Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Regarding Restrictions on Affiliation Between Nasdaq and Its Members, 25265-25271 [E6-6376]
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Federal Register / Vol. 71, No. 82 / Friday, April 28, 2006 / Notices
jlentini on PROD1PC65 with NOTICES
As is the case currently with respect
to the board of directors of ISE, Inc.
(‘‘ISE, Inc. Board’’), the LLC Board will
be composed of 15 members,70 eight of
whom will be Non-Industry Directors,71
six of whom will be Exchange Directors,
and the CEO of ISE, LLC.72 Each year,
the Nominating Committee 73 will
nominate the Exchange Directors and
the Corporate Governance Committee
will nominate the Non-Industry
Directors.74 At the first annual meeting
of the sole LLC member (ISE Holdings)
and holders of Exchange Rights, and at
each subsequent annual meeting, ISE
Holdings will elect the eight NonIndustry Directors (rather than the
holders of the Class A Common Stock,
as is currently the case), and holders of
Exchange Rights will elect the six
Exchange Directors, to serve until the
next annual meeting or until their
successors are elected and qualified.75
The Chairman of the LLC Board will be
a Non-Industry Director who is elected
by the LLC Board.
As is currently the case, each director
of ISE, LLC will hold office for a twoyear term, except the CEO of ISE, LLC
will hold office for a one-year term or
such earlier time as such person no
longer serves as the CEO. The directors,
other than the CEO, will be divided into
two classes.76 If there is a vacancy on
70 ISE, Inc. proposes that the number of members
of the LLC Board may only be changed by the LLC
Board with the approval of the affirmative vote of
the holders of two-thirds of the then outstanding
Exchange Rights. LLC Constitution, section 3.2.
71 See LLC Constitution, section 3.2(b), for the
definition of ‘‘Non-Industry Director’’ and section
13.1(w), for the definition of ‘‘non-industry
representative.’’ These definitions are the same as
the current definitions. See ISE, Inc. Amended
Constitution, sections 3.2(b) and 14.1(q),
respectively. Further, as is currently the case, at
least 2 Non-Industry Directors will be required to
be public representatives. See LLC Constitution,
Section 3.2(b)(iv).
72 LLC Agreement, section 5.2, and LLC
Constitution, section 3.2(b). ISE, Inc. represents that
the initial members of the LLC Board were the
individuals serving as directors of ISE, Inc. on the
date of formation of ISE, LLC.
73 The proposed Nominating Committee will be
composed of one representative of PMM Rights, one
representative of CMM Rights, and one
representative of EAM Rights. See LLC
Constitution, section 5.3(a). This composition is
essentially the same as the current Nominating
Committee of ISE, Inc. See ISE, Inc. Amended
Constitution, section 5.3(a).
74 The proposed Corporate Governance
Committee will be composed of three, and no more
than eight, Non-Industry Directors. See LLC
Constitution, section 5.4. This is the same as the
current Corporate Governance Committee. See ISE,
Inc. Amended Constitution, section 5.4.
75 LLC Constitution, section 3.2(c).
76 At each annual meeting, the successors of the
class of directors whose term expires at that
meeting will be elected to hold office for a term
expiring at the annual meeting held in the second
year following the year of their election and until
their successors are elected and qualified.
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the LLC Board, the vacancy will be
filled by the LLC Board, and the person
chosen to fill the vacancy will serve
until the expiration of the term of office
of the class to which such person was
elected. No Exchange Director may
serve more than three consecutive
terms, and, after a two-year hiatus, may
again be eligible to serve as an Exchange
Director.77
Holders of Exchange Rights also may
continue to nominate Exchange
Directors by petition. ISE, Inc.
represents that the petition process
following the Reorganization will be
substantially similar to the petition
process currently in place for ISE, Inc.
However, for purposes of determining
whether a person has been nominated
for election by petition by the requisite
percentage set forth in the LLC
Constitution, no Member, alone or
together with its affiliates, may account
for more than 50 percent of the
signatures of the holders of outstanding
Exchange Rights of the series entitled to
elect such person.78
The proposed governance structure of
ISE, LLC following the Reorganization
will be substantially the same as the
governance structure currently in place
for ISE, Inc. The Commission therefore
finds that proposed governance
structure, including the composition of
the LLC Board and the selection of
directors, continue to satisfy the
requirements of the Act, including
sections 6(b)(1) and 6(b)(3) of the Act.79
III. Conclusion
For the foregoing reasons, the
Commission finds that the proposed
rule change, as amended, is consistent
77 LLC Constitution, section 3.2(e). ISE, Inc. did
not impose term limits on Non-Industry Directors,
and ISE, LLC does not propose to do so, though the
ISE, LLC Corporate Governance Committee may
determine whether and how to provide for such
term limits at a later time.
78 LLC Constitution, section 3.10. Petitions
submitted for nominees for Exchange Directors of
ISE, LLC also will not be required to contain all the
information that is required to be disclosed
pursuant to Regulation 14A under the Act, because
ISE, LLC will not be subject to the proxy
requirements under the Act.
79 15 U.S.C. 78f(b)(1) and 78f(b)(3). The
Commission notes that it is in the process of
reviewing a range of governance issues relating to
SROs, including possible steps to strengthen the
framework for, and ways to improve the
transparency of, the governance procedures of all
SROs and has proposed rules in furtherance of this
goal. Depending upon the results of the proposed
rules, ISE, LLC may be required to make changes
to further strengthen its governance structure. The
Commission also believes that the LLC Board
should continue to monitor and evaluate ISE, LLC’s
governance structure and processes on an ongoing
basis, and propose further changes as appropriate.
See Securities Exchange Act Release No. 50699
(November 18, 2004), 69 FR 71126 (December 8,
2004).
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25265
with the Act and rules and regulations
thereunder applicable to the national
securities exchange.
It is therefore ordered, pursuant to
section 19(b)(2) of the Act 80 that the
proposed rule change (SR–ISE–2006–
04), as amended, is approved, and
Amendment No. 3 is approved on an
accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.81
Nancy M. Morris,
Secretary.
[FR Doc. E6–6411 Filed 4–27–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53697; File No. SR–
NASDAQ–2006–006]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change and
Amendment No. 1 Thereto Regarding
Restrictions on Affiliation Between
Nasdaq and Its Members
April 21, 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 5,
2006, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’), filed with the Securities
and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by Nasdaq. On April 12, 2006,
Nasdaq filed Amendment No. 1 to the
proposed rule change.3 The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to establish a rule to
govern affiliations between Nasdaq and
its members and to make conforming
changes to its disciplinary proceedings.
Nasdaq will implement the proposed
rule change immediately upon approval
by the Commission.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.
80 15
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 In Amendment No. 1, Nasdaq proposed
additional revisions to Nasdaq Rule 9270 regarding
settlement procedures.
81 17
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2140. Restrictions on Affiliation
(a) Except as provided in paragraph
(b):
(1) Nasdaq or any entity with which
it is affiliated shall not, directly or
indirectly, acquire or maintain an
ownership interest in, or engage in a
business venture with, a Nasdaq
member or an affiliate of a Nasdaq
member in the absence of an effective
filing under Section 19(b) of the Act;
and
(2) A Nasdaq member shall not be or
become an affiliate of Nasdaq, or an
affiliate of an entity affiliated with
Nasdaq, in the absence of an effective
filing under Section 19(b) of the Act.
The term ‘‘affiliate’’ shall have the
meaning specified in Rule 12b–2 under
the Act; provided, however, that for
purposes of this Rule, one entity shall
not be deemed to be an affiliate of
another entity solely by reason of having
a common director. The term ‘‘business
venture’’ means an arrangement under
which (A) Nasdaq or an entity with
which it is affiliated, and (B) a Nasdaq
member or an affiliate of a Nasdaq
member, engage in joint activities with
an expectation of shared profit and a
risk of shared loss from common
entrepreneurial efforts.
(b) Nothing in this rule shall prohibit,
or require a filing under Section 19(b) of
the Act, for:
(1) A Nasdaq member or an affiliate
of a Nasdaq member acquiring or
holding an equity interest in The
Nasdaq Stock Market, Inc. that is
permitted by the ownership limitations
contained in Nasdaq Rule 2130, or
(2) Nasdaq or an entity affiliated with
Nasdaq acquiring or maintaining an
ownership interest in, or engaging in a
business venture with, an affiliate of a
Nasdaq member if:
(A) there are information barriers
between the member and Nasdaq and
its facilities, such that the member
(i) Will not be provided an
informational advantage concerning the
operation of Nasdaq and its facilities,
and will not be provided changes or
improvements to the trading system that
are not available to the industry
generally or other Nasdaq members;
(ii) Will not have any knowledge in
advance of other Nasdaq members of
proposed changes, modifications, or
improvements to the operations or
trading systems of Nasdaq and its
facilities, including advance knowledge
of Nasdaq filings pursuant to Section
19(b) of the Act;
(iii) Will be notified of any proposed
changes, modifications, or
improvements to the operations or
trading systems of Nasdaq and its
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facilities in the same manner as other
Nasdaq members are notified; and
(iv) Will not share employees, office
space, or databases with Nasdaq or its
facilities, The Nasdaq Stock Market,
Inc., or any entity that is controlled by
The Nasdaq Stock Market, Inc.; and
(B) Nasdaq’s Regulatory Oversight
Committee certifies, on an annual basis,
to the Director of the Division of Market
Regulation that Nasdaq has taken all
reasonable steps to implement the
requirements of this rule and is in
compliance therewith.
