Self-Regulatory Organizations; Order Approving a Proposed Rule Change, and Amendment Nos. 1, 2 and 3 Thereto, by National Association of Securities Dealers, Inc. Relating to Divestiture of Its Interest in the American Stock Exchange LLC, 131-133 [E4-3907]

Download as PDF Federal Register / Vol. 70, No. 1 / Monday, January 3, 2005 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Margaret H. McFarland, Deputy Secretary. [FR Doc. 04–28671 Filed 12–30–04; 8:45 am] BILLING CODE 8010–01–M SECURITIES AND EXCHANGE COMMISSION [Release No. 34–50860; File No. SR–NASD– 2004–166] Self Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval to Proposed Rule Change Modifying the Other Securities Fee Schedule December 15, 2004. On October 29, 2004, the National Association of Securities Dealers, Inc. (‘‘NASD’’), through its subsidiary. The Nasdaq Stock Market, Inc. (‘‘Nasdaq’’), filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change modifying the Other Securities fee schedule in NASD Rule 4530 by establishing a new, separate, nonrefundable application fee for ‘‘other securities’’ and SEEDS and raising the applicable annual fee levels. The proposed rule change was published for comment in the Federal Register on November 10, 2004.3 The Commission received no comments on the proposal. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association 4 and, in particular, the requirements of section 15A of the Act 5 and the rules and regulations thereunder. The Division finds specifically that the proposed rule change is consistent with section 15A(b)(5) of the Act,6 which requires that the rules of an association provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the association operates or controls. 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 50629 (November 3, 2004), 69 FR 65237. 4 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 5 15 U.S.C. 78o–3. 6 15 U.S.C. 78o–3(b)(5). 1 15 VerDate jul<14>2003 14:47 Dec 30, 2004 Jkt 205001 Specifically, the increase is intended to reflect the costs that Nasdaq has represented it incurs for the services provided to issuers. It is therefore ordered, pursuant to section 19(b)(2) of the Act,7 that the proposed rule change (File NO. SR– NASD–2004–166) be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 Margaret H. McFarland, Deputy Secretary. [FR Doc. 04–27942 Filed 12–30–04; 8:45 am] BILLING CODE 8010–01–M SECURITIES AND EXCHANGE COMMISSION [Release No. 34–50926; File No. SR–NASD– 2004–110] Self-Regulatory Organizations; Order Approving a Proposed Rule Change, and Amendment Nos. 1, 2 and 3 Thereto, by National Association of Securities Dealers, Inc. Relating to Divestiture of Its Interest in the American Stock Exchange LLC December 23, 2004. I. Introduction On July 16, 2004 the National Association of Securities Dealers, Inc. (‘‘NASD’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to reflect NASD’s pending divestiture of its ownership interest in the American Stock Exchange LLC (‘‘Amex’’) pursuant to a Transaction Agreement between Amex and NASD wherein the the Amex Membership Corporation will become the sole owner of Amex (the ‘‘Transaction’’).3 NASD amended the proposal on August 10, 2004,4 August U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Exchange Act Release No. 50057 (July 22, 2004); 69 FR 45091, July 28, 2004) (SR–AMEX– 2004–50) for a detailed description of the Transaction. 4 See letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division of Market Regulation (‘‘Division’’), Commission, dated August 10, 2004 (‘‘Amendment No. 1’’). Amendment No. 1 replaced NASD’s original filing in its entirety. PO 00000 7 15 8 17 Frm 00062 Fmt 4703 Sfmt 4703 131 25, 2004,5 and September 3, 2004.6 The proposed rule change was published for comment in the Federal Register on September 23, 2004.7 A correction to the proposed rule change was published in the Federal Register on October 5, 2004.8 No comments were received on the proposal. This order approves the proposal, as amended. II. Description of the Proposal The proposed rule change amends provisions of NASD’s By-Laws to reflect NASD’s pending divestiture of its ownership of Amex as a result of the Transaction; make parallel amendments to the definitional and conflict-ofinterest provisions of the By-Laws of NASD Regulation, Inc. (‘‘NASD Regulation’’) and NASD Dispute Resolution, Inc. (‘‘Dispute Resolution’’); terminate certain undertakings NASD assumed when it acquired Amex in 1998 (the ‘‘1998 Undertakings’’); and make certain other clarifying amendments. A brief description of the proposed changes is set forth below. NASD By-Law Article I (Definitions) The proposed amendments eliminate references to Amex and/or Nasdaq from the definitions of ‘‘Industry Director’’ and ‘‘Industry Governor,’’ ‘‘NonIndustry Director’’ and ‘‘Non-Industry Governor,’’ and ‘‘Public Director’’ and ‘‘Public Governor.’’ NASD proposes to replace references to Amex and/or Nasdaq in each of those definitions with the phrase ‘‘a market for which NASD provides regulation.’’ Other references to Amex’s ‘‘Floor Governor,’’ ‘‘Amex,’’ ‘‘Amex Board’’ and ‘‘Chief Executive Officer of Amex’’ also have been eliminated. NASD also proposes further clarifying amendments to the definition of ‘‘Non-Industry Director’’ and ‘‘NonIndustry Governor’’ to include an officer or employee of an issuer of unlisted securities that are traded in the over-thecounter market. NASD represents that this particular change reflects NASD’s historical interpretation of the ‘‘NonIndustry Director’’ and ‘‘Non-Industry 5 See letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated August 25, 2004 (‘‘Amendment No. 2’’). Amendment No. 2 replaced NASD’s earlier amended filing in its entirety. 6 See letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated September 2, 2004 (‘‘Amendment No. 3’’). Amendment No. 3 modified Exhibit 1 and made certain technical corrections to the proposal. Amendment No. 3 replaced NASD’s earlier amended filing in its entirety. 7 See Securities Exchange Act Release No. 50403 (September 16, 2004), 69 FR 57119. 8 See Securities Exchange Act Release No. 50403A (September 29, 2004), 69 FR 59630. E:\FR\FM\03JAN1.SGM 03JAN1 132 Federal Register / Vol. 70, No. 1 / Monday, January 3, 2005 / Notices Governor’’ definitions. Parallel changes also have been proposed for the definitional provisions of the NASD Regulation and Dispute Resolution ByLaws. NASD also proposes to eliminate other definitions relating to Amex and Amex-related entities in the NASD Regulation and Dispute Resolution ByLaws. NASD By-Law Article VII (Board of Governors) In section 4 of Article VII, NASD proposes to eliminate two seats on the NASD Board that have been reserved for the Chief Executive of Amex and an Amex Floor Governor. The proposal reduces the total number of Governors on the NASD Board from a range of 17– 27 to a range of 15–25. NASD also proposes to eliminate the term provisions in section 5 of Article VII that pertains to Amex’s Chief Executive Officer, and that sets the maximum permissible term of the Amex Floor Governor. NASD By-Law Article IX (Committees) NASD proposes to eliminate the requirements that at least one Governor of Amex be included on the NASD Executive Committee and that at least two members of the NASD Executive Committee be members of neither Amex nor NASD Regulation Boards. Thus, with the changes, the NASD Executive Committee would be composed of no fewer than five and no more than eight Governors, including the Chief Executive Officer of the NASD and at least one Director of NASD Regulation. NASD Bylaw Article XV (Limitation of Powers) Section 4 of Article XV of the NASD Bylaws governs participation of NASD in transactions in which Amex Governors have an interest. Section 4(b) of Article XV provides that a contract or transaction in which an Amex Governor has an interest may be permitted if certain disclosures are made and the contract or transaction is approved by an affirmative vote of a majority of a quorum of disinterested Governors. Currently, an Amex-affiliated Governor could be counted as a disinterested Governor for purposes of determining the presence of a quorum. NASD proposes to eliminate Amex from the quorum provision and as a result, NASD represents that an Amex-affiliated Governor will no longer be counted as disinterested for purposes of determining the presence of a quorum at the portion of the meeting of the NASD Board that authorizes a contract or transaction with Amex. Parallel changes are proposed for the conflict-of-interest VerDate jul<14>2003 14:47 Dec 30, 2004 Jkt 205001 provisions of the NASD Regulation and Dispute Resolution By-Laws. 1998 Undertakings Amex proposes to withdraw the principles that it adopted in 1998 that would guide the NASD in fulfilling its responsibilities as parent company of Amex with ultimate responsibility for Amex’s compliance with its statutory responsibilities as a self-regulatory organization. In the 1998 Undertakings, among other things, NASD represented that it would exercise its powers and its managerial influence to ensure that Amex fulfilled its self-regulatory obligations by directing Amex to take action necessary to effectuate its purposes and functions as a national securities exchange operating pursuant to the Act, and ensuring that Amex had, and appropriately allocated, such financial, technological, technical, and personnel resources as may be necessary or appropriate to meet its obligations under the Act. NASD also committed to refraining from taking any action with respect to Amex that would impede efforts by Amex to carry out its selfregulatory obligations.9 III. Commission Findings The Commission finds the proposed rule change, as amended, is consistent with section 15A of the Act 10 and the rules and regulations thereunder applicable to a national securities association. In particular, the Commission find the proposed rule change is consistent with section 15A(b)(6) of the Act,11 which requires that NASD’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest.12 The Commission finds that it is appropriate for NASD to delete any mandatory representation of Amex on the NASD Board or NASD Executive Committee. Following the elimination of Amex representatives on the NASD’s Board, the Board will continue to be a majority independent because the 9 See Exchange Act Release No. 40443 (September 16, 1998), 63 FR 51108 (September 24, 1998) (File No. SR–NASD–98–67—Policies Regarding Authority Over American Stock Exchange LLC and Composition of Board of Governors of American Stock Exchange LLC); See also Exchange Act Release No. 40622 (October 30, 1998), 63 FR 59819 (November 5, 1998) (order approving proposed rule change and implementing NASD’s undertakings regarding Amex). 