Here is the release:
Nasdaq parent to drop 3,400 small stocks
By Marcy Gordon
The Associated Press
WASHINGTON -- The group that runs the Nasdaq stock market is considering
whether to remove about 3,400 small-company stocks from special
over-the- counter listings as the nation's second-largest stock market
tries to distance itself from tiny speculative companies.
Stock fraud frequently involves low-priced shares of such high-risk
stocks, sometimes called "penny stocks," that are thinly traded and
loosely regulated. Two Nasdaq sources confirmed yesterday that the board
of the National Association of Securities Dealers, Nasdaq's parent
organization, will vote on the proposal to boot out the 3,400 or so
stocks from the OTC Bulletin Board, an electronic market of about 6,800
securities.
The sources, speaking on condition of anonymity, said the board will
vote on the proposal tomorrow.
The stocks that would be dropped also include many special shares of
foreign companies. Market analysts said such stocks could still be
listed on the so-called Pink Sheets, a less automated system not
affiliated with Nasdaq, but would be more difficult to trade.
Neal Sullivan, executive director of the North American Securities
Administrators Association, called the proposal "a very positive step."
The proposal, which Sullivan said the NASD board is expected to approve,
takes into account the "systemic nature of these problems," he said.
Nasdaq runs the Bulletin Board, but its stocks are not actually listed
on the Nasdaq market. The small companies don't meet Nasdaq listing
standards or don't file financial disclosure statements with the
Securities and Exchange Commission. The Bulletin Board stocks are often
linked with Nasdaq's name, however.
Under the proposal being considered, companies would have their stocks
removed unless they agree to file statements with the SEC or other
financial regulators, according to yesterday's Wall Street Journal. In
addition, brokerage firms could be barred from quoting prices for the
stocks unless the brokers had current reliable financial information
about the companies.
Spokesmen for Nasdaq and NASD Regulation, the self- policing arm of the
securities dealers' group, declined to comment.
Barry Goldsmith, executive vice president of NASD Regulation, recently
testified at a Senate subcommittee hearing that "contrary to a popular
misconception, often perpetuated by unscrupulous operators, the
over-the-counter market is not Nasdaq. The two are separate and
distinct."
"It is in the thinly traded [small- company stocks] that characterize
the over-the-counter market where we find great potential for fraudulent
activity," Goldsmith said. Unscrupulous brokers and promoters can more
easily manipulate such stocks, he said.
Regulators estimate that American investors are being defrauded of about
$6 billion annually -- three times the peak amount during the 1980s
before enactment of the Penny Stock Reform Act of 1990.
The SEC has been helping the Justice Department and local authorities to
prosecute more stock fraud cases, and has been looking to close
loopholes in the rules governing the penny-stock market.
SEC spokesman Chris Ullman said yesterday that the agency will review
the new proposal before commenting on it.
Spokesmen for Nasdaq's major competitors, the New York Stock Exchange
and the American Stock Exchange, didn't immediately return telephone
calls seeking comment.
Dave B |