*
*
*
*
*
9268. Decision of Hearing Panel or
Extended Hearing Panel
(a)–(d) No change.
(e) Appeal or Review.
(1) If not timely appealed pursuant to
Rule 9311 or timely called for review
pursuant to Rule 9312, the majority
decision shall constitute final
disciplinary action of Nasdaq for
purposes of SEC Rule 19d–1(c)(1).
(2) The majority decision with respect
to a Nasdaq member that is an affiliate
of Nasdaq within the meaning of Rule
2140 shall constitute final disciplinary
action of Nasdaq for purposes of SEC
Rule 19d–1(c)(1) and may not be
appealed pursuant to Rule 9311 or
called for review pursuant to Rule 9312.
9269. Default Decisions
(a)–(c) No change.
(d) Final Disciplinary Action of
Nasdaq; Effectiveness of Sanctions.
(1) If a default decision is not
appealed pursuant to Rule 9311 or
called for review pursuant to Rule 9312
within 25 days after the date the Office
of Hearing Officers serves it on the
Parties, the default decision shall
become the final disciplinary action of
Nasdaq for purposes of SEC Rule 19d–
1(c)(1). Unless otherwise provided in
the default decision, the sanctions shall
become effective on a date to be
determined by Nasdaq Regulation staff,
except that a bar or expulsion shall
become effective immediately upon the
default decision becoming the final
disciplinary action of Nasdaq. The
decision shall be served on a
Respondent by courier, facsimile or
other means reasonably likely to obtain
prompt service when the sanction is a
bar or an expulsion.
(2) A default decision with respect to
a Nasdaq member that is an affiliate of
Nasdaq within the meaning of Rule
2140 shall constitute final disciplinary
action of Nasdaq for purposes of SEC
Rule 19d–1(c)(1) and may not be
appealed pursuant to Rule 9311 or
called for review pursuant to Rule 9312.
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9270. Settlement Procedure
(a)–(d) No change.
(e) If a Respondent makes an offer of
settlement and the Department of
Enforcement or the Department of
Market Regulation does not oppose it,
the offer of settlement is uncontested. If
an offer of settlement is determined to
be uncontested by the Department of
Enforcement or the Department of
Market Regulation before a hearing on
the merits has begun, the Department of
Enforcement or the Department of
Market Regulation shall transmit the
uncontested offer of settlement and a
proposed order of acceptance to the
Nasdaq Review Council (or to the Office
of Disciplinary Affairs, in the case of a
Respondent that is an affiliate of
Nasdaq within the meaning of Rule
2140) with its recommendation. If an
offer of settlement is determined to be
uncontested by the Department of
Enforcement or the Department of
Market Regulation after a hearing on the
merits has begun, the Department of
Enforcement or the Department of
Market Regulation shall transmit the
offer of settlement and a proposed order
of acceptance to the Hearing Panel or, if
applicable, the Extended Hearing Panel
for acceptance or rejection. If accepted
by the Hearing Panel or, if applicable,
Extended Hearing Panel, the offer of
settlement and the order of acceptance
shall be forwarded to the Nasdaq
Review Council (or to the Office of
Disciplinary Affairs, in the case of a
Respondent that is an affiliate of
Nasdaq within the meaning of Rule
2140) to accept or reject.
(1) No change.
(2) Before an offer of settlement and
an order of acceptance shall become
effective, they shall be submitted to and
accepted by the Nasdaq Review Council
or the Office of Disciplinary Affairs. The
Review Subcommittee [or the Office of
Disciplinary Affairs] may accept or
reject such offer of settlement and order
of acceptance or refer them to the
Nasdaq Review Council for acceptance
or rejection by the Nasdaq Review
Council. [The Review Subcommittee
may reject such offer of settlement and
order of acceptance or refer them to the
Nasdaq Review Council for acceptance
or rejection by the Nasdaq Review
Council.] In the case of a Respondent
that is an affiliate of Nasdaq within the
meaning of Rule 2140, the offer of
settlement and order of acceptance shall
be accepted or rejected by the Office of
Disciplinary Affairs and shall not be
referred to the Nasdaq Review Council.
(3) No change.
(f) Contested Offers of Settlement.
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If a Respondent makes an offer of
settlement and the Department of
Enforcement or the Department of
Market Regulation opposes it, the offer
of settlement is contested. When the
Department of Enforcement or the
Department of Market Regulation
opposes an offer of settlement, the
Respondent’s written offer and the
Department of Enforcement’s or the
Department of Market Regulation’s
written opposition shall be submitted to
a Hearing Panel or, if applicable, an
Extended Hearing Panel. The Hearing
Panel or, if applicable, the Extended
Hearing Panel, may order the
Department of Enforcement or the
Department of Market Regulation and
the Respondent to attend a settlement
conference.
(1) If a contested offer of settlement is
approved by the Hearing Panel or, if
applicable, Extended Hearing Panel, the
Hearing Officer shall draft an order of
acceptance of the offer of settlement.
The order of acceptance shall make
findings of fact, including a statement of
the rule, regulation, or statutory
provision violated, and impose
sanctions consistent with the terms of
the offer of settlement. The offer of
settlement, any written opposition
thereto, and the order of acceptance
shall be forwarded to the Nasdaq
Review Council (or to the Office of
Disciplinary Affairs, in the case of a
Respondent that is an affiliate of
Nasdaq within the meaning of Rule
2140) to accept or reject.
(2) Before an offer of settlement and
order of acceptance shall become
effective, they shall be submitted to, and
accepted by, the Nasdaq Review Council
or the Office of Disciplinary Affairs. The
Review Subcommittee may accept or
reject such offer of settlement and order
of acceptance or refer them to the
Nasdaq Review Council for acceptance
or rejection by the Nasdaq Review
Council. In the case of a Respondent
that is an affiliate of Nasdaq within the
meaning of Rule 2140, the offer of
settlement and order of acceptance shall
be accepted or rejected by the Office of
Disciplinary Affairs and shall not be
referred to the Nasdaq Review Council.
(3) If the offer of settlement and order
of acceptance are accepted by the Office
of Disciplinary Affairs, the Nasdaq
Review Council or the Review
Subcommittee, the Chief Regulatory
Officer shall issue the order and notify
the Office of Hearing Officers.
(g) No change.
(h) Rejection of Offer of Settlement.
If an uncontested offer of settlement
or an order of acceptance is rejected by
the Hearing Panel or, if applicable, the
Extended Hearing Panel, the Review
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Subcommittee, the Office of
Disciplinary Affairs, or the Nasdaq
Review Council, the Respondent shall
be notified in writing and the offer of
settlement and proposed order of
acceptance shall be deemed withdrawn.
If a contested offer of settlement or an
order of acceptance is rejected by the
Hearing Panel or, if applicable, the
Extended Hearing Panel, the Review
Subcommittee, the Office of
Disciplinary Affairs, or the Nasdaq
Review Council, the Respondent shall
be notified in writing and the offer of
settlement and proposed order of
acceptance shall be deemed withdrawn.
The rejected offer and proposed order of
acceptance shall not constitute a part of
the record in any proceeding against the
Respondent making the offer.
(i) No change.
(j) No Prejudice from Rejected Offer of
Settlement.
If an offer of settlement is rejected by
a Hearing Panel or, if applicable, an
Extended Hearing Panel, the Review
Subcommittee, the Office of
Disciplinary Affairs, or the Nasdaq
Review Council, the Respondent shall
not be prejudiced by the offer, which
may not be introduced into evidence in
connection with the determination of
the issues involved in the pending
complaint or in any other proceeding.
*
*
*
*
*
9311. Appeal by Any Party; CrossAppeal
(a) Time to File Notice of Appeal.
A Respondent or the Department of
Enforcement or the Department of
Market Regulation may file a written
notice of appeal within 25 days after
service of a decision issued pursuant to
Rule 9268 or Rule 9269; provided,
however, that a decision with respect to
a Respondent that is an affiliate of
Nasdaq within the meaning of Rule
2140 may not be appealed to the
Nasdaq Review Council.
(b)–(f) No change.
9312. Review Proceeding Initiated by
Nasdaq Review Council
(a) Call for Review.
(1) Rule 9268 Decision.
A decision issued pursuant to Rule
9268 may be subject to a call for review
by any member of the Nasdaq Review
Council or, pursuant to authority
delegated from the Nasdaq Review
Council, by any member of the Review
Subcommittee. A decision issued
pursuant to Rule 9268 shall be subject
to a call for review within 45 days after
the date of service of the decision. If
called for review, such decision shall be
reviewed by the Nasdaq Review
Council.
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(2) Rule 9269 Decision.
A default decision issued pursuant to
Rule 9269 shall be subject to a call for
review by the Chief Regulatory Officer,
on his or her own motion within 25
days after the date of service of the
decision. If called for review, such
decision shall be reviewed by the
Nasdaq Review Council.
(3) Decision Regarding Affiliate of
Nasdaq.
Notwithstanding anything herein to
the contrary, a decision with respect to
a member that is an affiliate of Nasdaq
within the meaning of Rule 2140 may
not be called for review by the Nasdaq
Review Council.