10 15 U.S.C. 78o–3. 11 15 U.S.C. 78o–3(b)(6). 12 In approving this rule change, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 NASD By-Laws require that the number of Non-Industry Governors shall exceed the number of Industry Governors.13 Given the NASD’s pending divestiture of its ownership interest and control over the Amex, the Commission finds that it is appropriate for the NASD to withdraw the 1998 Undertakings. Upon the closing of the Transaction, NASD will no longer maintain any ownership in or control over Amex. Therefore the 1998 Undertakings, which imposed upon NASD certain obligations as the owner of Amex, will no longer be applicable. The Commission finds that the changes proposed by NASD that delete references to Amex and replace those references with broader provisions are appropriate. For example, NASD proposes to amend the definitions of ‘‘Industry Director’’ and ‘‘Industry Governor,’’ ‘‘Non-Industry Director’’ and ‘‘Non-Industry Governor,’’ and ‘‘Public Director’’ and ‘‘Public Governor’’ by deleting references to Amex and/or Nasdaq with ‘‘a market regulated by the NASD.’’ The Commission believes that this change is appropriate because it takes into account NASD’s current—and anticipated—contractual relationship with other market centers, and more importantly, clarifies how an individual’s affiliation with such a market center might affect his/her qualification for that particular classification. The same rationale makes corresponding changes to the same definitions in the NASD Regulation and Dispute Resolution By-Laws appropriate. The Commission also finds that the clarifying amendments that NASD proposes are appropriate. For example, NASD’s definition of Non-Industry Director and Non-Industry Governor previously included an officer or director of ‘‘securities traded in the over-the-counter market.’’ As noted above, NASD is clarifying this prong of that definition to include an officer or employee of an issuer of unlisted securities. The NASD proposes this change to align the rule text with NASD’s current practice of how it applies this prong of the definition of Non-Industry Director and Non-Industry Governor. NASD stated that this is not a substantive change.14 In addition, the 13 The Commission also notes that the NASD’s By-Laws continue to require that a certain number of Public Governors be on the NASD Board, depending on the exact number of NASD Governors in total. 14 Specifically, an officer or employee of a listed issuer could still qualify as an Industry Director or Industry Governor or Public Director or Public Governor if the officer or employee met the requirements for those categories, and could still E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 70, No. 1 / Monday, January 3, 2005 / Notices Commission believes that deletion of Amex from the quorum requirements of NASD, NASD Regulation and Dispute Resolution’s By-Laws governing participation in transactions in which Amex Governors have a conflict of interest is appropriate because it clarifies that an Amex-affiliated Governor cannot be counted as disinterested for quorum purposes in a meeting of the NASD Board that authorizes a contract or transaction with Amex. Finally, the Commission finds that it is appropriate to eliminate the requirement that at least two members of the Executive Committee be members of neither the Amex nor NASD Regulation Boards because the original concern that prompted this requirement—that market interests might dominate the NASD Board—no longer poses any regulatory or governance concern. It is therefore ordered, pursuant to section 19(b)(2) of the Act,15 that the proposed rule change, NASD 2004–110, as amended, be, and hereby is approved. The proposed rule change shall be effective upon the closing of the Transaction. By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4–3907 Filed 12–30–04; 8:45 am] BILLING CODE 8010–01–P DEPARTMENT OF STATE Bureau of Nonproliferation [Public Notice 4946] Imposition of Nonproliferation Measures Against Nine Foreign Entities, Including a Ban on U.S. Government Procurement, and Removal of Penalties From One Entity Department of State. Notice. AGENCY: ACTION: SUMMARY: A determination has been made that nine entities have engaged in activities that require the imposition of measures pursuant to Section 3 of the Iran Nonproliferation Act of 2000, which provides for penalties on entities for the transfer to Iran since January 1, 1999, of equipment and technology controlled under multilateral export qualify as a Non-Industry Director or Non-Industry Governor under the prong of that definition that states that a Non-Industry Director or Non-Industry Governor is ‘‘any other individual who would not be an Industry Director.’’ Thus, before and after this change, an officer or employee of a listed issuer could qualify in any of these three categories. 