Legal & Compliance
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Effective August 1, 1989, the requirement to report daily price and volume in non-NASDAQ over-the-counter equity securities ("non-NASDAQ securities") pursuant to Schedule H to the NASD By-Laws was extended to the entire universe of such securities, including foreign issues. Since that time, questions have been raised concerning the applicability of the schedule to foreign securities and foreign securities transactions. Accordingly, the NASD is publishing guidelines regarding the application of Schedule H to such securities and transactions. In addition, the NASD is publishing guidelines regarding the general application of the Schedule.
Schedule H, which became fully effective August 1, 1989, requires the reporting of price and volume information for principal transactions in non-NASDAQ securities whenever a member exceeds the minimum daily thresholds of 50,000 shares or $10,000, on either side, in a given non-NASDAQ security. All non-NASDAQ equity securities, including foreign securities, are subject to the requirements of Schedule H. Since its effectiveness, questions have been raised regarding the applicability of the Schedule to foreign securities and certain foreign securities transactions. The NASD has decided to publish the following guidelines to clarify the requirements and to assist members in complying with the Schedule.
1. Schedule H applies only to principal transactions effected by NASD members.
2. The term "non-NASDAQ security" includes all foreign equity securities, American Depositary Receipts, or shares traded in the U.S. other than on NASDAQ or on a national securities exchange. Foreign exchanges are not "national securities exchanges," as that term is used in the Schedule H definition of non-NASDAQ security. Therefore, the fact that a foreign security is also traded on a foreign exchange does not, per se, exclude all transactions in that security from the Schedule's coverage.
3. Schedule H is applicable to transactions in foreign securities executed in the U.S., regardless of the country where clearance and settlement occur.
4. Schedule H is not applicable to any transaction involving a foreign security that is executed outside the U.S. and cleared and settled in the U.S. if the transaction is reportable, and is reported, to a foreign regulatory securities authority (e.g., The Securities Association in the United Kingdom).
5. Schedule H is not applicable to transactions in foreign securities executed on and reported to a foreign securities exchange (e.g., the International Stock Exchange, the Tokyo Stock Exchange, Toronto Stock Exchange, Stock Exchange of Singapore, Hong Kong Stock Exchange, etc.).
6. The type of currency in which the trade is effected or in which the trade settles has no bearing on whether the trade is reportable under Schedule H.
7. All trades reported under Schedule H must be reported in U.S. dollars. The method employed for currency conversion will be left to the NASD member.
8. The time a trade is effected, whether during or outside U.S. market hours, has no bearing on whether the trade is reportable under Schedule H.
The NASD is also clarifying the general application of the requirement in the following circumstances.
1. Schedule H does not apply to transactions in "restricted securities" as defined in Rule 144(a)(3) of the Securities Act of 1933, including transactions made pursuant to Rule 144A.
2. Schedule H does not apply to bonds, including convertible bonds.
3. Schedule H does not apply to "junk bonds" with rights attached or any combination of securities of which a debt instrument is an integral part. Schedule H will apply to transactions in the equity components when they become detached and trade separately.
4. Schedule H does apply to preferred stock, rights, and warrants.
Questions regarding CUSIP numbers and/or security symbols should be directed to Dorothy Kennedy, Manager, Uniform Practice, at (212)858-4340. Other questions regarding this notice should be directed to Katherine Malfa, Senior Regional Attorney, Market Surveillance, at (301) 590-6445 or to Michael Kulczak, Associate General Counsel, at (202) 728-8811.