[Federal Register: May 19, 2006 (Volume 71, Number 97)]
[Notices]
[Page 29195-29205]
[DOCID:fr19my06-95]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53799; File No. SR-NASDAQ-2006-007]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
and Amendment No. 1 Thereto to Create the Nasdaq Global Select Market
and Rename the Nasdaq National Market

May 12, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 17, 2006, The NASDAQ Stock Market LLC (``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. Nasdaq has filed this proposal pursuant
to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)
thereunder,\4\ which renders the proposal effective upon filing with
the Commission. On May 8, 2006, Nasdaq filed Amendment No. 1 to the
proposed rule change.\5\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Amendment No. 1 replaced the original filing in its
entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Nasdaq proposes to rename the Nasdaq National Market as the Nasdaq
Global Market and to create the Nasdaq Global Select Market, a new tier
within the Nasdaq Global Market with higher initial listing
standards.\6\ Nasdaq will implement the proposed rule on July 1, 2006.
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    \6\ In various places in the purpose section, Nasdaq clarified
that the higher listing standards apply to initial listing
standards. Telephone conversation between Arnold Golub, Associate
Vice President, Nasdaq, and Mia Zur, Special Counsel, Division of
Market Regulation (``Division''), Commission, on May 10, 2006.
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    The text of the proposed rule change is available on Nasdaq's Web
site (http://www.nasdaq.com), at Nasdaq's principal office, and at the

Commission's Public Reference Room. The text of the proposed rule
change is included below. Proposed new language is italicized;
deletions are [bracketed].
* * * * *
3350. Short Sale Rule
    (a) With respect to trades executed on Nasdaq, no member shall
effect a short sale for the account of a customer or for its own
account in a Nasdaq [National] Global Market security at or below the
current best (inside) bid displayed in the Nasdaq Market Center when
the current best (inside) bid is below the preceding best (inside) bid
in the security. For purposes of this rule, the term ``customer''
includes a non-member broker-dealer.
    (b)-(g) No change.
    (h)(1) A member shall be permitted, consistent with its quotation
obligations, to execute a short sale for the account of an options
market maker that would otherwise be in contravention of this Rule, if:
    (A) The options market maker is registered with a qualified options
exchange as a qualified options market maker in a stock options class
on a Nasdaq [National] Global Market security or an options class on a
qualified stock index; and
    (B) No change.
    (2) For purposes of this paragraph:
    (A)(i) An ``exempt hedge transaction,'' in the context of qualified
options market makers in stock options classes, shall mean a short sale
in a Nasdaq [National] Global Market security that was effected to
hedge, and in fact serves to hedge, an existing offsetting options
position or an offsetting options position that was created in a
transaction(s) contemporaneous with the short sale,\1\ provided that
when establishing the short position the options market maker is
eligible to receive(s) good faith margin pursuant to Section 220.12 of
Regulation T under the Act for that transaction.
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    \1\ The phrase contemporaneously established includes
transactions occurring simultaneously as well as transactions
occurring within the same brief period of time.
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    (ii) A ``exempt hedge transaction,'' in the context of qualified
options market makers in stock index options classes, shall mean a
short sale in a Nasdaq [National] Global Market security that was
effected to hedge, and in fact serves to hedge, an existing offsetting
stock index options position or an offsetting stock index options
position that was created in a transaction(s) contemporaneous with the
short sale, provided that:
    a.-c. No change.
    (iii) No change.
    (B) A ``qualified options market maker'' shall mean an options
market maker who has received an appointment as a ``qualified options
market maker'' for certain classes of stock options on Nasdaq
[National] Global Market securities and/or index options on qualified
stock indexes pursuant to the rules of a qualified options exchange.
    (C) No change.
    (D) A ``qualified stock index'' shall mean any stock index that
includes one or more Nasdaq [National] Global Market securities,
provided that more than 10% of the weight of the index is accounted for
by Nasdaq [National] Global Market securities and provided further that
the qualification of an index as a qualified stock index shall be
reviewed as of the end of each calendar quarter, and the index shall
cease to qualify if the value of the index represented by one or more
Nasdaq [National] Global Market securities is less than 8% at the end
of any subsequent calendar quarter.
    (E)-(F) No change.
    (i)(1) No change.
    (2) For purposes of this paragraph, an ``exempt hedge transaction''
shall mean a short sale in a Nasdaq [National] Global Market security
that was effected to hedge, and in fact serves to hedge, an existing
offsetting warrant position or an offsetting warrant position that was
created in a transaction(s) contemporaneous with the short sale.\2\
Notwithstanding any other provision of this paragraph, any transaction
unrelated to normal warrant market making activity, such as index
arbitrage or risk arbitrage that in either case is independent of a
warrant market maker's making functions, with not be considered an
``exempt hedge transaction.''
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    \2\ The phrase contemporaneously established includes
transactions occurring simultaneously as well as transactions
occurring within the same brief period of time.
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    (3)-(4) No change.
    (j)-(k) No change.

IM-3350. Short Sale Rule

    (a)(1) In developing a Short Sale Rule for Nasdaq [National] Global
Market securities, Nasdaq has adopted an exemption to the Rule for
certain market making activity. This exemption is an essential
component of the Rule because bona fide market making activity is
necessary and appropriate to maintain continous, liquid markets in
Nasdaq [National] Global Market securities. Rule 3350(c)(1) states that
short selling prohibitions shall not apply to sales by registered
Nasdaq market makers in connection with bona fide market making
activity and specifies that transactions unrelated to normal market
making activity, such as index arbitrage and risk arbitrage that are
independent from a member's market making functions, will not be
considered as bona fide market making. Thus two standards are to be
applied: One must be a registered Nasdaq market maker and one must
engage in ``bona fide'' market making activity to take advantage of
this exemption. With this interpretation, Nasdaq wishes to clarify for
members some of the factors that will be taken into consideration when
reviewing market activity that may not be deemed to be bona fide market
making activity and therefore would not be exempted from the Rule's
application.
    (2)--(3) No change.
    (b) With respect to trades executed on or reported to Nasdaq, Rule
3350 requires that no member shall effect a short sale for the account
of a customer or for its own account in a Nasdaq [National] Global
Market security at or below the current best (inside) bid displayed in
the Nasdaq Market Center when the current best (inside) bid is below
the proceeding best (inside) bid in the security. For purposes of this
rule, the term ``customer'' includes a non-member broker-dealer. Nasdaq
has determined that in order to effect a ``legal'' short sale when the
current best bid is lower that the preceding best bid the short sale
must be executed at a price of at least $0.01 above the current inside
bid when the current inside spread is $0.01 or greater. The last sale
report for such a trade would, therefore, be above the inside bid by at
least $0.01.
    (c)-(d) No change.

4200. Definitions

    (a) For purposes of the Rule 4000 Series, unless the context
requires otherwise:
    (1)-(24) No change.
    (25) [``Nasdaq National Market'' or ``NNM'' distinct tier of Nasdaq
comprised of securities that meet the requirements of and are listed as
Nasdaq National Market securities.] ``Nasdaq Global Market'' or ``NGM''
is a distinct tier of Nasdaq comprised of two segments: the Nasdaq
Global Market and the Nasdaq Global Select Market. The Nasdaq Global
Market is the successor to the Nasdaq National Market.
    (26) ``Nasdaq [National] Global Market security'' or ``[NNM] NGM
security'' measn any security listed on Nasdaq which (1) satisfies all
applicable requirements of the Rule 4300 Series and substantially meets
the criteria set forth in the Rule 4400 Series; (2) is a right to
purchase such security; (3) is a warrant to subscribe to such security;
or (4) is an index warrant which substantially meets the criteria set
forth in Rule 4420.
    (27) No change.
    (28) ``Nasdaq Capital Market security'' means any security listed
on The Nasdaq Capital Market which (1) satisfies all applicable
requirements of the Rule 4300 Series but that is not a Nasdaq
[National] Global Market security; (2) is a right to purchase such
security; or (3) is a warrant to subscribe to such security.
    (29) [Reserved.] ``Nasdaq Global Select Market'' or ``NGSM''
security is a segment of the Nasdaq Global Market comprised of NGM
securities that met the requirements for initial inclusion contained in
Rules 4425, 4426 and 4427.
     (3) [Reserved.] ``Nasdaq Global Select Market security'' or ``NGSM
security'' means any security listed on Nasdaq and included in the
Nasdaq Global Select segment of the Nasdaq Global Market.
    (31)-(39) No change.
    (b)-(c) No change.

4305. Transition of Securities Included on the Market Operated by The
Nasdaq Stock Market, Inc.

    (a)-(c) No change.
    (d) Any issuer listed on the Nasdaq [National] Global Market or the
Nasdaq Capital Market pursuant to paragraphs (a) or (b) above that had
received any notice or was subject to any Rule of The Nasdaq Stock
Market, Inc. as a facility of the NASD shall be treated as though such
notice or such Rule was a notice from or a rule of Nasdaq in computing
applicable times frames.