(b)–(d) No change.
*
*
*
*
*
9351. Discretionary Review by Nasdaq
Board
(a) Call for Review by Director.
A Director may call a disciplinary
proceeding for review by the Nasdaq
Board if the call for review is made
within the period prescribed in
paragraph (b); provided, however, that a
decision with respect to a member that
is an affiliate of Nasdaq within the
meaning of Rule 2140 may not be called
for review.
(b)–(e) No change.
9360. Effectiveness of Sanctions
Unless otherwise provided in the
decision issued under Rule 9349 or Rule
9351, a sanction (other than a bar, an
expulsion, or a permanent cease and
desist order) specified in a decision
constituting final disciplinary action of
Nasdaq for purposes of SEC Rule 19d–
1(c)(1) shall become effective on a date
to be determined by Nasdaq staff (or the
Hearing Panel, Extended Hearing Panel,
or Office of Disciplinary Affairs in the
case of a decision with respect to an
affiliate of Nasdaq within the meaning
of Rule 2140). A bar, an expulsion, or a
permanent cease and desist order shall
become effective upon service of the
decision constituting final disciplinary
action of Nasdaq, unless otherwise
specified therein. Nasdaq shall serve the
decision on a Respondent by courier,
facsimile or other means reasonably
likely to obtain prompt service when the
sanction is a bar, an expulsion, or a
permanent cease and desist order.
*
*
*
*
*
9523. Acceptance of Member Regulation
Recommendations and Supervisory
Plans by Consent Pursuant to SEC Rule
19h–1
(a)–(b) No change.
(c) If the disqualified member,
sponsoring member, and/or disqualified
person execute the letter consenting to
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the supervisory plan, it shall be
submitted to Nasdaq Regulation by the
Department of Member Regulation with
a proposed Notice under SEC Rule 19h–
1, where required. Nasdaq Regulation
shall forward the supervisory plan and
proposed Notice under SEC Rule 19h–
1, if any, to the Chairman of the
Statutory Disqualification Committee,
acting on behalf of the Nasdaq Review
Council (or to the Office of Disciplinary
Affairs in the case of a supervisory plan
with respect an affiliate of Nasdaq
within the meaning of Rule 2140). The
Chairman of the Statutory
Disqualification Committee may accept
or reject the recommendation of the
Department of Member Regulation and
the supervisory plan or refer them to the
Nasdaq Review Council for acceptance
or rejection by the Nasdaq Review
Council, and the Office of Disciplinary
Affairs may accept or reject the
recommendation of the Department of
Member Regulation and the supervisory
plan.
(d) If the recommendation and
supervisory plan is accepted by the
Nasdaq Review Council, [or] the
Chairman of the Statutory
Disqualification Committee, or the
Office of Disciplinary Affairs, it shall be
deemed final and, where required, the
proposed Notice under SEC Rule 19h–
1 will be filed by Nasdaq. If the
recommendation and supervisory plan
are rejected by the Chairman of the
Statutory Disqualification Committee,
[or] the Nasdaq Review Council, or the
Office of Disciplinary Affairs, Nasdaq
Regulation may take any other
appropriate action with respect to the
disqualified member, sponsoring
member, and/or disqualified person. If
the recommendation and supervisory
plan are rejected, the disqualified
member, sponsoring member, and/or
disqualified person shall not be
prejudiced by the execution of the letter
consenting to the supervisory plan
under subparagraph (a) and the letter
may not be introduced into evidence in
any proceeding.
9524. Nasdaq Review Council
Consideration
(a) Hearing Panel Consideration.
(1) Appointment of Hearing Panel.
When the disqualified member,
sponsoring firm, or applicant requests a
hearing, the Nasdaq Review Council or
the Review Subcommittee shall appoint
a Hearing Panel composed of two or
more members, who shall be current or
former members of the Nasdaq Review
Council or the Statutory Disqualification
Committee or former Directors
(provided, however, that current
members of the Nasdaq Review Council
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shall not serve on a Hearing Panel with
respect to an affiliate of Nasdaq within
the meaning of Rule 2140). The Hearing
Panel shall conduct a hearing and
recommend a decision on the request
for relief.
(2)–(9) No change.
(10) Recommendation.
On the basis of the record, the Hearing
Panel shall present a recommended
decision in writing on the request for
relief to the Statutory Disqualification
Committee. After considering the record
and recommendation of the Hearing
Panel, the Statutory Disqualification
Committee shall present its
recommended decision in writing to the
Nasdaq Review Council.
Notwithstanding the foregoing, with
respect to a Nasdaq member that is an
affiliate of Nasdaq within the meaning
of Rule 2140, the Hearing Panel shall
prepare a final decision meeting the
requirements of Rule 9524(b)(2), which
shall not be reviewed by the Statutory
Disqualification Committee or the
Nasdaq Review Council, and may not be
called for review by the Nasdaq Board
pursuant to Rule 9525.
(b) Decision.
(1)–(2) No change.
(3) Issuance of Decision After
Expiration of Call for Review Period.
The Nasdaq Review Council shall
provide its proposed written decision to
the Nasdaq Board. The Nasdaq Board
may call the eligibility proceeding for
review pursuant to Rule 9525. If the
Nasdaq Board does not call the
eligibility proceeding for review, the
proposed written decision of the Nasdaq
Review Council shall become final, and
the Nasdaq Review Council shall serve
its written decision on the disqualified
member, sponsoring member, and/or
disqualified person, as the case may be,
and the Department of Member
Regulation pursuant to Rules 9132 and
9134. In the case of a decision with
respect to a Nasdaq member that is an
affiliate of Nasdaq within the meaning
of Rule 2140, the decision of the Hearing
Panel shall become final without being
provided to the Nasdaq Board, and the
Hearing Panel shall serve its written
decision.
The decision shall constitute final
action of Nasdaq, unless the Nasdaq
Review Council remands the eligibility
proceeding. A decision to deny re-entry
or continued association shall be
effective immediately. A decision to
approve shall be effective after the
Commission issues an acknowledgment
letter or, in cases involving Commission
ordered sanctions, an order.
*
*
*
*
*
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9559. Hearing Procedures for Expedited
Proceedings Under the Rule 9550 Series
(a)–(p) No change.
(q) Call for Review by the Nasdaq
Review Council.
(1) The Nasdaq Review Council’s
Review Subcommittee may call for
review a decision issued under the Rule
9550 Series within 21 days after receipt
of the decision from the Office of
Hearing Officers; provided, however,
that a decision under the Rule 9550
Series with respect to a Nasdaq member
that is an affiliate of Nasdaq within the
meaning of Rule 2140 shall constitute
final disciplinary action of Nasdaq for
purposes of SEC Rule 19d–1(c)(1) and
may not be called for review pursuant
to Rule 9559. Rule 9313(a) is
incorporated by reference.
*
*
*
*
*
II. 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 had 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
In connection with its registration as
a national securities exchange,4 Nasdaq
has agreed to propose a rule to regulate
affiliation between Nasdaq and its
members, and to limit in certain
respects Nasdaq’s regulatory authority
with respect to members with which it
may become affiliated. The purpose of
the rule is to guard against any
possibility that Nasdaq may exercise, or
forebear to exercise, regulatory authority
with respect to an affiliated member in
a manner that is influenced by
commercial considerations, to provide
an opportunity for Commission review
of certain proposed affiliations, and to
ensure that certain affiliated members
do not receive advantaged access to
information in comparison with
unaffiliated members. Nasdaq believes
4 Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006)
(File No. 10–131).
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that the proposed rule will provide
added assurance of regulatory integrity
without subjecting Nasdaq and its
affiliates to unwarranted restrictions on
their commercial activities.
In general, the proposed rule provides
that Nasdaq must file a proposed rule
change with the SEC before Nasdaq or
an entity with which it is affiliated
acquires or maintains an ownership
interest in, or engages in a business
venture with, a Nasdaq member or an
affiliate of a Nasdaq member.5 The rule
defines ‘‘affiliate’’ with reference to Rule
12b–2 under the Act,6 which provides
that if one person controls, is controlled
by, or is under common control another
person, the persons are affiliates. The
proposed rule would help to implement
what Nasdaq perceives to be emerging
Commission policy with regard to
appropriate activities for member
broker-dealers that are affiliated with
self-regulatory organizations (‘‘SROs’’).
For example, although the
Commission’s order to establish the
Archipelago Exchange (‘‘ArcaEx’’) as a
facility of the Pacific Exchange (‘‘PCX’’)
allowed ArcaEx to affiliate itself with
various broker-dealers for the purpose of
introducing orders to ArcaEx and
routing them to other trading venues,7
the Commission’s order with respect to
the acquisition of PCX by Archipelago
Holdings (‘‘Arca Holdings’’) mandated
that Arca Holdings divest its ownership
of PCX members engaged in activities
other than outbound routing.8
Nasdaq’s proposed rule would make it
clear that in a case where Nasdaq
proposes an acquisition of, or a merger
or business venture with a Nasdaq
member, an SEC filing will be required.
In order to make it clear that the
obligation to avoid affiliations that have
not been filed is imposed by the rule
both on Nasdaq and its members,
moreover, the rule provides that a
Nasdaq member shall not be or become
an affiliate of Nasdaq, or an affiliate of
any entity affiliated with Nasdaq,
without an SEC filing.