15 15 U.S.C. 78s(b)(2). VerDate jul<14>2003 14:47 Dec 30, 2004 Jkt 205001 control lists (Australia Group, Chemical Weapons Convention, Missile Technology Control Regime, Nuclear Suppliers Group, Wassenaar Arrangement) or otherwise having the potential to make a material contribution to the development of weapons of mass destruction (WMD) or cruise or ballistic missile systems. The latter category includes (a) items of the same kind as those on multilateral lists, but falling below the control list parameters, when it is determined that such items have the potential of making a material contribution to WMD or cruise or ballistic missile systems, (b) other items with the potential of making such a material contribution, when added through case-by-case decisions, and (c) items on U.S. national control lists for WMD/missile reasons that are not on multilateral lists. It was also determined that sanctions imposed on a Spanish entity, effective September 23, 2004 (69 FR 4845) pursuant to the Iran Nonproliferation Act of 2000, no longer apply. DATES: Effective Date: December 27, 2004. FOR FURTHER INFORMATION CONTACT: On general issues: Vann H. Van Diepen, Office of Chemical, Biological and Missile Nonproliferation, Bureau of Nonproliferation, Department of State (202–647–1142). On U.S. Government procurement ban issues: Gladys Gines, Office of the Procurement Executive, Department of State (703–516–1691). SUPPLEMENTARY INFORMATION: Pursuant to Sections 2 and 3 of the Iran Nonproliferation Act of 2000 (Pub. L. 106–178), the U.S. Government determined on December 20, 2004, that the measures authorized in Section 3 of the Act shall apply to the following foreign entities identified in the report submitted pursuant to Section 2(a) of the Act: Beijing Alite Technologies Company Limited (China) and any successor, subunit, or subsidiary thereof; China Aero-Technology Import Export Corporation (CATIC) (China) and any successor, sub-unit, or subsidiary thereof; China Great Wall Industry Corporation (China) and any successor, sub-unit, or subsidiary thereof; China North Industry Corporation (NORINCO) (China) and any successor, sub-unit, or subsidiary thereof; Ecoma Enterprise Co. Ltd. (Taiwan) and any successor, sub-unit, or subsidiary thereof; Paeksan Associated Corporation (North Korea) and any successor, subunit, or subsidiary thereof; Q.C. Chen (China); PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 133 Wha Cheong Tai Company (aka Wah Cheong Tai Company and Hua Chang Tai Company) (China) and any successor, sub-unit, or subsidiary thereof; and Zibo Chemet Equipment Corporation Ltd. (aka Chemet Global Ltd.) (China) and any successor, sub-unit, or subsidiary thereof. Accordingly, pursuant to the provisions of the Act, the following measures are imposed on these entities: 1. No department or agency of the United States Government may procure, or enter into any contract for the procurement of, any goods, technology, or services from these foreign persons; 2. No department or agency of the United States Government may provide any assistance to the foreign persons, and these persons shall not be eligible to participate in any assistance program of the United States Government; 3. No United States Government sales to the foreign persons of any item on the United States Munitions List (as in effect on August 8, 1995) are permitted, and all sales to these persons of any defense articles, defense services, or design and construction services under the Arms Export Control Act are terminated; and, 4. No new individual licenses shall be granted for the transfer to these foreign persons of items the export of which is controlled under the Export Administration Act of 1979 or the Export Administration Regulations, and any existing such licenses are suspended. These measures shall be implemented by the responsible departments and agencies of the United States Government and will remain in place for two years from the effective date, except to the extent that the Secretary of State or Deputy Secretary of State may subsequently determine otherwise. A new determination will be made in the event that circumstances change in such a manner as to warrant a change in the duration of sanctions. In addition, it was determined on December 20, 2004, that the sanctions imposed effective September 23, 2004 (69 FR 4845), on the Spanish entity Telstar (and any successor, sub-unit, or subsidiary thereof), no longer apply. Dated: December 27, 2004. Vann H. Van Diepen, Acting Assistant Secretary of State for Nonproliferation, Department of State. [FR Doc. 04–28736 Filed 12–30–04; 8:45 am] BILLING CODE 4710–27–P E:\FR\FM\03JAN1.SGM 03JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 1 (Monday, January 3, 2005)]
[Notices]
[Pages 131-133]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E4-3907]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50926; File No. SR-NASD-2004-110]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change, and Amendment Nos. 1, 2 and 3 Thereto, by National Association 
of Securities Dealers, Inc. Relating to Divestiture of Its Interest in 
the American Stock Exchange LLC