4310. Listing Requirements for Domestic and Canadian Securities

    To qualify for listing in Nasdaq, a security of a domestic or
Canadian issuer shall satisfy all applicable requirements contained in
paragraphs (a), (b), and (c) hereof. Issuers that meet these
requirements, but that are not listed on the Nasdaq [National] Global
Market, are listed on the Nasdaq Capital Market.
    (a)-(b) No change.
    (c) In addition to the requirements contained in paragraph (a) and
(b) above, and unless otherwise indicated, a security shall satisfy the
following criteria for listing on Nasdaq:
    (1)-(8) No change.
    (9)(A)-(b) No change.
    (C) In the case of index warrants, the criteria established in the
Rule 4400 Series for Nasdaq [National] Global Market securities shall
apply.
    (10)-(30) No change.
    (d) No change.

4320. Listing Requirements for Non-Canadian Foreign Securities and
American Depositary Receipts

    To qualify for listing on Nasdaq, a security of non-Canadian
foreign issuer, an American Depositary Receipt (ADR) or similar
security issued in respect of a security of a foreign issuer shall
satisfy the requirements of paragraphs (a), (b), and (e) of this Rule.
Issuers that meet these requirements, but that are not listed on the
Nasdaq [National] Global Market, are listed on the Nasdaq Capital
Market.
    (a) A security of a foreign issuer, an ADR or similar security
issued in respect of a security of a foreign issuer, other than a newly
issued security, shall be considered for listing provided that it is:
    (1)-(2) No change.
    (b)-(f) No change.

4350. Qualitative Listing Requirements for Nasdaq [National Market and
Nasdaq Capital Market] Issuers Except for Limited Partnerships

    (a)-(n) No change.

4350-1. Qualitative Listing Requirements for Nasdaq [National Market
and Nasdaq Capital Market] Issuers Except for Limited Partnerships

    (a)-(h) No change.
IM-4390. Impact of Non-Designation of Dually Listed Securities
    To foster competition among markets and further the development of
the national market system following the repeal of NYSE Rule 500,
Nasdaq shall permit issuers whose securities are listed on the New York
Stock Exchange to apply also to list those securities on the Nasdaq
[National] Global Market [(``NNM'')] (``NGM''). Nasdaq shall make an
independent determination of whether such issuers satisfy all
applicable listing requirements and shall require issuers to enter into
a dual listing agreement with Nasdaq.

    While Nasdaq shall certify such dually listed securities for
listing on the [NGM] NGM, Nasdaq shall not exercise its authority under
Rule 4390 separately to designate or register such dually listed
securities as Nasdaq national market system securities within the
meaning of Section 11A of the Act or the rules thereunder. As a result,
these securities, which are already designated as national market
system securities under the Consolidated Quotation Service (``CQS'')
and Consolidated Tap Association national market system plans (``CQ and
CTA Plans''), shall remain subject to those plans and shall not become
subject to the Nasdaq UTP Plan, the national market system plan
governing securities designated by Nasdaq. For purposes of the national
market system, such securities shall continue to trade under their
current one, two, or three-character ticker symbol. Nasdaq shall
continue to send all quotations and transaction reports in such
securities to the processor for the CTA Plan. In addition, dually
listed issues that are currently eligible for trading via the
Intermarket Trading System (``ITS'') shall remains so and continue to
trade on the Nasdaq Intermarket trading platform as they do today.
    Through this interpretation, Nasdaq also resolves any potential
conflicts that arise under Nasdaq rules as result of a single security
being both a security object to the CQ and CTA Plans (a ``CQS
Security''), which is subject to one set of rules, and a listed [NNM]
NGM security, which is subject to a different set of rules.
Specifically, dually listed securities shall be Nasdaq securities for
purposes of rules related to listing and delisting, and shall remain as
CQS securities under all other Nasdaq rules. Treating dually listed
securities as CQS securities under Nasdaq rules is consistent with
their continuing status as CQS securities under the CTA, CQ, and ITS
national market system, as described above. This interpretation also
preserves the status quo and avoids creating potential confusion for
investors and market participants that currently trade these securities
on Nasdaq.
    For example, Nasdaq shall continue to honor the trade halt
authority of the primary market under the CQ and CT Plans. Nasdaq Rule
4120(a)(2) and (3) governing CQS securities shall apply to dually
listed securities, whereas Nasdaq Rule 4120(a)(1), (4), (5), (6), and
(7) shall not. SEC Rule 10a-1 governing short sales of CQS securities
shall continue to apply to dually listed securities, rather than Nasdaq
Rule 3350 governing short sales of Nasdaq-listed securities. Market
makers in dually listed securities shall retain all obligations imposed
by the Nasdaq Rule 5200 Series regarding CQS securities rather than
assuming the obligations appurtenant to Nasdaq-listed securities. The
fees applicable to CQS securities set forth in Nasdaq Rule 7010 shall
continue to apply to dually listed issues.

4400. NASDAQ [National] Global Market

4410. Applications for Listing

    (a) Application for listing on the Nasdaq [National] Global Market
shall be on a form supplied by Nasdaq and signed by a corporate officer
of the issuer. Compliance with the listing criteria will be determined
on the basis of information filed with the appropriate regulatory
authority and the records of Nasdaq as of the application date. Nasdaq
may require the issuer to submit such other information as is relevant
to a listing determination, including information required by paragraph
(c) below.
    (b) Upon approval of a listing application, Nasdaq shall certify to
the Commission, pursuant to Section 12(d) of the Act and the rules
thereunder, that it has approved the security for listing and
registration. Listing can commence only upon effectiveness of the
security's registration pursuant to Section 12(d).
    (c) The security of an issuer that applies for listing on the
Nasdaq Global Market and meets the requirements contained in Rules 4425
through 4427, shall be listed on the Nasdaq Global Select Market.
    (d) Issuers that are listed on Nasdaq pursuant to the Rule 4300
Series but that are not listed on the Nasdaq [National] Global Market,
are listed on the Nasdaq Capital Market.

4420. Quantitative Listing Criteria

    In order to be listed on the Nasdaq [National] Global Market, an
issuer shall be required to substantially meet the criteria set forth
in paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k) or
(l) below.
    (a)-(e) No change.
    (f) Other Securities
    (1) No change.
    (2) Issuers of securities listed pursuant to this paragraph (f)
must be listed on the Nasdaq [National] Global Market or the New York
Stock Exchange (NYSE) or be an affiliate of a company listed on the
Nasdaq [National] Global Market or the NYSE; provided, however, that
the provisions of Rule 4450 will be applied to sovereign issuers of
``other'' securities on a case-by-case basis.
    (3) No change.
    (g) Nasdaq will consider listing on the Nasdaq [National] Global
Market Selected Equity-linked Debt Securities (SEEDS) that generally
meet the criteria of this paragraph (g). SEEDS are limited-term, non-
convertible debt securities of an issuer where the value of the debt is
based, at least in part, on the value of another issuer's common stock
or non-convertible preferred stock (or sponsored American Depositary
Receipts (ADRs) overlying such equity securities).
    (1) Issuer Listing Standards
    (A) The issuer of a SEEDS must be an entity that:
    (i) Is listed on the Nasdaq [National] Global Market or the New
York Stock Exchange (NYSE) or is an affiliate of a company listed ont
he Nasdaq [National] Global Market or the NYSE; provided, however, that
the provisions of Rule 4450 will be applied to sovereign issuers of
SEEDS on a case-by-case basis; and
    (ii) No change.
    (B) In addition, the market value of a SEEDS offering, when
combined with the market value of all other SEEDS offerings previously
completed by the issuer and traded on the Nasdaq [National] Global
Market or another national securities exchange, may not be greater than
25 percent of the issuer's net worth at the time of issuance.
    (2) No change.
    (3) Minimum Standards Applicable to the Linked Security
    An equity security on which the value of the SEEDS is based must:
    (A) No change.
    (B) Be issued by a company that has a continuous reporting
obligation under the Act, and the security must be listed on the Nasdaq
[National] Global Market or another national securities exchange and be
subject to last sale reporting; and
    (C) No change.
    (4)-(5) No change.
    (h) Units
    (1) Initial and Continued Listing Requirements.
    (a) No change.
    (b) All debt components of a unit, if any, shall meet the following
requirements:
    (i) No change.
    (ii) The issuer of the debt security must have equity securities
listed on the Nasdaq [National] Global Market; and
    (iii) No change.
    (c) No change.
    (2) No change.
    (3) Disclosure Requirements for Units.
    Each Nasdaq [National] Global Market issuer of units shall include
in its prospectus or other offering document used in connection with
any offering of securities that is required to be filed

with the Commission under the federal securities laws and the rules and
regulations promulgated thereunder a statement regarding any intention
to delist the units immediately after the minimum inclusion period. The
issuer of a unit shall further provide information regarding the terms
and conditions of the components of the unit (including information
with respect to any original issue discount or other significant tax
attributes of any component) and the ratio of the components comprising
the unit. An issuer shall also disclose when a component of the unit is
separately listed on Nasdaq. These disclosures shall be made on the
issuer's Web site, or if it does not maintain a Web site, in its annual
report provided to unit holders. An issuer shall also immediately
publicize through, at a minimum, a public announcement through the news
media, any change in the terms of the unit, such as changes to the
terms and conditions of any of the components (including changes with
respect to any original issue discount or other significant tax
attributes of any component), or to the ratio of the components within
the unit. Such public notification shall be made as soon as practicable
in relation to the effective date of the change.
    (i)-(m) No change.