The term ‘‘business venture,’’ as used
in the rule, is defined as an arrangement
under which Nasdaq or an entity with
which it is affiliated, on the one hand,
and a Nasdaq member or affiliate
thereof, on the other hand, engage in
joint activities with an expectation of
5 As used in the rule, the term ‘‘affiliate’’ includes
natural persons, but the term ‘‘entity,’’ when used
to describe an affiliate, excludes natural persons.
6 17 CFR 240.12b–2.
7 Securities Exchange Act Release No. 44983
(October 25, 2001), 66 FR 55225 (November 1, 2001)
(SR–PCX–00–25).
8 Securities Exchange Act Release No. 52497
(September 22, 2005), 70 FR 56949 (September 29,
2005) (SR–PCX–2005–90).
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Jkt 208001
shared profit and a risk of shared loss
from common entrepreneurial efforts.
Thus, the term does not include, and the
proposed rule does not regulate,
contracts with members or their
affiliates to provide goods, products, or
services for consideration, including,
but not limited to, asset or stock
purchase agreements that do not result
in ongoing ties with a member or its
affiliates,9 credit or debt facilities,
licenses of intellectual property,
contracts for investment banking,
financial advisory, or consulting
services,10 or the provision of
transaction services or data to a brokerdealer member or products or services
to a listed company that is or that owns
a member broker-dealer.
The rule limits possible expansive
interpretations of the term ‘‘affiliate’’ by
stipulating that one entity is not deemed
to be an affiliate of another entity solely
by virtue of having a common director.
For example, if one of the member
representative directors of Nasdaq
elected by the Nasdaq membership is
also a director of a Nasdaq member, that
member would not be deemed to be an
affiliate of Nasdaq solely because of the
common director. In addition, the rule
should not be construed to regulate in
any manner the selection of directors or
standing committee members of Nasdaq,
The Nasdaq Stock Market, Inc. (‘‘Nasdaq
Holdco’’), or their affiliates, provided
such selections are conducted in
accordance with applicable provisions
of governing corporate documents (e.g.,
Nasdaq’s limited liability company
agreement and by-laws or Nasdaq
Holdco’s certificate of incorporation and
bylaws).
In circumstances where an SEC filing
is required, the rule may, in appropriate
cases, permit a filing to be submitted on
an immediately effective basis under
Section 19(b)(3)(A) of the Act 11 and
Rule 19b–4(f) thereunder.12 For
9 For example, if Nasdaq acquired a non-member
subsidiary of a member in a transaction that did not
result in an ongoing affiliation with the member,
the transaction would not be regulated by the rule.
10 In some cases, such contracts may involve
sharing of confidential information with a member
in circumstances where a member acts as a
fiduciary for Nasdaq or one of its affiliates. The
member would be required take measures to
prevent such information from being misused, and
a failure to do so would constitute a violation of
Nasdaq rules, including, depending on the
circumstances, Rule 2110 (Standards of Commercial
Honor and Principles of Trade); Rule 2120 (Use of
Manipulative, Deceptive, or Other Fraudulent
Devices); and Rule 3010 (Supervision). See also
NASD Notice to Members 91–45: NASD/NYSE Joint
Memo on Chinese Wall Policies and Procedures
(June 21, 1991) (describing NASD policies with
regard to preventing misuse of confidential
information by NASD member firms).
11 15 U.S.C. 78s(b)(3)(A).
12 17 CFR 240.19b–4(f).
PO 00000
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25269
example, in cases where a proposed
affiliation or business venture would
not result in the establishment of a
‘‘facility’’ of Nasdaq within the meaning
of Section 3 of the Act,13 a filing to
establish rules to govern the operation
of the affiliate or business venture
would not be required or appropriate.
Rather, in such circumstances, Nasdaq
would expect to engage in informal
consultation with the Division of Market
Regulation and/or members of the
Commission, and would then submit a
filing to amend Rule 2140 itself, to
establish that the affiliation or business
venture could exist as an exception to
the rule. Depending on the
circumstances, such a filing might be
submitted on an immediately effective
basis.
There are also several important
exceptions to the general filing
requirement of the rule. First, the rule
would not require a filing for
transactions that result in a Nasdaq
member acquiring or holding an interest
in Nasdaq Holdco that is consistent with
Nasdaq Rule 2130. Rule 2130 provides
that ‘‘[n]o member or person associated
with a member shall be the beneficial
owner of greater than twenty percent
(20%) of the then-outstanding voting
securities of The Nasdaq Stock Market,
Inc.’’ ‘‘Beneficial ownership’’ is defined
with reference to Nasdaq Holdco’s
certificate of incorporation, which in
turn provides that a person shall be
deemed the ‘‘beneficial owner’’ of, shall
be deemed to have ‘‘beneficial
ownership’’ of and shall be deemed to
‘‘beneficially own’’ any securities: (i)
Which such person or any of such
person’s affiliates is deemed to
beneficially own, directly or indirectly,
within the meaning of Rule 13d–3 under
the Act * * *; 14 (ii) subject to certain
narrow exceptions described in the
certificate of incorporation, which such
person or any of such person’s affiliates
has the right to acquire or to vote
pursuant to any agreement,
arrangement, or understanding; or (iii)
subject to certain narrow exceptions
described in the certificate of
incorporation, which are beneficially
owned, directly or indirectly, by any
other person and with respect to which
such person or any of such person’s
affiliates has any agreement,
arrangement or understanding for the
purpose of acquiring, holding, voting or
disposing of such securities. Thus,
13 15
U.S.C. 78c.
Rule 13d–3, 17 CFR 240.13d–3, in turn
provides that a beneficial owner of a security
includes any person who, directly or indirectly,
through any contract, arrangement, understanding,
relationship, or otherwise has or shares voting
power or investment power.
14 SEC
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although a person may be construed to
have an ownership interest in the
Nasdaq Holdco under a range of
circumstances, a member’s ownership
interest would be permissible under
Rule 2130 and would not require an
SEC filing pursuant to Rule 2140 as long
as the total ownership interest of the
member constituted 20% or less of the
then outstanding voting securities of
Nasdaq. For example, one of Nasdaq’s
current investors, Silver Lake Partners,
is affiliated with Instinet, LLC
(‘‘Instinet’’), a registered broker-dealer.
If Instinet becomes a Nasdaq member,
the rule would not be construed to
restrict its activities in any respect as
long as (i) the ownership interest of
Nasdaq Holdco imputed to it remains
under 20%, and (ii) its affiliation with
Nasdaq arises from its ownership
interest. Nasdaq would, however, be
required to submit a filing if Nasdaq
itself acquired an ownership interest in
Instinet or entered into a business
venture with it (unless another
exception to Rule 2140 applied).
Similarly, the rule would not require a
filing with respect to an acquisition of
a Nasdaq member by a Nasdaq Holdco
stockholder, as long as the Nasdaq
member’s resulting beneficial
ownership interest in Nasdaq Holdco
was under 20%.
Finally, the rule provides that no
filing is required for Nasdaq or an entity
affiliated with Nasdaq acquiring or
maintaining an ownership interest in, or
engaging in a business venture with, an
affiliate of a Nasdaq member if there are
information barriers between the
member and Nasdaq and its facilities,
such that the member (i) will not be
provided an informational advantage
concerning the operation of Nasdaq and
its facilities, and will not be provided
changes or improvements to the trading
system that are not available to the
industry generally or other Nasdaq
members; (ii) will not have knowledge
in advance of other members of
proposed changes, modifications, or
improvements to the operations or
trading systems of Nasdaq and its
facilities, including advance knowledge
of Nasdaq filings pursuant to Section
19(b) of the Act; (iii) will be notified of
any proposed changes, modifications, or
improvements to the operations or
trading systems of Nasdaq and its
facilities in the same manner as other
Nasdaq members are notified; and (iv)
will not share employees, office space,
or databases with Nasdaq or its
facilities, Nasdaq Holdco, or any entity
that is controlled by Nasdaq Holdco.15
15 Nasdaq will not construe these limitations to
bar an employee of an affiliated member from
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Nasdaq’s Regulatory Oversight
Committee must certify, on an annual
basis, to the Director of the Division of
Market Regulation that Nasdaq has
taken all reasonable steps to implement
the foregoing requirements with respect
to any affiliate to which they apply and
is in compliance therewith.
This exception is aimed at
circumstances in which Nasdaq or an
affiliated entity acquires, or enters into
a business venture with, an affiliate of
a Nasdaq member, and Nasdaq erects
information barriers between the
member and Nasdaq and its facilities.
Thus, Nasdaq ensures that the member
does not receive any advantage as a
result of its affiliation.
The proposed rule change also
modifies Nasdaq’s rules regarding
disciplinary proceedings to provide that
Nasdaq disciplinary actions with regard
to a member that is an affiliate of
Nasdaq (including litigated and default
decisions, contested and uncontested
settlements, statutory disqualification
proceedings, and expedited
proceedings) may not be appealed to the
Nasdaq Review Council or called for
review by the Nasdaq Review Council or
the Nasdaq Board of Directors. Rather,
after an initial decision with regard to
such members is reached by the NASD
under the terms of Nasdaq’s regulatory
services agreement with NASD, the
member could appeal directly to the
Commission. These changes to the
disciplinary process would apply to all
affiliated members, including members
whose affiliations did not require a
filing pursuant to Rule 2140.
