41116 Federal Register / Vol. 65, No. 128 / Monday, July 3, 2000 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42790 (May

16, 2000), 65 FR 33384.

4This restriction on voting shares owned in

excess of 5% is referred to as the ‘‘scaled voting

provision.’’

5The Certificate provides that an affiliate ‘‘shall

not be deemed to include an entity that either owns

ten percent or less of the equity of a broker or

dealer, or the broker or dealer accounts for one

percent or less of the gross revenues received by the

consolidated entity.’’ For purposes of this order,

references to a broker or dealer will include

affiliates, as defined in the By-laws or Certificate.

6As previously noted, Nasdaq currently operates

under the Delegation Plan which authorizes NASD

to elect the Board. Vacancies on the Board are filled

by candidates put forward by the NASD’s National

Nominating Committee (‘‘NNC’’). The Board is

currently authorized to consist of 10 members. Prior

to Exchange registration, it is contemplated that the

Board will be increased from 10 voting members to

14. These four new members of the Board will not

be current members of the NASD Board of

Directors, nor will they be able to serve

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42983; File No. SR–NASD–

00–27]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving

Proposed Rule Change Amending the

Nasdaq By-Laws and Restated

Certificate of Incorporation

June 26, 2000.

I. Introduction

On May 11, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly owned subsidiary The Nasdaq

Stock Market, Inc. (‘‘Nasdaq’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a

proposed rule change amending the

Nasdaq By-laws and Restated Certificate

of Incorporation. The proposed rule

change was published for comment in

the Federal Register on May 23, 2000.3

The Commission received no comments

on the proposal. This order approves the

proposal.

II. Description of Proposal

The purpose of the proposed rule

change was to amend Nasdaq’s By-Laws

and Restated Certificate of Incorporation

(‘‘Certificate’’) in accordance with the

Restructuring Plan (the ‘‘Restructuring’’)

approved by NASD members on April

14, 2000. The Restructuring involves

broadening the ownership in Nasdaq

(which is currently 100 percent owned

by the NASD) through a two-phase

private placement of common stock and

warrants to NASD members, Nasdaq

issuers, institutional investors and

strategic partners. Nasdaq’s By-laws and

Certificate must be amended in order to

reflect the changes to Nasdaq’s

ownership structure. Therefore, the

proposed rule change included the

amendments necessary to implement

Phase I of the Restructuring.

Eventually, Nasdaq will submit an

Application For, and Amendments to

Application For, Registration as a

National Securities Exchange or

Exemption from Registration Pursuant

to Section 5 of the Exchange Act to

obtain exchange registration. Prior to its

registration as a national securities

exchange, however, Nasdaq will

continue to operate under the Plan of

Allocation and Delegation of Functions

by the NASD to its Subsidiaries (the

‘‘Delegation Plan’’), as approved by the

Commission. After exchange

registration, Nasdaq will no longer be

governed pursuant to the Delegation

Plan.

This Order does not address

provisions of the existing Nasdaq Bylaws Certificate and that remain

unchanged, and it limits the discussion

to the most significant changes to the

corporate documents.

Summary of Significant Amendments

1. Authorized Capital Stock

To carry out the recapitalization of

Nasdaq, the total number of shares that

Nasdaq is authorized to issue has been

increased to 330,000,000, consisting of

30,000,000 shares of preferred stock, par

value $.01 per share, and 300,000,000

shares of common stock, par value $0.01

per share. In addition, the Nasdaq Board

of Directors (‘‘the Board’’) is now

entitled to issue preferred stock in one

or more series, and to fix the powers,

preferences, rights, qualifications,

limitations, and restrictions of this

preferred stock (including, for example,

dividend rights, conversion rights,

voting rights, terms of redemption,

liquidation preferences, etc). The

issuance of preferred stock could have

the effect of decreasing the market price

of the common stock and could

adversely affect the voting and other

rights of the holders of common stock.

2. Scaled Voting Provision

The Certificate provides that holders

of common stock are entitled to one vote

per share on all appropriate matters,

except that any person, other than the

NASD or any other person approved by

the Board prior to the time such person

owns more than 5% of the then

outstanding shares of common stock

will be unable to exercise voting rights

in respect of any shares owned in excess

of 5%.4 Exemptions from this scaled

voting provision can be granted by the

Board. The Certificate, however,

provides that in no event shall an

exemption from the scaled voting

provision be granted to (1) a registered

broker or dealer, or an affiliate 5 thereof,

or (2) an individual or entity subject to

statutory disqualification under Section

3(a)(39) of the Act. The Board may

approve an exemption from the scaled

voting provision if the Board determines

that granting the exemption would (1)

not reasonably be expected to diminish

the quality of, or public confidence in,

the Nasdaq Stock Market or other

operations of Nasdaq, on the ability to

prevent fraudulent and manipulative

acts and practices and on investors and

the public, and (2) promote just and

equitable principles of trade, foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities or assist in the removal of

impediments to or perfection of the

mechanisms for a free and open market

and a national market system.