4425. Nasdaq Global Select Market

    (a) An issuer that applies for listing on the Nasdsaq Global Market
and meets the requirements for initial listing contained in Rule 4426
shall be listed on the Nasdaq Global Select Market.
    (b) Each October, beginning in October 2007, Nasdaq will review the
qualifications of all securities listed on the Nasdaq Global Market
that are not included in the Nasdaq Global Select Market. Any security
that meets the requirements for initial listing on the Nasdaq Global
Select Market contained in Rule 4426 at the time of this review will be
transferred to the Global Select Market the following January, provided
it meets the continued listing criteria at that time. An issuer will
not owe any application or entry fees in connection with such a
transfer.
    (c) At any time, an issuer may apply to transfer a security listed
on the Nasdaq Global Market to the Nasdaq Global Select Market. Such an
application will be approved and affected as soon as practicable if the
security meets the requirements for initial listing contained in Rule
4226. An issuer will not owe any application or entry fees in
connection with such a transfer.
    (d) At any time an issuer may apply to transfer a security listed
on the Nasdaq Capital Market to the Nasdaq Global Select Market. Such
an application will be approved and affected as soon as practicable if
the security meets the requirements for initial listing contained in
Rule 4426. An issuer transferring from the Nasdaq Capital Market to the
Nasdaq Global Select Market will be required to pay the applicable fees
contained in Rule 4510.
    (e) After initial inclusion on the Nasdaq Global Select Market, as
issuer will remain on the Nasdaq Global Select Market provided it
continues to meet the applicable requirements of the Rule 4300 and 4400
Series, including the qualitative requirements of Rule 4350 and IM-
4300.
    (f) Notwithstanding any provision to the contrary, the security of
any issuer that is non-compliant with a qualitative listing requirement
that does not provide for a grace period, or where Nasdaq staff has
raised a public interest concern, will not be permitted to transfer to
the Global Steel Market until the underlying deficiency is resolved. In
addition, any security that is below a quantitative continued listing
requirement for the Nasdaq Global Market, even if the issuer has not
been below the requirement for a sufficient period of time to be
continued non-compliant, and any issuer in a grace or compliance period
with respect to a quantitative listing requirement, will not be allowed
to transfer from the Nasdaq Global or Capital Markets to the Nasdaq
Global Select Market until the underlying deficiency is resolved. Nor
will any issuer before a Nasdaq Listing Qualifications Panel be allowed
to transfer to the Global Select Market until the underlying deficiency
is resolved. An issuer that is in a grace or compliance period with
respect to a qualitative listing standard, such as the cure period for
filling an audit committee vacancy, will be allowed to transfer to the
Global Select Market, subject to the continuation of that grace period.

IM-4425 Launch for the Nasdaq Select Market

    In connection with the initial launch of the Nasdaq Global Select
Market in July 2006, Nasdaq will review all issuers' qualifications and
assign qualified Global Market companies to the new Global Select
segment. In addition, qualified Capital Market companies will be given
the opportunity to be included in the new segment. In connection with
this initial transfer to the Global Select Market, Nasdaq will begin to
make its assessment using the most recent financial data filed as of
April 28, 2006, and market data as of April 28, 2006. Nasdaq will treat
as an IPO any company that initially listed as an IPO since May 1, 2005
for purposes of the liquidity tests, because these companies would have
insufficient market data to establish a 12-month trading history and
may have had insufficient time to satisfy the market value of public
float requirement applicable to other companies. Similarly, for
purposes of the market capitalization requirements of Rules 4426(c)(2)
and (c)(3), any company that initially listed as an IPO since May 1,
2005 must have the appplicable average market capitalization from the
date of listing. Nasdaq also notes that certain Nasdaq-listed issuers
that qualify to initially list on the New York Stock Exchange (NYSE)
will not be eligible to list on the Global Select Market. Nasdaq will
allow (but not require) any Nasdaq-listed issuer that meets the NYSE
initial listing standards as of July 2006 but that does not qualify for
the Global Select segment when it is adopted to be included in the
Global Select Market, subject to a grace period until January 1, 2008
to achieve compliance with all listing criteria for the Global Select
Market. Any issuer that avails itself of this grace period that has not
achieved compliance with all listing criteria for the Global Select
Market by January 1, 2008 will be moved to the Nasdaq Global Market. In
addition, any issuer that avails itself of this grace period will
remain subject to delisting in the event it fails to satisfy any of the
continued listing requirements for the Nasdaq Global Market.

4426. Nasdaq Global Select Market Listing Requirements

    (a) For inclusion in the Nasdaq Global Select Market, an issuer
must meet the requirements of paragraphs (b), (c), and (d) of this
rule, and all applicable requirements of the Rule 4300 and 4400 Series,
including the qualitative requirements of Rule 4350 and IM-4300. Rule
4427 provides guidance about computations made under this Rule 4426.
    (b) Liquidity Requirements
    (1) The security must demonstrate either:
    (A) (i) a minimum of 550 beneficial shareholders, and
    (ii) an average monthly trading volume over the prior 12 months of
at least 1,100,000 shares per months; or
    (B) a minimum of 2,200 beneficial shareholders; or
    (C) a minimum of 450 beneficial shareholders, in the case of: (i)
an issuer listing in connection with its emergence

from a bankruptcy or reorganization proceeding; or (ii) an issuer that
is affiliated with another company listed on the Global Select Market.
    (2) The security must have at least 1,250,000 publicly held shares;
and
    (3) The publicly held shares must have either:
    (A) a market value of at least $110 million; or
    (B) a market value of at least $100 million, if the issuer has
stockholders' equity of at least $110 million; or
    (C) a market value of at least $70 million in the case of: (i) an
issuer listing in connection with its initial public offering; (ii) an
issuer that is affiliated with, or a spin-off from, another company
listed on the Global Select Market; and (iii) a closed end management
investment company.
    (c) Financial Requirements. An issuer, other than a closed end
management investment company, must meet the requirements of one of
subparagraphs (1), (2) or (3) of this paragraph.
    (1) The issuer must have:
    (A) aggregate income from continuing operations before income taxes
of at least $11 million over the prior three fiscal years;
    (B) positive income from continuing operations before income taxes
in each of the prior three fiscal years; and
    (C) at least $2.2 million income from continuing operations before
income taxes in each of the two most recent fiscal years; or
    (2) The issuer must have:
    (A) aggregate cash flows of at least $27.5 million over the prior
three fiscal years;
    (B) positive cash flows in each of the prior three fiscal years;
and
    (C) both:
    (i) average market capitalization of at least $550 million over the
prior 12 months; and
    (ii) total revenue of at least $110 million in the previous fiscal
year; or
    (3) The issuer must have both:
    (A) average market capitalization of at least $850 million over the
prior 12 months; and
    (B) total revenue of at least $90 million in the previous fiscal
year.
    (d) Price. For inclusion in the Nasdaq Global Select Market, an
issuer not listed on the Nasdaq Global Market shall have a minimum bid
price of $5 per share.
    (e) Closed End Management Investment Companies.
    (1) A closed end management investment company shall not be
required to meet paragraph (c) of this Rule 4426.
    (2) In lieu of the requirement in paragraph (b)(3) of this Rule
4426, a closed end management investment company that is listed
concurrently with other closed end management investment companies that
have a common investment adviser (or whose investment advisers are
``affiliated persons'' as defined in the Investment Company Act of
1940) (a ``Fund Family'') shall be eligible if: (A) the total market
value of publicly held shares in such Fund Family is at least $220
million; (B) the average market value of publicly held shares for all
funds in the Fund Family is $50 million; and (C) each fund in the Fund
Family has a market value of publicly held shares of at least $35
million.
    (f) Other Classes of Securities. If the common stock of an issuer
is included in the Nasdaq Global Select Market, any other security of
that same issuer, such as other classes of common or preferred stock,
that qualify for listing on the Nasdaq Global Market shall also be
included in the Global Select Market.