December 23, 2004.

I. Introduction

    On July 16, 2004 the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to reflect NASD's pending 
divestiture of its ownership interest in the American Stock Exchange 
LLC (``Amex'') pursuant to a Transaction Agreement between Amex and 
NASD wherein the the Amex Membership Corporation will become the sole 
owner of Amex (the ``Transaction'').\3\ NASD amended the proposal on 
August 10, 2004,\4\ August 25, 2004,\5\ and September 3, 2004.\6\ The 
proposed rule change was published for comment in the Federal Register 
on September 23, 2004.\7\ A correction to the proposed rule change was 
published in the Federal Register on October 5, 2004.\8\ No comments 
were received on the proposal. This order approves the proposal, as 
amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 50057 (July 22, 2004); 69 FR 
45091, July 28, 2004) (SR-AMEX-2004-50) for a detailed description 
of the Transaction.
    \4\ See letter from Barbara Z. Sweeney, Senior Vice President 
and Corporate Secretary, NASD, to Katherine A. England, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated August 10, 2004 (``Amendment No. 1''). Amendment No. 1 
replaced NASD's original filing in its entirety.
    \5\ See letter from Barbara Z. Sweeney, Senior Vice President 
and Corporate Secretary, NASD, to Katherine A. England, Assistant 
Director, Division, Commission, dated August 25, 2004 (``Amendment 
No. 2''). Amendment No. 2 replaced NASD's earlier amended filing in 
its entirety.
    \6\ See letter from Barbara Z. Sweeney, Senior Vice President 
and Corporate Secretary, NASD, to Katherine A. England, Assistant 
Director, Division, Commission, dated September 2, 2004 (``Amendment 
No. 3''). Amendment No. 3 modified Exhibit 1 and made certain 
technical corrections to the proposal. Amendment No. 3 replaced 
NASD's earlier amended filing in its entirety.
    \7\ See Securities Exchange Act Release No. 50403 (September 16, 
2004), 69 FR 57119.
    \8\ See Securities Exchange Act Release No. 50403A (September 
29, 2004), 69 FR 59630.
---------------------------------------------------------------------------

II. Description of the Proposal

    The proposed rule change amends provisions of NASD's By-Laws to 
reflect NASD's pending divestiture of its ownership of Amex as a result 
of the Transaction; make parallel amendments to the definitional and 
conflict-of-interest provisions of the By-Laws of NASD Regulation, Inc. 
(``NASD Regulation'') and NASD Dispute Resolution, Inc. (``Dispute 
Resolution''); terminate certain undertakings NASD assumed when it 
acquired Amex in 1998 (the ``1998 Undertakings''); and make certain 
other clarifying amendments. A brief description of the proposed 
changes is set forth below.