2. Statutory Basis
Nasdaq believes that the proposed
rule change, as amended, is consistent
with the provisions of Section 6 of the
Act,16 in general, and with Section
6(b)(5) of the Act,17 in particular, in that
it is designed to prevent fraudulent and
manipulative acts and practices, 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
serving on a Nasdaq advisory committee, such as
the Quality of Markets Committee, since (i) such
committee members are required to sign
confidentiality agreements with regard to
information received through committee service,
and (ii) the committee member employed by the
affiliate would receive information provided
through committee service at the same time as other
committee members.
16 15 U.S.C. 78f.
17 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00138
Fmt 4703
Sfmt 4703
general, to protect investors and the
public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq does not believe that the
proposed rule change, as amended, 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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding, or
(ii) as to which Nasdaq consents, the
Commission will:
(A) By order approve such proposed
rule change; or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2006–006 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–2006–006. 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
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Internet Web site (https://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 publicly available. All
submissions should refer to File
Number SR–NASDAQ–2006–006 and
should be submitted on or before May
19, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.18
Nancy M. Morris,
Secretary.
[FR Doc. E6–6376 Filed 4–27–06; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53699; File No. SR–NASD–
2006–050]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend Operation of
NASD’s Alternative Display Facility as
a Temporary Pilot
April 21, 2006.
jlentini on PROD1PC65 with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to extend for nine
months, to January 26, 2007, the
operation of NASD’s Alternative Display
Facility (‘‘ADF’’) on a pilot basis. The
ADF pilot program, as approved by the
Commission on July 24, 2002, and
extended on April 7, 2003, January 26,
2004, October 21, 2004, and July 20,
2005, will expire on April 26, 2006. The
pilot permits members to quote and
trade only Nasdaq-listed securities on or
through the ADF. Below is the text of
the proposed rule change. Proposed new
language is in italics; proposed
deletions are in [brackets].
*
*
*
*
*
4000A. NASD Alternative Display
Facility
4100A. General
BILLING CODE 8010–01–P
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 18,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by NASD. NASD has
filed the proposed rule change as a
‘‘non-controversial’’ rule change
pursuant to Section 19(b)(3)(A) of the
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Act 3 and Rule 19b–4(f)(6) thereunder,4
which renders it effective upon filing
with the Commission. The Commission
is publishing this notice to solicit
comments on the proposed rule change
from interested persons.
NASD Alternative Display Facility
(‘‘ADF’’) is the facility to be operated by
NASD on a nine-month pilot basis for
members that choose to quote or effect
trades in Nasdaq securities (‘‘ADFeligible securities’’) otherwise than on
Nasdaq or on an exchange. The ADF
will collect and disseminate quotations,
compare trades, and collect and
disseminate trade reports. Those NASD
members that utilize ADF systems for
quotation or trading activities must
comply with the Rule 4000A, Rule 5400
and Rule 6000A Series, as well as all
other applicable NASD Rules. The ADF
pilot will expire on [April 26, 2006]
January 26, 2007.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD 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. NASD has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
18 17
1 15
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4 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
Frm 00139
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25271
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On July 24, 2002, the Commission
approved SR–NASD–2002–97,5 which
authorizes NASD to operate the ADF on
a pilot basis for nine months. NASD
subsequently filed for immediate
effectiveness proposed rule changes SR–
NASD–2003–067 to extend the pilot
until January 26, 2004; 6 SR–NASD–
2004–012 to extend the pilot until
October 26, 2004; 7 SR–NASD–2004–160
to extend the pilot until July 26, 2005; 8
and SR–NASD–2005–092 to extend the
pilot until April 26, 2006.9 As described
in detail in SR–NASD–2001–90, the
ADF is a quotation collection, trade
comparison, and trade reporting facility
developed by NASD in accordance with
the Commission’s SuperMontage
Approval Order 10 and in conjunction
with Nasdaq’s anticipated registration as
a national securities exchange.11 In
addition, since the Commission gave its
initial approval to the ADF pilot, NASD
has filed several other ADF-related rule
change proposals that have been
incorporated into the operation and
administration of the pilot.12
5 Securities Exchange Act Release No. 46249 (July
24, 2002), 67 FR 49822 (July 31, 2002).
6 Securities Exchange Act Release No. 47633
(April 10, 2003), 68 FR 19043 (April 17, 2003).
7 Securities Exchange Act Release No. 49131
(January 27, 2004), 69 FR 5229 (February 3, 2004).
8 Securities Exchange Act Release No. 50601
(October 28, 2004), 69 FR 64611 (November 5,
2004).
9 Securities Exchange Act Release No. 52122 (July
25, 2005), 70 FR 44133 (August 1, 2005).
10 Securities Exchange Act Release No. 43863
(January 19, 2001), 66 FR 8020 (January 26, 2001).
11 Securities Exchange Act Release No. 44396
(June 7, 2001), 66 FR 31952 (June 13, 2001).
12 On January 30, 2003, NASD filed proposed rule
change SR–NASD–2003–009 to revise the
transaction and quotation-related fees applicable to
ADF activity during the pilot program. The rule
change proposal became effective upon filing, with
an implementation date of February 17, 2003. On
January 6, 2004, the Commission granted
accelerated approval to SR–NASD–2003–145, a
proposal to amend the ADF pilot rules to give
jurisdiction to a three-member subcommittee of
NASD’s Market Regulation Committee to review
system outage determinations under NASD Rule
4300A(f) and excused withdrawal denials under
NASD Rule 4619A. The rule change proposal
became effective contemporaneous with the
Commission’s approval. On December 4, 2003,
NASD filed for immediate effectiveness a proposed
rule change to amend Rule 4613A(c) to clarify that
NASD may suspend quotations in the ADF
displayed by any market participant, including an
ECN, that are no longer reasonably related to the
prevailing market.
Additionally, NASD filed with the Commission
three other rule change proposals. On March 12,
2004, the Commission approved SR–NASD–2003–
175, a proposal to repeal Rule 4613A(e)(1), which
Continued
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]]>Agencies
[Federal Register Volume 71, Number 82 (Friday, April 28, 2006)]
[Notices]
[Pages 25265-25271]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-6376]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53697; File No. SR-NASDAQ-2006-006]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Regarding Restrictions on Affiliation Between Nasdaq and Its Members
April 21, 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 5, 2006, The NASDAQ Stock Market LLC (``Nasdaq''), filed with
the Securities and Exchange Commission (``Commission'' or ``SEC'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by Nasdaq. On April 12, 2006, Nasdaq filed
Amendment No. 1 to the proposed rule change.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, Nasdaq proposed additional revisions to
Nasdaq Rule 9270 regarding settlement procedures.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to establish a rule to govern affiliations between
Nasdaq and its members and to make conforming changes to its
disciplinary proceedings. Nasdaq will implement the proposed rule
change immediately upon approval by the Commission.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.
[[Page 25266]]
2140. Restrictions on Affiliation
(a) Except as provided in paragraph (b):
(1) Nasdaq or any entity with which it is affiliated shall not,
directly or indirectly, acquire or maintain an ownership interest in,
or engage in a business venture with, a Nasdaq member or an affiliate
of a Nasdaq member in the absence of an effective filing under Section
19(b) of the Act; and
(2) A Nasdaq member shall not be or become an affiliate of Nasdaq,
or an affiliate of an entity affiliated with Nasdaq, in the absence of
an effective filing under Section 19(b) of the Act.
The term ``affiliate'' shall have the meaning specified in Rule
12b-2 under the Act; provided, however, that for purposes of this Rule,
one entity shall not be deemed to be an affiliate of another entity
solely by reason of having a common director. The term ``business
venture'' means an arrangement under which (A) Nasdaq or an entity with
which it is affiliated, and (B) a Nasdaq member or an affiliate of a
Nasdaq member, engage in joint activities with an expectation of shared
profit and a risk of shared loss from common entrepreneurial efforts.
(b) Nothing in this rule shall prohibit, or require a filing under
Section 19(b) of the Act, for:
(1) A Nasdaq member or an affiliate of a Nasdaq member acquiring or
holding an equity interest in The Nasdaq Stock Market, Inc. that is
permitted by the ownership limitations contained in Nasdaq Rule 2130,
or
(2) Nasdaq or an entity affiliated with Nasdaq acquiring or
maintaining an ownership interest in, or engaging in a business venture
with, an affiliate of a Nasdaq member if:
(A) there are information barriers between the member and Nasdaq
and its facilities, such that the member
(i) Will not be provided an informational advantage concerning the
operation of Nasdaq and its facilities, and will not be provided
changes or improvements to the trading system that are not available to
the industry generally or other Nasdaq members;
(ii) Will not have any knowledge in advance of other Nasdaq members
of proposed changes, modifications, or improvements to the operations
or trading systems of Nasdaq and its facilities, including advance
knowledge of Nasdaq filings pursuant to Section 19(b) of the Act;
(iii) Will be notified of any proposed changes, modifications, or
improvements to the operations or trading systems of Nasdaq and its
facilities in the same manner as other Nasdaq members are notified; and
(iv) Will not share employees, office space, or databases with
Nasdaq or its facilities, The Nasdaq Stock Market, Inc., or any entity
that is controlled by The Nasdaq Stock Market, Inc.; and
(B) Nasdaq's Regulatory Oversight Committee certifies, on an annual
basis, to the Director of the Division of Market Regulation that Nasdaq
has taken all reasonable steps to implement the requirements of this
rule and is in compliance therewith.