Rule 4427. Computations and Definitions

    (a) In computing the number of publicly held shares for purposes
for Rule 4426(b), Nasdaq will not consider shares held by an officer,
director or 10% shareholder of the issuer.
    (b) In calculating income from continuing operations before income
taxes for purposes of Rule 4426(c)(1), Nasdaq will rely on an issuer's
financial information as filed with the Commission in the issuers's
most recent periodic report and/or registration statement.
    (c) In calculating cash flows for purposes of Rule 4426(c)(2),
Nasdaq will rely on the net cash provided by operating activities, as
reported in the issuer's financial information as filed with the
Commission in the issuer's most recent periodic report and/or
registration statement, excluding changes in working capital or in
operating assets and liabilities.
    (d) If an issuer does not have three years of publicly reported
financial data, it may qualify under Rule 4426(c)(1) if it has:
    (1) reported aggregate income from continuing operations before
income taxes of at least $11 million; and
    (2) positive income from continuing operations before income taxes
in each of the reported fiscal years.
    (e) If an issuer does not have three years of publicly reported
financial data, it may qualify under Rule 4426(c)(2) if it has:
    (1) reported aggregate cash flows of at least $27.5 million; and
    (2) positive cash flows in each of the reported fiscal years.
    (f) A period of less than three months shall not be considered a
fiscal year, even if reported as a stub period in the issuer's publicly
reported financial statements.
    (g) For purposes of Rule 4426, an issuer is affiliated with another
company if that other company, directly or indirectly though one or
more intermediaries, controls, is controlled by, or is under common
control of the issuer. Control, for these purposes, means having the
ability to exercise significant influence. Ability to exercise
significant influence will be presumed to exist where the parent or
affiliated company directly or indirectly owns 20% or more of the other
company's voting securities, and also can be indicated by
representation on the board of directors, participation in policy
making processes, material intercompany transactions, interchange of
managerial personnel, or technological dependency.
    (h) In the case of an issuer listing in connection with its initial
public offering, compliance with the market capitalization requirements
of Rules 4426(c)(2) and (c)(3) will be based on the company's market
capitalization at the time of listing.

4430. Limited Partnership Rollup Listing Criteria

    In addition to meeting the quantitative criteria for Nasdaq
[National] Global Market listing, an issuer that is formed as a result
of a limited partnership rollup transaction, as defined in Rule 4200,
must meet the criteria set forth below in order to be listed:
    (a)-(b) No change.

4440. Registration Standards

    (a) In addition to meeting the quantitative criteria and the
limited partnership rollup criteria, if applicable, for Nasdaq
[National] Global Market listing, the issue must also be:
    (1) Registered under Section 12(b) of the Act; or
    (2) Subject to an exemption issued by the Commission that permits
the listing of the security notwithstanding its failure to be
registered pursuant to Section 12(b).

4450. Quantitative Maintenance Criteria

    After listing as a Nasdaq [National] Global Market security, a
security must substantially meet the criteria set forth in paragraphs
(a) or (b), and (c), (d), (e), (f), (g), (h) or (i) below to continue
to remain listed on the Nasdaq [National] Global Market. A security
maintaining its listing under paragraph (b) need not

also be in compliance with the quantitative maintenance criteria in the
Rule 4300 series.
    (a)-(c) No change.
    (d) Rights and Warrants
    Common stock of issuer must continue to be listed on the Nasdaq
[National] Global Market.
    (e)-(h) No change.
    (i) Transfers between The Nasdaq [National] Global and Capital
Markets For Bid Price Deficient Issuers
    (1) If a [National] Global Market issuer has not been deemed in
compliance prior to the expiration of the compliance period for bid
price provided in Rule 4450(e)(2), it may transfer to The Nasdaq
Capital Market, provided that it meets all applicable requirements for
initial listing on the Capital Market set forth in Rule 4310(c) or Rule
4320(e), as applicable, other than the minimum bid price requirement. A
Nasdaq [National] Global Market issuer transferring to The Nasdaq
Capital Market must pay the entry fee set forth in Rule 4520(a). The
issuer may also request a hearing to remain on The Nasdaq [National]
Global Market pursuant to the Rule 4800 Series.
    (2) Following a transfer to The Nasdaq Capital Market pursuant to
paragraph (1), a Nasdaq [National] Global Market issuer will be
afforded the remainder any compliance period set forth in Rule
4310(c)(8)(D) or Rule 4320(e)(2)(E)(ii) as if the issuer had been
listed on The Nasdaq Capital Market. The compliance periods afforded by
this rule and any time spent in the hearing process will be deducted in
determining the length of the remaining applicable compliance periods
on The Nasdaq Capital Market.

4510. The Nasdaq [National] Global Market

    (a) Entry Fee
    (1) An issuer that submits an application to list any class of its
securities (not otherwise identified in this Rule 4500 series) on the
Nasdaq [National] Global Market, shall pay to Nasdaq a fee calculated
on total sharers outstanding, according to the following schedule. This
fee will be assessed on the date of listing on the Nasdaq [National]
Global Market, except for $5,000 which represents a non-refundable,
application fee, and which must be submitted with the issuer's
application.

Up to 30 million shares......................................   $100,000
30+ to 50 million shares.....................................    125,000
Over 50 million shares.......................................    150,000

    (2) Total shares outstanding means the aggregate of all classes of
equity securities to be listed on the Nasdaq [National] Global Market
as shown in the issuer's most recent periodic report or in more recent
information held by Nasdaq or, in the case of new issues, as shown in
the offering circular, required to be filed with the issuer's
appropriate regulatory authority. In the case of foreign issuers, total
shares outstanding shall include only those shares issued and
outstanding in the United States.
    (3) A closed-end management investment company registered under the
Investment Company Act of 1940, as amended (a ``Closed-End Fund''),
that submits an application for listing on the Nasdaq [National] Global
Market shall pay to Nasdaq an entry fee of $5,000 (of which $1,000
represents a non-refundable, application fee).
    (4) An issuer that submits an application to list any class of
rights on the Nasdaq [National] Global Market, shall pay, at the time
of its application, a non-refundable application fee of $1,000 to
Nasdaq.
    (5)-(6) No Change.
    (7) The fees described in this Rule 4510(a) shall not be applicable
with respect to any securities that (i) are listed on another national
securities exchange but not listed on Nasdaq, or (ii) are listed on the
New York Stock Exchange and Nasdaq, if the issuer of such securities
transfers their listing exclusively to the Nasdaq [National] Global
Market.
    (8) No change.
    (b) Additional Shares
    (1) The issuer of each class of security that is a domestic issue
which is listed on the Nasdaq [National] Global Market shall pay to
Nasdaq the fee set forth in subparagraph (2) below in connection with
the issuance of additional shares of each class of listed security.
    (2)-(5) No change.
    (c) Annual Fee--Domestic and Foreign Issues
    (1) The issuer of each class of securities (not otherwise
identified in this Rule 4500 Series) that is a domestic or foreign
issue listed on the Nasdaq [National] Global Market shall pay to Nasdaq
an annual fee calculated on total shares outstanding according to the
following schedule:

Up to 10 million shares......................................    $24,500
10+ to 25 million shares.....................................     30,500
25+ to 50 million shares.....................................     34,500
50+ to 75 million shares.....................................     44,500
75+ to 100 million shares....................................     61,750
Over 100 million shares......................................     75,000

    (2) No change.
    (3) If a class of securities is removed from the Nasdaq [National]
Global Market that portion of the annual fees for such class of
securities attributable to the months following the date of removal
shall not be refunded, expect such portion shall be applied to the
Nasdaq Capital Market fees for that calendar year.
    (4) Total shares outstanding means the aggregate of all classes of
equity securities listed on the Nasdaq [National] Global Market as
shown in the issuer's most recent periodic report required to be filed
with the issuer's appropriate regulatory authority or in more recent
information held by Nasdaq. In the case of foreign issuers, total
shares outstanding shall include only those shares issued and
outstanding in the United States.
    (5) No change.
    (d) Annual Fee--American Depository Receipts (ADRs) and Closed-End
Funds
    (1) The issuer of each class of securities that is an ADR listed on
The Nasdaq [National] Global Market shall pay to Nasdaq an annual fee
calculated on ADRs outstanding according to the following schedule not
to exceed $30,000 per issuer:

Up to 10 million ADRs........................................    $21,225
10+ to 25 million ADRs.......................................     26,500
25+ to 50 million ADRs.......................................     29,820
Over 50 million ADRs.........................................     30,000

    (2) ADRs outstanding means the aggregate of all classes of ADRs
listed on the Nasdaq [National] Global Market as shown in the issuer's
most recent periodic report required to be filed with the issuer's
appropriate regulatory authority or in more recent information held by
Nasdaq.
    (3) A Closed-End Fund listed on the Nasdaq [National] Global Market
shall pay to Nasdaq an annual fee calculated based on total shares
outstanding according to the following schedule:

Up to 5 million shares.......................................    $15,000
5+ to 10 million shares......................................     17,500
10+ to 25 million shares.....................................     20,000
25+ to 50 million shares.....................................     22,500
50+ to 100 million shares....................................     30,000
100+ to 250 million shares...................................     50,000
Over 250 million shares......................................     75,000

    (4) For the purpose of determining the total shares outstanding,
fund sponsors may aggregate shares outstanding of all Closed-End Funds
in the same fund family listed on the Nasdaq [National] Global Market
or the Nasdaq Capital Market, as shown in the issuer's most recent
periodic reports required to be filed with the appropriate regulatory
authority or in more recent information held by Nasdaq. The maximum
annual fee applicable to a fund family shall not exceed $75,000. For
purposes of this rule, a ``fund family'' is defined as two or more
Closed-End Funds that have a common investment adviser or have
investment advisers who are ``affiliated persons'' as defined in
Section 2(a)(3) of the Investment Company Act of 1940, as amended.
    (5) No change.

    (6) If a class of securities is removed from the Nasdaq [National]
Global Market, that portion of the annual fees for such class of
securities attributable to the months following the date of removal
shall not be refunded, except such portion shall be applied to the
Nasdaq Capital Market fees for that calendar year.
    (e)-(f) No change.