NASD By-Law Article I (Definitions)

    The proposed amendments eliminate references to Amex and/or Nasdaq 
from the definitions of ``Industry Director'' and ``Industry 
Governor,'' ``Non-Industry Director'' and ``Non-Industry Governor,'' 
and ``Public Director'' and ``Public Governor.'' NASD proposes to 
replace references to Amex and/or Nasdaq in each of those definitions 
with the phrase ``a market for which NASD provides regulation.'' Other 
references to Amex's ``Floor Governor,'' ``Amex,'' ``Amex Board'' and 
``Chief Executive Officer of Amex'' also have been eliminated. NASD 
also proposes further clarifying amendments to the definition of ``Non-
Industry Director'' and ``Non-Industry Governor'' to include an officer 
or employee of an issuer of unlisted securities that are traded in the 
over-the-counter market. NASD represents that this particular change 
reflects NASD's historical interpretation of the ``Non-Industry 
Director'' and ``Non-Industry

[[Page 132]]

Governor'' definitions. Parallel changes also have been proposed for 
the definitional provisions of the NASD Regulation and Dispute 
Resolution By-Laws. NASD also proposes to eliminate other definitions 
relating to Amex and Amex-related entities in the NASD Regulation and 
Dispute Resolution By-Laws.

NASD By-Law Article VII (Board of Governors)

    In section 4 of Article VII, NASD proposes to eliminate two seats 
on the NASD Board that have been reserved for the Chief Executive of 
Amex and an Amex Floor Governor. The proposal reduces the total number 
of Governors on the NASD Board from a range of 17-27 to a range of 15-
25. NASD also proposes to eliminate the term provisions in section 5 of 
Article VII that pertains to Amex's Chief Executive Officer, and that 
sets the maximum permissible term of the Amex Floor Governor.

NASD By-Law Article IX (Committees)

    NASD proposes to eliminate the requirements that at least one 
Governor of Amex be included on the NASD Executive Committee and that 
at least two members of the NASD Executive Committee be members of 
neither Amex nor NASD Regulation Boards. Thus, with the changes, the 
NASD Executive Committee would be composed of no fewer than five and no 
more than eight Governors, including the Chief Executive Officer of the 
NASD and at least one Director of NASD Regulation.

NASD Bylaw Article XV (Limitation of Powers)

    Section 4 of Article XV of the NASD Bylaws governs participation of 
NASD in transactions in which Amex Governors have an interest. Section 
4(b) of Article XV provides that a contract or transaction in which an 
Amex Governor has an interest may be permitted if certain disclosures 
are made and the contract or transaction is approved by an affirmative 
vote of a majority of a quorum of disinterested Governors. Currently, 
an Amex-affiliated Governor could be counted as a disinterested 
Governor for purposes of determining the presence of a quorum. NASD 
proposes to eliminate Amex from the quorum provision and as a result, 
NASD represents that an Amex-affiliated Governor will no longer be 
counted as disinterested for purposes of determining the presence of a 
quorum at the portion of the meeting of the NASD Board that authorizes 
a contract or transaction with Amex. Parallel changes are proposed for 
the conflict-of-interest provisions of the NASD Regulation and Dispute 
Resolution By-Laws.

1998 Undertakings

    Amex proposes to withdraw the principles that it adopted in 1998 
that would guide the NASD in fulfilling its responsibilities as parent 
company of Amex with ultimate responsibility for Amex's compliance with 
its statutory responsibilities as a self-regulatory organization. In 
the 1998 Undertakings, among other things, NASD represented that it 
would exercise its powers and its managerial influence to ensure that 
Amex fulfilled its self-regulatory obligations by directing Amex to 
take action necessary to effectuate its purposes and functions as a 
national securities exchange operating pursuant to the Act, and 
ensuring that Amex had, and appropriately allocated, such financial, 
technological, technical, and personnel resources as may be necessary 
or appropriate to meet its obligations under the Act. NASD also 
committed to refraining from taking any action with respect to Amex 
that would impede efforts by Amex to carry out its self-regulatory 
obligations.\9\
---------------------------------------------------------------------------

    \9\ See Exchange Act Release No. 40443 (September 16, 1998), 63 
FR 51108 (September 24, 1998) (File No. SR-NASD-98-67--Policies 
Regarding Authority Over American Stock Exchange LLC and Composition 
of Board of Governors of American Stock Exchange LLC); See also 
Exchange Act Release No. 40622 (October 30, 1998), 63 FR 59819 
(November 5, 1998) (order approving proposed rule change and 
implementing NASD's undertakings regarding Amex).
---------------------------------------------------------------------------