3. Board of Directors

The Certificate provides for a

‘‘classified’’ or ‘‘staggered’’ Board; that

is, the Board will be divided into three

classes, with one class to be elected

each year to serve a three-year term. The

By-laws also create a Chief Executive

Officer (‘‘CEO’’), who shall have general

supervision over the business and

affairs of Nasdaq. The By-laws preserve

the existing Industry, Non-Industry and

Public classifications for Board

Directors, and provide that the newly

created CEO and President are deemed

‘‘neutral’’ directors for classification

purposes.

The Certificate provides that the exact

number of directors is to be determined

by the Board from time to time. The Bylaws require that the number of NonIndustry Directors, including at least

one Public Director and at least one

issuer representative, must equal or

exceed the number of Industry

Directors, plus the President and CEO (if

they are elected Directors), unless the

Board consists of 10 or more Directors.

If the Board consists of 10 or more

Directors, then at least two Directors

shall be issuer representatives. The Bylaws provide that at least two Industry

Directors and two Non-Industry

Directors shall be drawn from

candidates proposed to the National

Nominating Committee by a majority of

the non-NASD stockholders of Nasdaq.6

Federal Register / Vol. 65, No. 128 / Monday, July 3, 2000 / Notices 41117

concurrently on the NASD Board of Directors. Two

of the four new directors will be Industry Directors

and the other two will be Non-Industry or Public

Directors. Before exchange registration, or until

such time that Nasdaq does not otherwise operate

under the Delegation Plan, the Board is expected to

consist of 14 members, the majority of whom shall

be Public or Non-Industry Directors.

7 If Nasdaq as a national securities exchange, then

the procedures for nomination to the Board may

differ.

8The Commission notes that, by it terms, Article

Eleventh is not operative until the Commission

approves nasdaq’s registration as a national

securities exchange.

9Section I(B)(1) of the Delegation Plan.

10Section III(A)(1)(e) of the Delegation Plan.

11NASD, however, is ultimately responsible for

ensuring that the Nasdaq’s actions fulfill the

statutory and self-regulatory obligations as set forth

in the Act.

12The Commission also notes that the

amendments to the By-laws and Certificate begin

the process of implementing the corporate

governance changes that will be necessary if Nasdaq

registers as a national securities exchange.

13 15 U.S.C. 78o–3(b)(2), (4) and (6).

14 15 U.S.C. 78o–3(b)(2).

The By-laws also authorize the Nasdaq

Board, rather than the NASD Board, to

fill vacancies on the Nasdaq Board.

Under the Delegation Plan, all

stockholders have the right to

recommend one or more candidates for

consideration by the NNC for

nomination to the Board by providing

written notice to the Corporate

Secretary, containing specified

information relating to the candidate

(the candidate’s name, industry

classification, etc.).7

4. Removal of Directors and Committee

Members

Directors previously could be

removed with or without cause. The Bylaws and Certificate now provide that

Directors may only be removed for

cause by an affirmative vote of a

supermajority of outstanding shares

entitled to vote. Removal of committee

members still requires a majority vote of

the Board and notice to the committee

member, but the provision that

committee members may only be

removed for refusal, failure, neglect, or

inability to discharge the committee

member’s duties is eliminated.

5. Annual and Special Meetings of

Stockholders, and Stockholder Action

Because there will be multiple owners

of Nasdaq, the By-laws now provide

detailed procedures for the calling and

conduct of annual and special meetings

of shareholders. The Certificate provides

that stockholders are not entitled to act

by written consent in lieu of a meeting.

6. Notice Requirements for Stockholder

Proposals and Stockholder Nominated

Directors

The By-laws allow stockholders to

bring business before an annual and

special meeting of stockholders, and to

nominate candidates for election as

directors at an annual meeting of

stockholders, provided they comply

with the procedures outlined in the Bylaws.

7. Amendments to the By-Laws

The By-laws and Certificate state that

By-law amendments may be made by a

supermajority vote of the shareholders

or by the Board. In addition, the

Certificate requires a supermajority vote

of the outstanding shares of common

stock to amend, repeal or adopt certain

provisions of the Certificate including,

but not limited to, limitations on voting

rights of certain persons, the classified

Board, removal of Directors, and

prohibitions on stockholder action by

written consent.