4520. The Nasdaq Capital Market

    (a)-(b) No change.
    (c) Annual Fee
    (1)-(4) No change.
    (5) If a class of securities is removed from the Nasdaq Capital
Market, that portion of the annual fees for such class of securities
attributable to the months following the date of removal shall not be
refunded, except such portion shall be applied to Nasdaq [National]
Global Market fees for that calendar year.
    (6) No change.
    (7) Notwithstanding paragraph (6), for the purpose of determining
the total shares outstanding, fund sponsors may aggregate shares
outstanding of all Closed-End Funds in the same fund family listed on
the Nasdaq [National] Global Market and the Nasdaq Capital Market, as
shown in the issuer's most recent periodic reports required to be filed
with the appropriate regulatory authority or in more recent information
held by Nasdaq. The maximum annual fee applicable to a fund family
shall not exceed $75,000. For purposes of this rule, a ``fund family''
is defined as two or more Closed-End Funds that have a common
investment adviser or have investment advisers who are ``affiliated
persons'' as defined in Section 2(a)(3) of the Investment Company Act
of 1940, as amended.
    (8) No change.
    (d)-(e) No change.

4530. Other Securities

    (a) Application Fee and Entry Fee.
    (1) When an issuer submits an application to list any Other
Security or SEEDS on the Nadaq [National] Global Market qualified for
listing under Rule 4420(f) or 4420(g), it shall pay a non-refundable
Application Fee of $1,000.
    (2) When an issuer submits an application to list any Other
Security or SEEDS on the Nasdaq [National] Global Market qualified for
listing under Rule 4420(f) or 4420(g), it shall pay an Entry Fee
calculated based on total shares outstanding according to the following
schedule:

Up to 1 million shares.......................................     $5,000
1+ to 2 million shares.......................................     10,000
2+ to 3 million shares.......................................     15,000
3+ to 4 million shares.......................................     17,500
4+ to 5 million shares.......................................     20,000
5+ to 6 million shares.......................................     22,500
6+ to 7 million shares.......................................     25,000
7+ to 8 million shares.......................................     27,500
8+ to 9 million shares.......................................     30,000
9+ to 10 million shares......................................     32,500
10+ to 15 million shares.....................................     37,500
Over 15 million shares.......................................     45,000

    The applicable Entry Fee shall be reduced by any Entry Fees paid
previously in connection with the initial listing during the current
calendar year of any of the issuer's Other Securities and SEEDS on the
Nasdaq [National] Global Market.
    (3) For the sole purpose of determining the Entry Fee, total shares
outstanding means the aggregate of all classes of Other Securities and
SEEDS of the issuer to be listed on the Nasdaq [National] Global Market
in the current calendar year as shown in the issuer's most recent
periodic report or in more recent information held by Nasdaq or, in the
case of new issues, as shown in the offering circular, required to be
filed with the issuer's appropriate regulatory authority.
    (4)-(5) No change.
    (b) Annual Fee
    (1) The issuer of Other Securities or SEEDS qualified under Rule
4420(f) or 4420(g) for listing on the Nasdaq [National] Global Market
shall pay to Nasdaq an Annual Fee calculated based on total shares
outstanding according to the following schedule:

Up to 5 million shares.......................................    $15,000
5+ to 10 million shares......................................     17,500
10+ to 25 million shares.....................................     20,000
25+ to 50 million shares.....................................     22,500
Over 50 million shares.......................................     30,000

    (2) No change.
    (3) For the sole purpose of determining the Annual Fee, total
shares outstanding means the aggregate of all classes of Other
Securities and SEEDS of the issuer listed on the Nasdaq [National]
Global Market, as shown in the issuer's most recent periodic report
required to be filed with the issuer's appropriate regulatory authority
or in more recent information held by Nasdaq.

4540. Portfolio Depository Receipts and Index Fund Shares

    (a) Entry Fee
    (1) When an issuer submits an application for listing a series of
Portfolio Depository Receipts or Index Fund Shares on the Nasdaq
[National] Global Market, it shall pay to Nasdaq a listing fee of
$5,000 (which shall include a $1,000 non-refundable processing fee).
    (2) The Nasdaq Board of Directors or its designee may, in its
discretion, defer or waive all or any part of the entry fee prescribed
herein.
    (3) If the application is withdrawn or is not approved, the entry
fee (less the non-refundable processing fee) shall be refunded.
    (b) Annual Fee
    (1) The issuer of a series of Portfolio Depository Receipts or
Index Fund Shares listed on The Nasdaq [National] Global Market shall
pay to Nasdaq an annual fee calculated on total shares outstanding
according to the following schedule:

Up to 1 million shares.......................................     $6,500
1+ to 2 million shares.......................................      7,000
2+ to 3 million shares.......................................      7,500
3+ to 4 million shares.......................................      8,000
4+ to 5 million shares.......................................      8,500
5+ to 6 million shares.......................................      9,000
6+ to 7 million shares.......................................      9,500
7+ to 8 million shares.......................................     10,000
8+ to 9 million shares.......................................     10,500
9+ to 10 million shares......................................     11,000
10+ to 11 million shares.....................................     11,500
11+ to 12 million shares.....................................     12,000
12+ to 13 million shares.....................................     12,500
13+ to 14 million shares.....................................     13,000
14+ to 15 million shares.....................................     13,500
15+ to 16 million shares.....................................     14,000
Over 16 million shares.......................................     14,500

    (2) Total shares outstanding means the aggregate number of shares
in all series of Portfolio Depository Receipts or Index Fund Shares to
be listed on The Nasdaq [National] Global Market as shown in the
issuer's most recent periodic report required to be filed with the
issuer's appropriate regulatory authority or in more recent information
held by Nasdaq.
    (3) No change.

4550. Written Interpretations of Nasdaq Listing Rules

    (a) An issuer listed on the Nasdaq Capital Market or the Nasdaq
[National] Global Market may request from Nasdaq a written
interpretation of the Rules contained in the 4000 through 4500 Series.
In connection with such a request, the issuer must submit to Nasdaq a
non-refundable fee of $2,000. A response to such a request generally
will be provided within four weeks from the date Nasdaq receives all
information necessary to respond to the request.
    (b)-(e) No change.

4701. Definitions.

    (a)-(ee) No change.
    (ff) The term ``UTP Exchange'' shall mean any registered national
securities exchange that elects to participate in the Nasdaq Market
Center and that has unlisted trading privileges in Nasdaq [National]
Global Market securities pursuant to the Joint Self-Regulatory
Organization Plan Governing the Collection, Consolidation and
Dissemination Of Quotation and Transaction Information For Exchange-

Listed Nasdaq/National Market System Securities Traded On Exchanges On
An Unlisted Trading Privilege Basis (``Nasdaq UTP Plan'').
    (gg)-(vv) No change.

6120. System Functions.

    (a) No change.
    (b) The Nasdaq system will provide the following risk management
capabilities to clearing brokers that have executed an agreement
authorizing the use of the Nasdaq Risk Management service:
    (1) No change.
    (2) Gross Dollar Thresholds (``Super Caps'') and Sizeable Limits
Clearing brokers may establish, on an inter-day or intra-day basis,
gross dollar thresholds (also known as ``Super Caps'') for purchases
and sales for their correspondent executing brokers. When any of the
correspondent's gross dollar thresholds are exceeded, notice will be
furnished to the clearing broker and to Trade Reporting Facilities. In
such event, Nasdaq Risk Management will automatically instruct Trade
Reporting Facilities that any trade in excess of an applicable
``sizable limit'' that is negotiated by the correspondent will be
subject to review by the clearing broker until such time as the
correspondent's trading activity no longer exceeds a gross dollar
threshold. Specifically, the clearing broker will have 15 minutes from
execution to review any single trade negotiated by the correspondent
that equals or exceeds the applicable sizeable limit in order to decide
to act as principal for the trade or to decline to act as principal. If
the clearing broker does not affirmatively accept or decline the
``sizeable trade,'' at the end of 15 minutes the system will instruct
Trade Reporting Facilities to act in accordance with pre-established
processing criteria, as described below.
    (A) ACT Workstation Users
    (i) Clearing brokers that use the ACT Workstation may establish
gross dollar thresholds and sizeable limits for each of their
correspondent executing brokers. They may establish different gross
dollar thresholds and sizeable limits for each type of security (i.e.,
Nasdaq [National] Global Market, Nasdaq Capital Market, Consolidated
Quotations Service, or OTC Bulletin Board), as well as an aggregate
gross dollar threshold and sizeable limit for all types of securities.
    (ii)-(iii) No change.
    (B) Other Nasdaq Risk Management Users
    (i) Clearing brokers that do not use the ACT Workstation may
establish aggregate gross dollar thresholds for each of their
correspondent executing brokers, but may not establish gross dollar
thresholds for each type of security (i.e., Nasdaq [National] Global
Market, Nasdaq Capital Market, Consolidated Quotations Service, or OTC
Bulletin Board).
    (ii)-(iii) No change.
    (3)-(5) No change.
    (6) Single Trade Limit
    Clearing brokers may request that the Nasdaq Risk Management
service instruct Trade Reporting Facilities to provide 15 minutes from
trade report input to review any single trade executed by their
correspondent executing brokers that equals or exceeds a pre-
established limit in order to decide to act as principal for the trade
or to decline to act as principal. If, however, the clearing firm does
not affirmatively accept or decline the trade at the end of 15 minutes
the system will instruct Trade Reporting Facilities to act in
accordance with pre-established processing criteria, as described
below.
    (A) ACT Workstation Users, Clearing brokers that use the ACT
Workstation may establish single trade limits for each of their
correspondent executing brokers, and may establish different limits for
each type of security (i.e., Nasdaq [National] Global Market, Nasdaq
Capital Market, Consolidated Quotations Service, or OTC Bulletin
Board). Such clearing brokers may also establish the default processing
criteria that will apply to trades that exceed the single trade limit
after 15 minutes if the clearing broker does not affirmatively accept
or decline the trade; the clearing broker may specify that the system
will instruct Trade Reporting Facilities that such trades should be
either automatically declined or automatically subjected to normal
processing in which the clearing broker will act as principal to clear
the trades.
    (B) No change.