* * * * *
9268. Decision of Hearing Panel or Extended Hearing Panel
(a)-(d) No change.
(e) Appeal or Review.
(1) If not timely appealed pursuant to Rule 9311 or timely called
for review pursuant to Rule 9312, the majority decision shall
constitute final disciplinary action of Nasdaq for purposes of SEC Rule
19d-1(c)(1).
(2) The majority decision with respect to a Nasdaq member that is
an affiliate of Nasdaq within the meaning of Rule 2140 shall constitute
final disciplinary action of Nasdaq for purposes of SEC Rule 19d-
1(c)(1) and may not be appealed pursuant to Rule 9311 or called for
review pursuant to Rule 9312.
9269. Default Decisions
(a)-(c) No change.
(d) Final Disciplinary Action of Nasdaq; Effectiveness of
Sanctions.
(1) If a default decision is not appealed pursuant to Rule 9311 or
called for review pursuant to Rule 9312 within 25 days after the date
the Office of Hearing Officers serves it on the Parties, the default
decision shall become the final disciplinary action of Nasdaq for
purposes of SEC Rule 19d-1(c)(1). Unless otherwise provided in the
default decision, the sanctions shall become effective on a date to be
determined by Nasdaq Regulation staff, except that a bar or expulsion
shall become effective immediately upon the default decision becoming
the final disciplinary action of Nasdaq. The decision shall be served
on a Respondent by courier, facsimile or other means reasonably likely
to obtain prompt service when the sanction is a bar or an expulsion.
(2) A default decision with respect to a Nasdaq member that is an
affiliate of Nasdaq within the meaning of Rule 2140 shall constitute
final disciplinary action of Nasdaq for purposes of SEC Rule 19d-
1(c)(1) and may not be appealed pursuant to Rule 9311 or called for
review pursuant to Rule 9312.
9270. Settlement Procedure
(a)-(d) No change.
(e) If a Respondent makes an offer of settlement and the Department
of Enforcement or the Department of Market Regulation does not oppose
it, the offer of settlement is uncontested. If an offer of settlement
is determined to be uncontested by the Department of Enforcement or the
Department of Market Regulation before a hearing on the merits has
begun, the Department of Enforcement or the Department of Market
Regulation shall transmit the uncontested offer of settlement and a
proposed order of acceptance to the Nasdaq Review Council (or to the
Office of Disciplinary Affairs, in the case of a Respondent that is an
affiliate of Nasdaq within the meaning of Rule 2140) with its
recommendation. If an offer of settlement is determined to be
uncontested by the Department of Enforcement or the Department of
Market Regulation after a hearing on the merits has begun, the
Department of Enforcement or the Department of Market Regulation shall
transmit the offer of settlement and a proposed order of acceptance to
the Hearing Panel or, if applicable, the Extended Hearing Panel for
acceptance or rejection. If accepted by the Hearing Panel or, if
applicable, Extended Hearing Panel, the offer of settlement and the
order of acceptance shall be forwarded to the Nasdaq Review Council (or
to the Office of Disciplinary Affairs, in the case of a Respondent that
is an affiliate of Nasdaq within the meaning of Rule 2140) to accept or
reject.
(1) No change.
(2) Before an offer of settlement and an order of acceptance shall
become effective, they shall be submitted to and accepted by the Nasdaq
Review Council or the Office of Disciplinary Affairs. The Review
Subcommittee [or the Office of Disciplinary Affairs] may accept or
reject such offer of settlement and order of acceptance or refer them
to the Nasdaq Review Council for acceptance or rejection by the Nasdaq
Review Council. [The Review Subcommittee may reject such offer of
settlement and order of acceptance or refer them to the Nasdaq Review
Council for acceptance or rejection by the Nasdaq Review Council.] In
the case of a Respondent that is an affiliate of Nasdaq within the
meaning of Rule 2140, the offer of settlement and order of acceptance
shall be accepted or rejected by the Office of Disciplinary Affairs and
shall not be referred to the Nasdaq Review Council.
(3) No change.
(f) Contested Offers of Settlement.
[[Page 25267]]
If a Respondent makes an offer of settlement and the Department of
Enforcement or the Department of Market Regulation opposes it, the
offer of settlement is contested. When the Department of Enforcement or
the Department of Market Regulation opposes an offer of settlement, the
Respondent's written offer and the Department of Enforcement's or the
Department of Market Regulation's written opposition shall be submitted
to a Hearing Panel or, if applicable, an Extended Hearing Panel. The
Hearing Panel or, if applicable, the Extended Hearing Panel, may order
the Department of Enforcement or the Department of Market Regulation
and the Respondent to attend a settlement conference.
(1) If a contested offer of settlement is approved by the Hearing
Panel or, if applicable, Extended Hearing Panel, the Hearing Officer
shall draft an order of acceptance of the offer of settlement. The
order of acceptance shall make findings of fact, including a statement
of the rule, regulation, or statutory provision violated, and impose
sanctions consistent with the terms of the offer of settlement. The
offer of settlement, any written opposition thereto, and the order of
acceptance shall be forwarded to the Nasdaq Review Council (or to the
Office of Disciplinary Affairs, in the case of a Respondent that is an
affiliate of Nasdaq within the meaning of Rule 2140) to accept or
reject.
(2) Before an offer of settlement and order of acceptance shall
become effective, they shall be submitted to, and accepted by, the
Nasdaq Review Council or the Office of Disciplinary Affairs. The Review
Subcommittee may accept or reject such offer of settlement and order of
acceptance or refer them to the Nasdaq Review Council for acceptance or
rejection by the Nasdaq Review Council. In the case of a Respondent
that is an affiliate of Nasdaq within the meaning of Rule 2140, the
offer of settlement and order of acceptance shall be accepted or
rejected by the Office of Disciplinary Affairs and shall not be
referred to the Nasdaq Review Council.
(3) If the offer of settlement and order of acceptance are accepted
by the Office of Disciplinary Affairs, the Nasdaq Review Council or the
Review Subcommittee, the Chief Regulatory Officer shall issue the order
and notify the Office of Hearing Officers.
(g) No change.
(h) Rejection of Offer of Settlement.
If an uncontested offer of settlement or an order of acceptance is
rejected by the Hearing Panel or, if applicable, the Extended Hearing
Panel, the Review Subcommittee, the Office of Disciplinary Affairs, or
the Nasdaq Review Council, the Respondent shall be notified in writing
and the offer of settlement and proposed order of acceptance shall be
deemed withdrawn. If a contested offer of settlement or an order of
acceptance is rejected by the Hearing Panel or, if applicable, the
Extended Hearing Panel, the Review Subcommittee, the Office of
Disciplinary Affairs, or the Nasdaq Review Council, the Respondent
shall be notified in writing and the offer of settlement and proposed
order of acceptance shall be deemed withdrawn. The rejected offer and
proposed order of acceptance shall not constitute a part of the record
in any proceeding against the Respondent making the offer.
(i) No change.
(j) No Prejudice from Rejected Offer of Settlement.
If an offer of settlement is rejected by a Hearing Panel or, if
applicable, an Extended Hearing Panel, the Review Subcommittee, the
Office of Disciplinary Affairs, or the Nasdaq Review Council, the
Respondent shall not be prejudiced by the offer, which may not be
introduced into evidence in connection with the determination of the
issues involved in the pending complaint or in any other proceeding.
* * * * *
9311. Appeal by Any Party; Cross-Appeal
(a) Time to File Notice of Appeal.
A Respondent or the Department of Enforcement or the Department of
Market Regulation may file a written notice of appeal within 25 days
after service of a decision issued pursuant to Rule 9268 or Rule 9269;
provided, however, that a decision with respect to a Respondent that is
an affiliate of Nasdaq within the meaning of Rule 2140 may not be
appealed to the Nasdaq Review Council.
(b)-(f) No change.
9312. Review Proceeding Initiated by Nasdaq Review Council
(a) Call for Review.
(1) Rule 9268 Decision.
A decision issued pursuant to Rule 9268 may be subject to a call
for review by any member of the Nasdaq Review Council or, pursuant to
authority delegated from the Nasdaq Review Council, by any member of
the Review Subcommittee. A decision issued pursuant to Rule 9268 shall
be subject to a call for review within 45 days after the date of
service of the decision. If called for review, such decision shall be
reviewed by the Nasdaq Review Council.
(2) Rule 9269 Decision.
A default decision issued pursuant to Rule 9269 shall be subject to
a call for review by the Chief Regulatory Officer, on his or her own
motion within 25 days after the date of service of the decision. If
called for review, such decision shall be reviewed by the Nasdaq Review
Council.
(3) Decision Regarding Affiliate of Nasdaq.
Notwithstanding anything herein to the contrary, a decision with
respect to a member that is an affiliate of Nasdaq within the meaning
of Rule 2140 may not be called for review by the Nasdaq Review Council.
(b)-(d) No change.