III. Commission Findings

    The Commission finds the proposed rule change, as amended, is 
consistent with section 15A of the Act \10\ and the rules and 
regulations thereunder applicable to a national securities association. 
In particular, the Commission find the proposed rule change is 
consistent with section 15A(b)(6) of the Act,\11\ which requires that 
NASD's rules be designed to prevent fraudulent and manipulative acts 
and practices, to promote just and equitable principles of trade, and 
to protect investors and the public interest.\12\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ In approving this rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The Commission finds that it is appropriate for NASD to delete any 
mandatory representation of Amex on the NASD Board or NASD Executive 
Committee. Following the elimination of Amex representatives on the 
NASD's Board, the Board will continue to be a majority independent 
because the NASD By-Laws require that the number of Non-Industry 
Governors shall exceed the number of Industry Governors.\13\ Given the 
NASD's pending divestiture of its ownership interest and control over 
the Amex, the Commission finds that it is appropriate for the NASD to 
withdraw the 1998 Undertakings. Upon the closing of the Transaction, 
NASD will no longer maintain any ownership in or control over Amex. 
Therefore the 1998 Undertakings, which imposed upon NASD certain 
obligations as the owner of Amex, will no longer be applicable.
---------------------------------------------------------------------------

    \13\ The Commission also notes that the NASD's By-Laws continue 
to require that a certain number of Public Governors be on the NASD 
Board, depending on the exact number of NASD Governors in total.
---------------------------------------------------------------------------

    The Commission finds that the changes proposed by NASD that delete 
references to Amex and replace those references with broader provisions 
are appropriate. For example, NASD proposes to amend the definitions of 
``Industry Director'' and ``Industry Governor,'' ``Non-Industry 
Director'' and ``Non-Industry Governor,'' and ``Public Director'' and 
``Public Governor'' by deleting references to Amex and/or Nasdaq with 
``a market regulated by the NASD.'' The Commission believes that this 
change is appropriate because it takes into account NASD's current--and 
anticipated--contractual relationship with other market centers, and 
more importantly, clarifies how an individual's affiliation with such a 
market center might affect his/her qualification for that particular 
classification. The same rationale makes corresponding changes to the 
same definitions in the NASD Regulation and Dispute Resolution By-Laws 
appropriate.
    The Commission also finds that the clarifying amendments that NASD 
proposes are appropriate. For example, NASD's definition of Non-
Industry Director and Non-Industry Governor previously included an 
officer or director of ``securities traded in the over-the-counter 
market.'' As noted above, NASD is clarifying this prong of that 
definition to include an officer or employee of an issuer of unlisted 
securities. The NASD proposes this change to align the rule text with 
NASD's current practice of how it applies this prong of the definition 
of Non-Industry Director and Non-Industry Governor. NASD stated that 
this is not a substantive change.\14\ In addition, the

[[Page 133]]

Commission believes that deletion of Amex from the quorum requirements 
of NASD, NASD Regulation and Dispute Resolution's By-Laws governing 
participation in transactions in which Amex Governors have a conflict 
of interest is appropriate because it clarifies that an Amex-affiliated 
Governor cannot be counted as disinterested for quorum purposes in a 
meeting of the NASD Board that authorizes a contract or transaction 
with Amex. Finally, the Commission finds that it is appropriate to 
eliminate the requirement that at least two members of the Executive 
Committee be members of neither the Amex nor NASD Regulation Boards 
because the original concern that prompted this requirement--that 
market interests might dominate the NASD Board--no longer poses any 
regulatory or governance concern.
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    \14\ Specifically, an officer or employee of a listed issuer 
could still qualify as an Industry Director or Industry Governor or 
Public Director or Public Governor if the officer or employee met 
the requirements for those categories, and could still qualify as a 
Non-Industry Director or Non-Industry Governor under the prong of 
that definition that states that a Non-Industry Director or Non-
Industry Governor is ``any other individual who would not be an 
Industry Director.'' Thus, before and after this change, an officer 
or employee of a listed issuer could qualify in any of these three 
categories.
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change, NASD 2004-110, as amended, be, 
and hereby is approved. The proposed rule change shall be effective 
upon the closing of the Transaction.
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    \15\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3907 Filed 12-30-04; 8:45 am]
BILLING CODE 8010-01-P

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