7024. Nasdaq Revenue Sharing Program

    After Nasdaq earns total operating revenue sufficient to offset
actual expenses and working capital needs, a percentage of all Market
Participant Operating Revenue (``MPOR'') shall be eligible for sharing
with Nasdaq Quoting Market Participants (as defined in Rule 4701). MPOR
is defined as operating revenue that is generated by Nasdaq quoting
Market Participants. MPOR consists of transaction fees, technology
fees, and market data revenue that is attributable to Nasdaq quoting
Market Participant activity in Nasdaq [National] Global Market, and
Capital Market securities. MPOR shall not include any investment income
or regulatory monies. The sharing of MPOR shall be based on each Nasdaq
Quoting Market Participant's pro rata contribution to MPOR. In no event
shall the amount of revenue shared with Nasdaq Quoting Market
Participants exceed MPOR. To the extent market data revenue is subject
to year-end adjustment, MPOR revenue may be adjusted accordingly.
* * * * *

H. 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
    Nasdaq proposes to rename the Nasdaq National Market as the Nasdaq
Global Market to more accurately reflect the international reach and
leadership of many of the companies listed on that market and the
market itself.\7\
---------------------------------------------------------------------------

    \7\ The Nasdaq Global Market, including the Nasdaq Global Select
segment described below, will be the successor to the Nasdaq
National Market. As such, Nasdaq believes that all securities listed
on the Nasdaq Global Market, including those on the Nasdaq Global
Select Market, will be ``covered securities,'' as that term is
defined in Section 18(b) of the Securities Act of 1933, 15 U.S.C.
77r(b).
---------------------------------------------------------------------------

    Nasdaq also proposes to create a new segment within the Nasdaq
Global Market. This new segment will be known as the Nasdaq Global
Select Market, and new, higher initial listing requirements will apply
to companies listing on the Nasdaq Global Select Market.\8\ All listing
and trading rules applicable to securities on the Nasdaq Global Market
will also apply to the Nasdaq Global Select Market.
---------------------------------------------------------------------------

    \8\ As described below, given that the Nasdaq Global Select
Market is a segment of the Nasdaq Global Market, Nasdaq will apply
the same continued listing requirements as are applicable to other
companies on the Nasdaq Global Market, which are the existing
listing requirements for the Nasdaq National Market.
---------------------------------------------------------------------------

    Listing Standards. As described below, issuers would be required to
meet minimum liquidity measures and a financial test, as well as
achieve a minimum bid price requirement.\9\

Nasdaq believes that the creation of this segment will more clearly
align Nasdaq's financial and liquidity listing standards with its
corporate governance standards \10\ and its regulatory enforcement
program, as well as its trading system. While Nasdaq believes its
existing standards protect investors, Nasdaq also believes that, to the
extent these higher initial listing standards help attract and maintain
listings on Nasdaq and identify companies that meet these high listing
standards, investors will benefit.
---------------------------------------------------------------------------

    \9\ Nasdaq could deny listing to a company that meets these
requirements based on public interest concerns, as described in
existing Nasdaq Rule 4300 and Nasdaq IM-4300.
    \10\ Companies on the Nasdaq Global Select Market will be
required to meet the same rigorous corporate governance standards
applicable to companies on the Nasdaq Capital and Nasdaq Global
Markets. These standards require a majority independent board, an
independent audit committee, and for independent directors to
participate in compensation and nomination decisions. Shareholders
are also required to approve significant transactions and the use of
equity compensation.
---------------------------------------------------------------------------

1. Liquidity Tests
    In order to quality for the Nasdaq Global Select Market, a company
will be required to demonstrate either: (1) a minimum of 550
shareholders and an average monthly trading volume over the prior 12
months of at least 1,100,000 shares per month; or (2) a minimum of
2,200 shareholders.

Average monthly trading volume.......................         >=1,100,00
                                   AND
Shareholders.........................................              >=550
                                   OR
Shareholders.........................................            >=2,200

    In addition, a company must have at least 1,250,000 publicly held
shares. In computing the number of publicly held shares, Nasdaq will
not consider shares held by an officer, director, or 10% shareholder of
the company.

Publicly Held Shares.................................        >=1,250,000

    Finally, those publicly held shares must have a market value of at
least $110 million; provided, however, that if the market value of
publicly held shares is at least $100 million and the company has
shareholders equity of at least $110 million, the company will also
qualify.

Market Value of Publicly Held Shares.................     >=$110,000,000
                                   OR
Market Value of Publicly Held Shares.................     >=$100,000,000
                                   AND
Shareholders Equity..................................     >=$110,000,000

2. Financial Tests
    A company will also be required to meet one of there financial
tests in order to qualify for listing on the Nasdaq Global Select
Market. Specifically, companies will be required to demonstrate: (1)
Aggregate pre-tax earnings of at least $11 million over the prior three
years, with all three years having positive pre-tax earnings and the
two most recent years having at least $2.2 million pre-tax earnings
each; (2) aggregate cash flows of at least $27.5 million over the prior
three years with all three years having positive cash flows, an average
market capitalization of at least $550 million over the prior 12
months, and total revenue of at least $110 million in the previous
fiscal year; or (3) total revenue of at least $90 million in the
previous fiscal year and an average market capitalization of at least
$850 million over the prior 12 months. However, Nasdaq notes that the
operating history requirements in Nasdaq Rule 4426(c)(1) and (c)(2),
may be shortened to a lesser period if an issuer does not have three
years of publicly reported financial data.\11\
---------------------------------------------------------------------------

    \11\ The Commission notes that a period of less than three
months shall not be considered a fiscal year. See Nasdaq Rule
4427(f). Telephone conversation between Arnold Golub, Associate Vice
President, Nasdaq, Florence Harmon, Senior Special Counsel, and Mia
Zur, Special Counsel, Division, on May 12, 2006.

Three year aggregate pre-tax earnings................      >=$11,000,000
                                   AND
Pre-tax earnings in the two most recent years each...       >=$2,200,000
                                   AND
Third most recent year pre-tax earnings..............                 >0
                                   OR
Three year aggregate cash flows......................      >=$27,500,000
                                   AND
  Three most recent years' cash flow each............                 >0
                                   AND
Average 12 month market capitalization...............     >=$550,000,000
                                   AND
Total revenue........................................     >=$110,000,000
                                   OR
Total revenue........................................      >=$90,000,000
                                   AND
Average 12 month market capitalization...............     >=$850,000,000

    Nasdaq will determine compliance with the financial tests based on
a company's publicly filed financial information. Thus, for example, as
specified in proposed Nasdaq Rule 4427(b), pre-tax earnings will be the
company's pre-tax income from continuing operations as filed with the
Commission in the issuer's most recent periodic report and/or
registration statement.
3. Price Test
    Any company newly listed on Nasdaq (both initial public offerings
and seasoned companies) would be required to have a minimum $5 bid
price to list on the Nasdaq Global Select Market. Companies switching
from the Nasdaq Global Market would have previously satisfied the bid
price requirement in connection with their initial listing and
therefore will not be required to meet this requirement again when
transferring to the new segment.
4. Other Provisions
    a company listing in connection with its emergence from a
bankruptcy proceeding will be required to have 450 shareholders for
listing, as will a company affiliated with another company listed on
the Nasdaq Global Select Market. In these cases, Nasdaq believes that
while the shareholder requirement is difficult to meet immediately upon
listing because the stock is not initially widely distributed, shares
are widely distributed following the initial listing. For similar
reasons, the market value of publicly held shares requirement will be
$70 million in the case of a company listing in connection with its
initial public offering, a company that is affiliated with, or a
spinoff from, another company listed on the Nasdaq Global Select
Market, and a closed-end management investment company.
    Due to their unique nature, closed-end management investment
companies will not be required to meet the financial requirements
described above.\12\ Further, Nasdaq has proposed different liquidity
standards for closed-end funds. Finally, if the primary class of a
company is included in the Nasdaq Global Select Market, any secondary
class of that same company, such as a secondary classes of common or a
preferred stock, that qualifies for listing on the Nasdaq Global Market
shall also be included in the Nasdaq Global Select Market.
---------------------------------------------------------------------------