* * * * *
9351. Discretionary Review by Nasdaq Board
(a) Call for Review by Director.
A Director may call a disciplinary proceeding for review by the
Nasdaq Board if the call for review is made within the period
prescribed in paragraph (b); provided, however, that a decision with
respect to a member that is an affiliate of Nasdaq within the meaning
of Rule 2140 may not be called for review.
(b)-(e) No change.
9360. Effectiveness of Sanctions
Unless otherwise provided in the decision issued under Rule 9349 or
Rule 9351, a sanction (other than a bar, an expulsion, or a permanent
cease and desist order) specified in a decision constituting final
disciplinary action of Nasdaq for purposes of SEC Rule 19d-1(c)(1)
shall become effective on a date to be determined by Nasdaq staff (or
the Hearing Panel, Extended Hearing Panel, or Office of Disciplinary
Affairs in the case of a decision with respect to an affiliate of
Nasdaq within the meaning of Rule 2140). A bar, an expulsion, or a
permanent cease and desist order shall become effective upon service of
the decision constituting final disciplinary action of Nasdaq, unless
otherwise specified therein. Nasdaq shall serve the decision on a
Respondent by courier, facsimile or other means reasonably likely to
obtain prompt service when the sanction is a bar, an expulsion, or a
permanent cease and desist order.
* * * * *
9523. Acceptance of Member Regulation Recommendations and Supervisory
Plans by Consent Pursuant to SEC Rule 19h-1
(a)-(b) No change.
(c) If the disqualified member, sponsoring member, and/or
disqualified person execute the letter consenting to
[[Page 25268]]
the supervisory plan, it shall be submitted to Nasdaq Regulation by the
Department of Member Regulation with a proposed Notice under SEC Rule
19h-1, where required. Nasdaq Regulation shall forward the supervisory
plan and proposed Notice under SEC Rule 19h-1, if any, to the Chairman
of the Statutory Disqualification Committee, acting on behalf of the
Nasdaq Review Council (or to the Office of Disciplinary Affairs in the
case of a supervisory plan with respect an affiliate of Nasdaq within
the meaning of Rule 2140). The Chairman of the Statutory
Disqualification Committee may accept or reject the recommendation of
the Department of Member Regulation and the supervisory plan or refer
them to the Nasdaq Review Council for acceptance or rejection by the
Nasdaq Review Council, and the Office of Disciplinary Affairs may
accept or reject the recommendation of the Department of Member
Regulation and the supervisory plan.
(d) If the recommendation and supervisory plan is accepted by the
Nasdaq Review Council, [or] the Chairman of the Statutory
Disqualification Committee, or the Office of Disciplinary Affairs, it
shall be deemed final and, where required, the proposed Notice under
SEC Rule 19h-1 will be filed by Nasdaq. If the recommendation and
supervisory plan are rejected by the Chairman of the Statutory
Disqualification Committee, [or] the Nasdaq Review Council, or the
Office of Disciplinary Affairs, Nasdaq Regulation may take any other
appropriate action with respect to the disqualified member, sponsoring
member, and/or disqualified person. If the recommendation and
supervisory plan are rejected, the disqualified member, sponsoring
member, and/or disqualified person shall not be prejudiced by the
execution of the letter consenting to the supervisory plan under
subparagraph (a) and the letter may not be introduced into evidence in
any proceeding.
9524. Nasdaq Review Council Consideration
(a) Hearing Panel Consideration.
(1) Appointment of Hearing Panel.
When the disqualified member, sponsoring firm, or applicant
requests a hearing, the Nasdaq Review Council or the Review
Subcommittee shall appoint a Hearing Panel composed of two or more
members, who shall be current or former members of the Nasdaq Review
Council or the Statutory Disqualification Committee or former Directors
(provided, however, that current members of the Nasdaq Review Council
shall not serve on a Hearing Panel with respect to an affiliate of
Nasdaq within the meaning of Rule 2140). The Hearing Panel shall
conduct a hearing and recommend a decision on the request for relief.
(2)-(9) No change.
(10) Recommendation.
On the basis of the record, the Hearing Panel shall present a
recommended decision in writing on the request for relief to the
Statutory Disqualification Committee. After considering the record and
recommendation of the Hearing Panel, the Statutory Disqualification
Committee shall present its recommended decision in writing to the
Nasdaq Review Council. Notwithstanding the foregoing, with respect to a
Nasdaq member that is an affiliate of Nasdaq within the meaning of Rule
2140, the Hearing Panel shall prepare a final decision meeting the
requirements of Rule 9524(b)(2), which shall not be reviewed by the
Statutory Disqualification Committee or the Nasdaq Review Council, and
may not be called for review by the Nasdaq Board pursuant to Rule 9525.
(b) Decision.
(1)-(2) No change.
(3) Issuance of Decision After Expiration of Call for Review
Period.
The Nasdaq Review Council shall provide its proposed written
decision to the Nasdaq Board. The Nasdaq Board may call the eligibility
proceeding for review pursuant to Rule 9525. If the Nasdaq Board does
not call the eligibility proceeding for review, the proposed written
decision of the Nasdaq Review Council shall become final, and the
Nasdaq Review Council shall serve its written decision on the
disqualified member, sponsoring member, and/or disqualified person, as
the case may be, and the Department of Member Regulation pursuant to
Rules 9132 and 9134. In the case of a decision with respect to a Nasdaq
member that is an affiliate of Nasdaq within the meaning of Rule 2140,
the decision of the Hearing Panel shall become final without being
provided to the Nasdaq Board, and the Hearing Panel shall serve its
written decision.
The decision shall constitute final action of Nasdaq, unless the
Nasdaq Review Council remands the eligibility proceeding. A decision to
deny re-entry or continued association shall be effective immediately.
A decision to approve shall be effective after the Commission issues an
acknowledgment letter or, in cases involving Commission ordered
sanctions, an order.
* * * * *
9559. Hearing Procedures for Expedited Proceedings Under the Rule 9550
Series
(a)-(p) No change.
(q) Call for Review by the Nasdaq Review Council.
(1) The Nasdaq Review Council's Review Subcommittee may call for
review a decision issued under the Rule 9550 Series within 21 days
after receipt of the decision from the Office of Hearing Officers;
provided, however, that a decision under the Rule 9550 Series with
respect to a Nasdaq member that is an affiliate of Nasdaq within the
meaning of Rule 2140 shall constitute final disciplinary action of
Nasdaq for purposes of SEC Rule 19d-1(c)(1) and may not be called for
review pursuant to Rule 9559. Rule 9313(a) is incorporated by
reference.
* * * * *
II. 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 had 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
In connection with its registration as a national securities
exchange,\4\ Nasdaq has agreed to propose a rule to regulate
affiliation between Nasdaq and its members, and to limit in certain
respects Nasdaq's regulatory authority with respect to members with
which it may become affiliated. The purpose of the rule is to guard
against any possibility that Nasdaq may exercise, or forebear to
exercise, regulatory authority with respect to an affiliated member in
a manner that is influenced by commercial considerations, to provide an
opportunity for Commission review of certain proposed affiliations, and
to ensure that certain affiliated members do not receive advantaged
access to information in comparison with unaffiliated members. Nasdaq
believes
[[Page 25269]]
that the proposed rule will provide added assurance of regulatory
integrity without subjecting Nasdaq and its affiliates to unwarranted
restrictions on their commercial activities.
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\4\ Securities Exchange Act Release No. 53128 (January 13,
2006), 71 FR 3550 (January 23, 2006) (File No. 10-131).
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In general, the proposed rule provides that Nasdaq must file a
proposed rule change with the SEC before Nasdaq or an entity with which
it is affiliated acquires or maintains an ownership interest in, or
engages in a business venture with, a Nasdaq member or an affiliate of
a Nasdaq member.\5\ The rule defines ``affiliate'' with reference to
Rule 12b-2 under the Act,\6\ which provides that if one person
controls, is controlled by, or is under common control another person,
the persons are affiliates. The proposed rule would help to implement
what Nasdaq perceives to be emerging Commission policy with regard to
appropriate activities for member broker-dealers that are affiliated
with self-regulatory organizations (``SROs''). For example, although
the Commission's order to establish the Archipelago Exchange
(``ArcaEx'') as a facility of the Pacific Exchange (``PCX'') allowed
ArcaEx to affiliate itself with various broker-dealers for the purpose
of introducing orders to ArcaEx and routing them to other trading
venues,\7\ the Commission's order with respect to the acquisition of
PCX by Archipelago Holdings (``Arca Holdings'') mandated that Arca
Holdings divest its ownership of PCX members engaged in activities
other than outbound routing.\8\
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\5\ As used in the rule, the term ``affiliate'' includes natural
persons, but the term ``entity,'' when used to describe an
affiliate, excludes natural persons.
\6\ 17 CFR 240.12b-2.
\7\ Securities Exchange Act Release No. 44983 (October 25,
2001), 66 FR 55225 (November 1, 2001) (SR-PCX-00-25).
\8\ Securities Exchange Act Release No. 52497 (September 22,
2005), 70 FR 56949 (September 29, 2005) (SR-PCX-2005-90).
