The inspection report placed special emphasis on five of these recommendations. To determine the status of Nasdaq’s compliance with OCIE’s inspection recommendations, we met with appropriate SEC and Nasdaq officials, reviewed documents relating to SEC’s follow-up to the 1997 inspection, and reviewed NLQ procedures. SEC and Nasdaq Developed Reports in Response to Our Recommendations

In August 1998, in response to our recommendation, OCIE submitted an information memorandum to the SEC Commissioners that included the status of significant open recommendations resulting from OCIE inspections of the securities SROs. The purpose of our recommendation was to keep the commissioners informed and to provide an additional incentive for SROs to comply with OCIE recommendations. OCIE’s memorandum addressed recommendations from all OCIE SRO inspection programs. In August and November 1998, NLQ sent Nasdaq management quarterly statistical summary reports on the progress of the Nasdaq listing program. These summaries used statistical information as indicators of the effectiveness of Nasdaq’s listing program. The reports provided information pertaining to three primary activities within NLQ—exception granting and administration, application review, and compliance monitoring. They reported that they intend to follow up on three of the recommendations to ensure that the actions taken have been effective. OCIE recommended that NLQ: implement procedures requiring its analysts to closely scrutinize the value of unaudited assets and the value of audited assets that are unusual or of questionable value; train its analysts to thoroughly investigate and evaluate disclosures made by issuers in public filings and press releases and require its analysts to routinely conduct investigations into the backgrounds of those individuals involved with issuers, including independent accountants and underwriters; implement procedures to require companies that receive going concern opinions to set forth a business plan demonstrating their ability to continue business operations in compliance with listing requirements; create a uniform, concise compilation of its basic review procedures; and modify its program to monitor listed companies to enable NLQ to more quickly detect companies that are falling out of compliance. OCIE officials told us that the next inspection of Nasdaq’s listings department is scheduled for August 1999. RSCS Is Scheduled for Implementation During Mid-1999

Nasdaq officials told us that they have made substantial progress in their development of RSCS. They said that they expect RSCS to be implemented into Nasdaq’s compliance monitoring program some time during mid-1999. As a result, OCIE has stated that it is satisfied that Nasdaq has addressed all of its recommendations. Comments From the Securities and Exchange Commission

Comments From the Nasdaq Stock Market, Inc.

Major Contributors to This Report

	General Government Division, Washington, D.C.

Michael A. Burnett, Assistant Director Edwin J.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed whether the Securities and Exchange Commission (SEC) and Nasdaq Stock Market, Inc. have implemented the recommendations from a previous GAO report, focusing on the status of Nasdaq's: (1) response to recommendations SEC made as part of its oversight of Nasdaq's Listing Qualifications Department (NLQ); and (2) new automated Risk Scoring Compliance System (RSCS).

What GAO Found

GAO noted that: (1) SEC and Nasdaq have implemented the GAO report's 2 recommendations; (2) SEC's Office of Compliance Inspections and Examinations (OCIE) developed and issued its first report to SEC Commissioners on significant, open recommendations resulting from OCIE inspections; (3) OCIE's report included not only recommendations involving listing programs, but also those from OCIE inspections of various other self-regulatory organization (SRO) regulatory programs; (4) bringing open, significant inspection recommendations to the attention of SEC Commissioners, and letting the SROs know that this is being done, provides additional incentive for SROs to comply with OCIE recommendations; (5) NLQ has started preparing quarterly reports to Nasdaq's management that provide statistical measures of the listing program's results; (6) the report contains information pertaining to three primary NLQ activities, including: (a) exception granting and administration; (b) application review; and (c) compliance monitoring; (7) routinely reporting these overall program statistics to Nasdaq management should help to keep officials informed about whether the listings program is achieving results appropriate to program goals; (8) Nasdaq and SEC officials said that Nasdaq has addressed all 27 of the recommendations resulting from OCIE's 1997 inspection of NLQ; (9) SEC officials told GAO that they would follow up on three of these recommendations during the next OCIE inspection of Nasdaq to ensure that the actions taken have been effective; (10) Nasdaq officials told GAO that they have made substantial progress in their development of RSCS; (11) they expect RSCS to be implemented into Nasdaq's compliance monitoring program sometime during mid-1999; and (12) officials said that RSCS is to help NLQ analysts more quickly detect problem companies that are falling out of compliance with Nasdaq listing requirements.