    \12\ While Nasdaq plans to list closed-end funds on the Nasdaq
Global Select Market, there are not separate listing standards for
structured products, index-linked notes, trust issued receipts,
SEEDs, units, commodity-backed products, or Exchange Traded Funds.
---------------------------------------------------------------------------

5. Continued Listing
    Following initial listing on the Nasdaq Global Select Market,
securities will be subject to the continued listing standards that are
currently applicable to the Nasdaq Global Market. Thus, companies must
satisfy one of the

alternatives for continued listing contained in Nasdaq Rule 4450.\13\
---------------------------------------------------------------------------

    \13\ Note that for inclusion on the Nasdaq Global Select Market,
an initial public offering must be able to satisfy one of the
alternatives for continued listing on the Nasdaq Global Market as
contained in Nasdaq Rule 4450, as well as the requirements for
initial inclusion on the Nasdaq Global Select Market. as a result,
the initial listing standards will, in all cases, exceed the
criteria set forth in Rule 3a51-1(a)(2) of the Act, 17 CFR 240.3a51-
1(a)(2).
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    Implementation. Prior to the planned July 1, 2006 launch of the new
segment, Nasdaq will review all companies' qualifications and assign
qualified Nasdaq Global Market companies to the new Nasdaq Global
Select segment.\14\ In addition, qualified Nasdaq Capital Market
companies will be given the opportunity to be included in the new
segment.\15\ Thereafter, beginning in 2007, staff of the Nasdaq Listing
Qualifications Department will review all Nasdaq Global Market
companies' qualifications each October, and qualified Nasdaq Global
Market companies will be automatically placed in the new segment the
following January.\16\ While this review will occur automatically in
October, a company may also apply to upgrade at any point. Companies
transferring from Nasdaq Global market to the Nasdaq Global Select
Market as part of this process will not be assessed entry or
application fees. New Nasdaq Global Market listings will also be placed
in the Nasdaq Global Select segment if they qualify, although they will
be subject to the applicable entry and application fee schedule.
---------------------------------------------------------------------------

    \14\ As a result of this review, no company then on the Nasdaq
Global Market would be adversely affected. Note that the fees for
the Nasdaq Global Market and the Nasdaq Global Select Market will be
the same. See Nasdaq Rule 4510. Fees for securities listed on the
Nasdaq Capital Market will continue to differ. See Nasdaq Rule 4520.
Any company not qualifying for the Nasdaq Global Select Market would
remain on the Nasdaq Global Market.
    \15\ See Nasdaq Rule 4425(d).
    \16\ Nasdaq believes that the delay from October to January is
necessary to assure adequate time to complete the required review
and notify issuers and market participants about the change.
Nonetheless, to assure that no company is disadvantaged by this
delay, a company that qualifies the Nasdaq Global Select Market when
it is reviewed in October will be placed in that segment even if it
falls below one or more of the initial listing requirements in
January when the actual transfer takes place. However, a company
that no longer meets the continued listing requirements for the
Nasdaq Global Market in January would not be transferred to the
Nasdaq Global Select Market, nor would a company that is delinquent
in filing its periodic reports at the time of the transfer or where
staff has raised public interest concerns.
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    As part of both the initial transfer of companies to the Nasdaq
Global Select Market and Nasdaq's ongoing review of companies'
eligibility to be included in the Nasdaq Global Select Market, a
company that is in a grace or compliance period with respect to
qualitative listing standard, such as the cure period allowed to
companies that have a vacancy on their audit committee, will be allowed
to transfer to the Nasdaq Global Select Market, subject to the
continuation of that grace period. If a company is non-compliant with a
qualitative listing requirement \17\ that does not provide for a grace
period or if staff has raised a public interest concern, the company
would not be permitted to transfer to the Nasdaq Global Select Market
until the underlying deficiency is resolved. A company that is below a
quantitative listing requirement even if the company has not been below
the requirement for a sufficient period of time to be considered
deficient,\18\ and a company in a grace or compliance period with
respect to a quantitative listing requirement would not be allowed to
transfer to the Nasdaq Global Select Market until the underlying
deficiency is resolved, nor would any company before a Nasdaq Listing
Qualifications Panel.
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    \17\ Qualitative listing requirements include those requirements
contained in Nasdaq Rule 4350.
    \18\ For example, a security with a closing bid price below $1
is not considered deficient until the security has closed below $1
for 30 consecutive business days. Nonetheless, no security with a
closing bid price below $1 would be permitted to list on the Nasdaq
Global Select Market, even if it has closed above $1 in the prior 30
business days.
---------------------------------------------------------------------------

    In connection with the initial transfer of companies to the Nasdaq
Global Select Market, Nasdaq proposes to allow (but not require) any
Nasdaq-listed company that meets the New York Stock Exchange LLC
(``NYSE'') initial listing standards as of July 1, 2006, but that does
not then qualify for the new segment to be included in the Nasdaq
Global Select Market, subject to an 18 month grace period, until
January 1, 2008, to achieve compliance.\19\ During that grace period,
these companies would have to achieve compliance with all applicable
criteria for initial listing on the Nasdaq Global Select Market. Any
company that has not achieved compliance with all listing criteria for
the Nasdaq Global Select Market by January 2008 would be moved to the
Nasdaq Global Market at that time.\20\
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    \19\ Certain companies will qualify for the NYSE but not the
Nasdaq Global Select Market.
    \20\ Of course if any such company fails to meet the continued
listing standards for the Nasdaq Global Market at any point, staff
would begin proceedings under the Nasdaq rule 4800 Series with
respect to that company.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is
consistent with the provisions of Section 6 of the Act,\21\ in general,
and with Section 6(b)(6) of the Act,\22\ in particular, in that it is
designed to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest;
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78o-3.
    \22\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    Nasdaq believes that changing the name of the Nasdaq National
Market to the Nasdaq Global Market will more accurately reflect the
international reach and leadership of many of the companies listed on
that market and the market itself. Further, Nasdaq believes that the
creation of a market segment within the Nasdaq Global Market with
higher initial listing standards will protect investors and the public
interest and will foster competition among exchange markets.

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, as amended.

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

    The foregoing proposed rule change, as amended, is subject to
Section 19(b)(3)(A)(iii) of the Act \23\ and Rule 19b-4(f)(6)
thereunder, \24\ because the rule change does not: (i) Significantly
affect the protection of investors or the public interest; (ii) impose
any significant burden on competition; or (iii) become operative for 30
days from the day on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest.\25\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ As required by Rule 19b-4(f)(6)(iii) of the Act, Nasdaq
provided the Commission with written notice of its intent to file
the proposed rule change, along with a brief description of the text
of the proposed rule change, at least five business days prior to
the date of the filing of the proposed rule change.

---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\26\
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    \26\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
For the purposes of calculating the 60-day period within which the
Commission may summarily abrogate the proposed rule change under
Section 19(b)(3)(C) of the Act, the Commission considers that period
to commence on May 8, 2006, the date Nasdaq filed Amendment No. 1 to
the proposed rule change. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number SR-NASDAQ-2006-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2006-007. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 also will be available for inspection and copying at the
principal office of NASDAQ. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NASDAQ-2006-007 and should be submitted on or before
June 9, 2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06-4689 Filed 5-18-06; 8:45 am]

BILLING CODE 8010-01-M


[Federal Register Volume 87, Number 250 (Friday, December 30, 2022)]
[Rules and Regulations]
[Pages 80444-80446]
[FR Doc No: 2022-28430]

=======================================================================
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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 882

[Docket No. FDA-2022-N-3188]

Medical Devices; Neurological Devices; Classification of the
Pediatric Autism Spectrum Disorder Diagnosis Aid

AGENCY: Food and Drug Administration, HHS.

ACTION: Final amendment; final order.

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SUMMARY: The Food and Drug Administration (FDA, Agency, or we) is
classifying the pediatric Autism Spectrum Disorder (ASD) diagnosis aid
into class II (special controls). The special controls that apply to
the device type are identified in this order and will be part of the
codified language for the pediatric Autism Spectrum Disorder diagnosis
aid's classification. We are taking this action because we have
determined that classifying the device into class II (special controls)
will provide a reasonable assurance of safety and effectiveness of the
device. We believe this action will also enhance patients' access to
beneficial innovative devices.

DATES: This order is effective December 30, 2022. The classification
was applicable on June 2, 2021.