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Nasdaq's proposed rule would make it clear that in a case where
Nasdaq proposes an acquisition of, or a merger or business venture with
a Nasdaq member, an SEC filing will be required. In order to make it
clear that the obligation to avoid affiliations that have not been
filed is imposed by the rule both on Nasdaq and its members, moreover,
the rule provides that a Nasdaq member shall not be or become an
affiliate of Nasdaq, or an affiliate of any entity affiliated with
Nasdaq, without an SEC filing.
The term ``business venture,'' as used in the rule, is defined as
an arrangement under which Nasdaq or an entity with which it is
affiliated, on the one hand, and a Nasdaq member or affiliate thereof,
on the other hand, engage in joint activities with an expectation of
shared profit and a risk of shared loss from common entrepreneurial
efforts. Thus, the term does not include, and the proposed rule does
not regulate, contracts with members or their affiliates to provide
goods, products, or services for consideration, including, but not
limited to, asset or stock purchase agreements that do not result in
ongoing ties with a member or its affiliates,\9\ credit or debt
facilities, licenses of intellectual property, contracts for investment
banking, financial advisory, or consulting services,\10\ or the
provision of transaction services or data to a broker-dealer member or
products or services to a listed company that is or that owns a member
broker-dealer.
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\9\ For example, if Nasdaq acquired a non-member subsidiary of a
member in a transaction that did not result in an ongoing
affiliation with the member, the transaction would not be regulated
by the rule.
\10\ In some cases, such contracts may involve sharing of
confidential information with a member in circumstances where a
member acts as a fiduciary for Nasdaq or one of its affiliates. The
member would be required take measures to prevent such information
from being misused, and a failure to do so would constitute a
violation of Nasdaq rules, including, depending on the
circumstances, Rule 2110 (Standards of Commercial Honor and
Principles of Trade); Rule 2120 (Use of Manipulative, Deceptive, or
Other Fraudulent Devices); and Rule 3010 (Supervision). See also
NASD Notice to Members 91-45: NASD/NYSE Joint Memo on Chinese Wall
Policies and Procedures (June 21, 1991) (describing NASD policies
with regard to preventing misuse of confidential information by NASD
member firms).
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The rule limits possible expansive interpretations of the term
``affiliate'' by stipulating that one entity is not deemed to be an
affiliate of another entity solely by virtue of having a common
director. For example, if one of the member representative directors of
Nasdaq elected by the Nasdaq membership is also a director of a Nasdaq
member, that member would not be deemed to be an affiliate of Nasdaq
solely because of the common director. In addition, the rule should not
be construed to regulate in any manner the selection of directors or
standing committee members of Nasdaq, The Nasdaq Stock Market, Inc.
(``Nasdaq Holdco''), or their affiliates, provided such selections are
conducted in accordance with applicable provisions of governing
corporate documents (e.g., Nasdaq's limited liability company agreement
and by-laws or Nasdaq Holdco's certificate of incorporation and
bylaws).
In circumstances where an SEC filing is required, the rule may, in
appropriate cases, permit a filing to be submitted on an immediately
effective basis under Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f) thereunder.\12\ For example, in cases where a proposed affiliation
or business venture would not result in the establishment of a
``facility'' of Nasdaq within the meaning of Section 3 of the Act,\13\
a filing to establish rules to govern the operation of the affiliate or
business venture would not be required or appropriate. Rather, in such
circumstances, Nasdaq would expect to engage in informal consultation
with the Division of Market Regulation and/or members of the
Commission, and would then submit a filing to amend Rule 2140 itself,
to establish that the affiliation or business venture could exist as an
exception to the rule. Depending on the circumstances, such a filing
might be submitted on an immediately effective basis.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f).
\13\ 15 U.S.C. 78c.
---------------------------------------------------------------------------
There are also several important exceptions to the general filing
requirement of the rule. First, the rule would not require a filing for
transactions that result in a Nasdaq member acquiring or holding an
interest in Nasdaq Holdco that is consistent with Nasdaq Rule 2130.
Rule 2130 provides that ``[n]o member or person associated with a
member shall be the beneficial owner of greater than twenty percent
(20%) of the then-outstanding voting securities of The Nasdaq Stock
Market, Inc.'' ``Beneficial ownership'' is defined with reference to
Nasdaq Holdco's certificate of incorporation, which in turn provides
that a person shall be deemed the ``beneficial owner'' of, shall be
deemed to have ``beneficial ownership'' of and shall be deemed to
``beneficially own'' any securities: (i) Which such person or any of
such person's affiliates is deemed to beneficially own, directly or
indirectly, within the meaning of Rule 13d-3 under the Act * * *; \14\
(ii) subject to certain narrow exceptions described in the certificate
of incorporation, which such person or any of such person's affiliates
has the right to acquire or to vote pursuant to any agreement,
arrangement, or understanding; or (iii) subject to certain narrow
exceptions described in the certificate of incorporation, which are
beneficially owned, directly or indirectly, by any other person and
with respect to which such person or any of such person's affiliates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of such securities. Thus,
[[Page 25270]]
although a person may be construed to have an ownership interest in the
Nasdaq Holdco under a range of circumstances, a member's ownership
interest would be permissible under Rule 2130 and would not require an
SEC filing pursuant to Rule 2140 as long as the total ownership
interest of the member constituted 20% or less of the then outstanding
voting securities of Nasdaq. For example, one of Nasdaq's current
investors, Silver Lake Partners, is affiliated with Instinet, LLC
(``Instinet''), a registered broker-dealer. If Instinet becomes a
Nasdaq member, the rule would not be construed to restrict its
activities in any respect as long as (i) the ownership interest of
Nasdaq Holdco imputed to it remains under 20%, and (ii) its affiliation
with Nasdaq arises from its ownership interest. Nasdaq would, however,
be required to submit a filing if Nasdaq itself acquired an ownership
interest in Instinet or entered into a business venture with it (unless
another exception to Rule 2140 applied). Similarly, the rule would not
require a filing with respect to an acquisition of a Nasdaq member by a
Nasdaq Holdco stockholder, as long as the Nasdaq member's resulting
beneficial ownership interest in Nasdaq Holdco was under 20%.
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\14\ SEC Rule 13d-3, 17 CFR 240.13d-3, in turn provides that a
beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares voting power or investment
power.
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Finally, the rule provides that no filing is required for Nasdaq or
an entity affiliated with Nasdaq acquiring or maintaining an ownership
interest in, or engaging in a business venture with, an affiliate of a
Nasdaq member if there are information barriers between the member and
Nasdaq and its facilities, such that the member (i) will not be
provided an informational advantage concerning the operation of Nasdaq
and its facilities, and will not be provided changes or improvements to
the trading system that are not available to the industry generally or
other Nasdaq members; (ii) will not have knowledge in advance of other
members of proposed changes, modifications, or improvements to the
operations or trading systems of Nasdaq and its facilities, including
advance knowledge of Nasdaq filings pursuant to Section 19(b) of the
Act; (iii) will be notified of any proposed changes, modifications, or
improvements to the operations or trading systems of Nasdaq and its
facilities in the same manner as other Nasdaq members are notified; and
(iv) will not share employees, office space, or databases with Nasdaq
or its facilities, Nasdaq Holdco, or any entity that is controlled by
Nasdaq Holdco.\15\ Nasdaq's Regulatory Oversight Committee must
certify, on an annual basis, to the Director of the Division of Market
Regulation that Nasdaq has taken all reasonable steps to implement the
foregoing requirements with respect to any affiliate to which they
apply and is in compliance therewith.
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\15\ Nasdaq will not construe these limitations to bar an
employee of an affiliated member from serving on a Nasdaq advisory
committee, such as the Quality of Markets Committee, since (i) such
committee members are required to sign confidentiality agreements
with regard to information received through committee service, and
(ii) the committee member employed by the affiliate would receive
information provided through committee service at the same time as
other committee members.
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This exception is aimed at circumstances in which Nasdaq or an
affiliated entity acquires, or enters into a business venture with, an
affiliate of a Nasdaq member, and Nasdaq erects information barriers
between the member and Nasdaq and its facilities. Thus, Nasdaq ensures
that the member does not receive any advantage as a result of its
affiliation.
The proposed rule change also modifies Nasdaq's rules regarding
disciplinary proceedings to provide that Nasdaq disciplinary actions
with regard to a member that is an affiliate of Nasdaq (including
litigated and default decisions, contested and uncontested settlements,
statutory disqualification proceedings, and expedited proceedings) may
not be appealed to the Nasdaq Review Council or called for review by
the Nasdaq Review Council or the Nasdaq Board of Directors. Rather,
after an initial decision with regard to such members is reached by the
NASD under the terms of Nasdaq's regulatory services agreement with
NASD, the member could appeal directly to the Commission. These changes
to the disciplinary process would apply to all affiliated members,
including members whose affiliations did not require a filing pursuant
to Rule 2140.
2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with the provisions of Section 6 of the Act,\16\ in general,
and with Section 6(b)(5) of the Act,\17\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, 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.
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\16\ 15 U.S.C. 78f.
\17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change, as amended,
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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which Nasdaq consents, the Commission will:
(A) By order approve such proposed rule change; or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2006-006 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-2006-006. 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
[[Page 25271]]
Internet Web site (https://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 publicly available. All
submissions should refer to File Number SR-NASDAQ-2006-006 and should
be submitted on or before May 19, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-6376 Filed 4-27-06; 8:45 am]
BILLING CODE 8010-01-P
