public authority exercising jurisdiction over such issuer or that is contrary to generally accepted business practices in the issuer's country of domicile. The Association shall have the ability to provide exemptions from applicability of these provisions as may be necessary or appropriate to carry out this intent.

* * *

(1) Requirements for Issuers That are Partnerships
1. Distribution of Annual and Interim Reports
(a) Each Nasdaq/NMS issuer shall distribute to limited partners copies of an annual report containing audited financial statements of the partnership. The report shall be distributed to limited partners within a reasonable period of time after the end of the partnership's fiscal year and shall be filed with the Association at the time it is distributed to limited partners.
(b)
(i) Each Nasdaq/NMS issuer which is subject to SEC Rule 13a-13 shall distribute copies of quarterly reports including statements of operating results to limited partners either prior to or as soon as practicable following the partnership's filing of its Form 10-Q with the Securities and Exchange Commission. If the form of such quarterly report differs from the Form 10-Q, the issuer shall file one copy of the report with the Association in addition to its Form 10-Q pursuant to Section l(c)(12) of Part II hereof. The statement of operations contained in quarterly re-ports shall disclose, at a minimum, any substantial items of an unusual or nonrecurrent nature and net income before and after estimated federal income taxes or net income and the amount of estimated federal taxes if any.
(ii) Each Nasdaq/NMS issuer which is not subject to SEC Rule 13a-13 and which is required to file with the Securities and Exchange Commission, or another federal or state regulatory authority, interim reports relating primarily to operations and financial position shall distribute to limited partners reports which reflect the information contained in those interim reports. Such reports shall be distributed to limited partners either before or as soon as practicable following filing with the appropriate regulatory authority. If the form of the interim report provided to limited partners differs from that filed with the regulatory authority, the issuer shall file one copy of the report provided to limited partners with the Association in addition to the report to the regulatory authority that is filed with the Association pursuant to Section l(c)(12) of Part II hereof.
2. Corporate General Partner: Independent Directors

Each Nasdaq/NMS issuer which is a partnership shall maintain a corporate general partner or co-general partner and shall maintain two independent directors on the board of the general partner. An issuer which is a partnership may be designated for inclusion in Nasdaq/NMS upon demonstrating that the corporate general partner has one independent director and is undertaking to elect a second such director within 12 months of designation.
3. Audit Committee

It is strongly recommended that the corporate general partner of each Nasdaq/NMS issuer which is a partnership maintain an audit committee, a majority of the members of which shall be independent directors.
4. Shareholder Meetings

A Nasdaq/NMS issuer which is a partnership shall not be required to hold an annual meeting of shareholders unless required by statute or regulation in the state in which the partnership is formed or doing business or by the terms of the partnership's limited partnership agreement.
5. Quorum

In the event that a meeting of limited partners is required pursuant to paragraph (4), the quorum for such meeting shall be not less than 33 1/3 percent of the limited partnership interests outstanding.
6. Solicitation of Proxies

In the event that a meeting of limited partners is required pursuant to paragraph (4), the issuer shall provide all limited partners with proxy or information statements and, if a vote is required, shall solicit proxies thereon.

Previous Next