FOR FURTHER INFORMATION CONTACT: Mohua Choudhury, Center for Devices
and Radiological Health, Food and Drug Administration, 10903 New
Hampshire Ave., Bldg. 66, Rm. 4102, Silver Spring, MD 20993-0002, 240-
402-3095, [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Upon request, FDA has classified the pediatric Autism Spectrum
Disorder diagnosis aid as class II (special controls), which we have
determined will provide a reasonable assurance of safety and
effectiveness. In addition, we believe this action will enhance
patients' access to beneficial innovation, in part by placing the
device into a lower device class than the automatic class III
assignment.
    The automatic assignment of class III occurs by operation of law
and without any action by FDA, regardless of the level of risk posed by
the new device. Any device that was not in commercial distribution
before May 28, 1976, is automatically classified as, and remains
within, class III and requires premarket approval unless and until FDA
takes an action to classify or reclassify the device (see 21 U.S.C.
360c(f)(1)). We refer to these devices as ``postamendments devices''
because they were not in commercial distribution prior to the date of
enactment of the Medical Device Amendments of 1976, which amended the
Federal Food, Drug, and Cosmetic Act (FD&C Act).
    FDA may take a variety of actions in appropriate circumstances to
classify or reclassify a device into class I or II. We may issue an
order finding a new device to be substantially equivalent under section
513(i) of the FD&C Act (see 21 U.S.C. 360c(i)) to a predicate device
that does not require premarket approval. We determine whether a new
device is substantially equivalent to a predicate device by means of
the procedures for premarket notification under section 510(k) of the
FD&C Act (21 U.S.C. 360(k)) and part 807 (21 CFR part 807).
    FDA may also classify a device through ``De Novo'' classification,
a common name for the process authorized under section 513(f)(2) of the
FD&C Act. Section 207 of the Food and Drug Administration Modernization
Act of 1997 (Pub. L. 105-115) established the first procedure for De
Novo classification. Section 607 of the Food and Drug Administration
Safety and Innovation Act (Pub. L. 112-144) modified the De Novo
application process by adding a second procedure. A device sponsor may
utilize either procedure for De Novo classification.
    Under the first procedure, the person submits a 510(k) for a device
that has not previously been classified. After receiving an order from
FDA classifying the device into class III under section 513(f)(1) of
the FD&C Act, the person then requests a classification under section
513(f)(2).
    Under the second procedure, rather than first submitting a 510(k)
and then a request for classification, if the person determines that
there is no legally marketed device upon which to base a determination
of substantial equivalence, that person requests a classification under
section 513(f)(2) of the FD&C Act.
    Under either procedure for De Novo classification, FDA is required
to classify the device by written order within 120 days. The
classification will be according to the criteria under section
513(a)(1) of the FD&C Act. Although the device was automatically placed
within class III, the De Novo classification is considered to be the
initial classification of the device.
    When FDA classifies a device into class I or II via the De Novo
process, the device can serve as a predicate for future devices of that
type, including for 510(k)s (see section 513(f)(2)(B)(i) of the FD&C
Act). As a result, other device sponsors do not have to submit a De
Novo request or premarket approval application to market a
substantially equivalent device (see section 513(i) of the FD&C Act,
defining ``substantial equivalence''). Instead, sponsors can use the
less-burdensome 510(k) process, when necessary, to market their device.

II. De Novo Classification

    On November 3, 2020, FDA received Cognoa, Inc.'s request for De
Novo classification of the Cognoa ASD Diagnosis Aid. FDA reviewed the
request in order to classify the device under the criteria for
classification set forth in section 513(a)(1) of the FD&C Act.
    We classify devices into class II if general controls by themselves
are insufficient to provide reasonable assurance of safety and
effectiveness, but there is sufficient information to establish special
controls that, in combination with the general controls, provide
reasonable assurance of the safety and effectiveness of the device for
its intended use (see 21 U.S.C. 360c(a)(1)(B)). After review of the
information submitted in the request, we determined that the device can
be classified into class II with the establishment of special controls.
FDA has determined that these special controls, in addition to the
general controls, will provide reasonable assurance of the safety and
effectiveness of the device.

    Therefore, on June 2, 2021, FDA issued an order to the requester
classifying the device into class II. In this final order, FDA is
codifying the classification of the device by adding 21 CFR
882.1491.\1\ We have named the generic type of device pediatric Autism
Spectrum Disorder diagnosis aid, and it is identified as a prescription
device that is intended for use as an aid in the diagnosis of Autism
Spectrum Disorder in pediatric patients.
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    \1\ FDA notes that the ``ACTION'' caption for this final order
is styled as ``Final amendment; final order,'' rather than ``Final
order.'' Beginning in December 2019, this editorial change was made
to indicate that the document ``amends'' the Code of Federal
Regulations. The change was made in accordance with the Office of
Federal Register's (OFR) interpretations of the Federal Register Act
(44 U.S.C. chapter 15), its implementing regulations (1 CFR 5.9 and
parts 21 and 22), and the Document Drafting Handbook.
---------------------------------------------------------------------------

    FDA has identified the following risks to health associated
specifically with this type of device and the measures required to
mitigate these risks in table 1.

   Table 1--Pediatric Autism Spectrum Disorder Diagnosis Aid Risks and
                           Mitigation Measures
------------------------------------------------------------------------
            Identified risks                   Mitigation measures
------------------------------------------------------------------------
Device failure or incorrect analysis     Clinical performance testing;
 leading to:                              Software verification,
                                          validation, and hazard
                                          analysis; and Labeling.
     False positives resulting
     in inappropriate patient treatment
     and potentially delayed diagnosis
     of a non-ASD condition.
     False negatives resulting
     in delayed diagnosis and patient
     treatment.
Use error or misinterpretation of        Usability assessment, and
 results resulting in a, false positive   Labeling.
 or false negative.
------------------------------------------------------------------------

    FDA has determined that special controls, in combination with the
general controls, address these risks to health and provide reasonable
assurance of safety and effectiveness. For a device to fall within this
classification, and thus avoid automatic classification in class III,
it would have to comply with the special controls named in this final
order. The necessary special controls appear in the regulation codified
by this order. This device is subject to premarket notification
requirements under section 510(k) of the FD&C Act.
    At the time of classification, pediatric Autism Spectrum Disorder
diagnosis aids are for prescription use only. Prescription devices are
exempt from the requirement for adequate directions for use for the
layperson under section 502(f)(1) of the FD&C Act (21 U.S.C. 352(f)(1))
and 21 CFR 801.5, as long as the conditions of 21 CFR 801.109 are met.

III. Analysis of Environmental Impact

    The Agency has determined under 21 CFR 25.34(b) that this action is
of a type that does not individually or cumulatively have a significant
effect on the human environment. Therefore, neither an environmental
assessment nor an environmental impact statement is required.

IV. Paperwork Reduction Act of 1995

    This final order establishes special controls that refer to
previously approved collections of information found in other FDA
regulations and guidance. These collections of information are subject
to review by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections
of information in 21 CFR part 860, subpart D, regarding De Novo
classification have been approved under OMB control number 0910-0844;
the collections of information in 21 CFR part 814, subparts A through
E, regarding premarket approval, have been approved under OMB control
number 0910-0231; the collections of information in part 807, subpart
E, regarding premarket notification submissions, have been approved
under OMB control number 0910-0120; the collections of information in
21 CFR part 820, regarding quality system regulation, have been
approved under OMB control number 0910-0073; and the collections of
information in 21 CFR parts 801, regarding labeling, have been approved
under OMB control number 0910-0485.

List of Subjects in 21 CFR Part 882

    Medical devices.

    Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, 21 CFR part
882 is amended as follows:

PART 882--NEUROLOGICAL DEVICES

0
 1. The authority citation for part 882 continues to read as follows:

    Authority: 21 U.S.C. 351, 360, 360c, 360e, 360j, 360l, 371.

0
 2. Add Sec.  882.1491 to subpart B to read as follows:

Sec.  882.1491  Pediatric Autism Spectrum Disorder diagnosis aid.

    (a) Identification. A pediatric Autism Spectrum Disorder diagnosis
aid is a prescription device that is intended for use as an aid in the
diagnosis of Autism Spectrum Disorder in pediatric patients.
    (b) Classification. Class II (special controls). The special
controls for this device are:
    (1) Clinical performance testing must demonstrate that the device
performs as intended under anticipated conditions of use, including an
evaluation of sensitivity, specificity, positive predictive value, and
negative predictive value using a reference method of diagnosis and
assessment of patient behavioral symptomology.
    (2) Software verification, validation, and hazard analysis must be
provided. Software documentation must include a detailed, technical
description of the algorithm(s) used to generate device output(s), and
a cybersecurity assessment of the impact of threats and vulnerabilities
on device functionality and user(s).
    (3) Usability assessment must demonstrate that the intended user(s)
can safely and correctly use the device.
    (4) Labeling must include:
    (i) Instructions for use, including a detailed description of the
device, compatibility information, and information to facilitate
clinical interpretation of all device outputs; and
    (ii) A summary of any clinical testing conducted to demonstrate how
the device functions as an interpretation of patient behavioral
symptomology associated with Autism Spectrum Disorder. The summary must
include the following:
    (A) A description of each device output and clinical
interpretation;
    (B) Any performance measures, including sensitivity, specificity,

positive predictive value (PPV) and negative predictive value (NPV);
    (C) A description of how the cutoff values used for categorical
classification of diagnoses were determined; and
    (D) Any expected or observed adverse events and complications.
    (iii) A statement that the device is not intended for use as a
stand-alone diagnostic.

    Dated: December 27, 2022.
Lauren K. Roth,
Associate Commissioner for Policy.
[FR Doc. 2022-28430 Filed 12-29-22; 8:45 am]
BILLING CODE 4164-01-P