8. Certificate, Article Eleventh—

‘‘Constituency Provision’’ Relating to

Certain Corporate Transactions

A new provision, Article Eleventh of

the Certificate, sets forth factors that the

Board must consider when evaluating

the merits of certain major corporate

transactions such as tender or exchange

offers, mergers, liquidations, any action

relating to the voting cap, or other

issues, due to the unique nature of

Nasdaq and its operations and status as

a self-regulatory organization.8 Article

Eleventh requires that the Board shall to

the fullest extent permitted by

applicable law, take into account the

following factors when evaluating a

major corporate transaction: (1) The

potential impact on the integrity,

continuity and stability of The Nasdaq

Stock Market and the other operations

of Nasdaq, on the ability to prevent

fraudulent and manipulative acts and

practices and on investors and the

public, and (2) whether such a

transaction would promote just and

equitable principles of trade, foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, or assist in the removal of

impediments to, or perfection of the

mechanisms for, a free and open market

and a national market system.

9. Other Changes to Conform the ByLaws and Certificate to Nasdaq’s New

Corporate Form

Other changes to the By-laws and

Certificate are made to reflect Nasdaq’s

new ownership structure and to

institute procedures necessary for

Nasdaq to operate as a corporation. For

example, references to ‘‘shareholder’’

have been changed to ‘‘shareholders,’’ to

reflect the fact that the NASD no longer

owns 100% of Nasdaq and that

ownership of Nasdaq will now be

broadened to a number of entities and

individuals. Similarly, provisions have

been added relating to waiver of notice

of a meeting by a Director, definitions of

new terms (e.g., ‘‘beneficial owner’’ and

‘‘subsidiary’’), and a provision defining

the necessary quorum to approve

interested party transactions.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

association. The proposed rule change

also fulfills the division of

responsibilities as set forth in the

Delegation Plan approved by the

Commission. Pursuant to the Delegation

Plan, NASD has retained the authority

‘‘[t]o exercise overall responsibility for

ensuring that the Association’s statutory

and self-regulatory obligations are

fulfilled.’’ 9 However, NASD has

delegated to Nasdaq the responsibility

to operate The Nasdaq Stock Market,

including the responsibility to ‘‘develop

and adopt rules, interpretations,

policies, and procedures and provide

exemptions to maintain and enhance

the integrity, fairness, efficiency, and

competitiveness of The Nasdaq Stock

Market and other markets operated by

The Nasdaq Stock Market.10 Thus, the

Commission looks to NASD as the selfregulatory organization with statutory

responsibility to implement and enforce

the requirements of the Act, but Nasdaq,

as a market owned and controlled by

NASD, is required to operate The

Nasdaq Stock Market and to provide

rules, interpretations, policies, and

procedures to carry out the purposes of

the Act.11 In the Discussion section

below, the Commission applies this

‘‘chain’’ of regulatory responsibilities in

its analysis and findings in support of

this approval order.12

In light of the above, the Commission

believes that the proposed rule change

is consistent with the requirements of

Section 15A(b)(2), (4) and (6) 13 of the

Act. Section 15A(b)(2) 14 requires that

the association be so organized and have

the capacity to be able to carry out the

purpose of the title and to comply, and

to enforce compliance by its members

and persons associated with its

members, with the provisions of the

41118 Federal Register / Vol. 65, No. 128 / Monday, July 3, 2000 / Notices

15Again, through the operation of the Delegation

Plan, NASD must be responsible for, and Nasdaq

must implement, rules, policies and procedures that

are consistent with the Act.

16 15 U.S.C. 78o–3(b)(4).

17See supra note 15.

18 15 U.S.C. 78o–3(b)(6).

19See supra note 15.

20 15 US.C. 78o–3(b)(2).

21 15 U.S.C. 78o–3(b)(4).

22The Delegation Plan also provides that the

NASD will appoint Nasdaq’s Board. Section I(B)(3)

of the Delegation Plan. 23See supra note 5.

Act.15 Section 15A(b)(4) 16 requires that

the rules of an association assure a fair

representation of its members in the

selection of its directors and

administration of its affairs and provide

that one or more directors shall be

representative of issuers and investors

and not be associated with a member of

the association, broker, or dealer.17

Section 15A(b)(6) 18 requires, among

other things, that the association’s rules

must be designed to prevent fraudulent

and manipulative acts and practices, to

promote just and equitable principles of

trade, to remove impediments to and

perfect the mechanism of a free and

open market and national market

system, and, in general, to protect

investors and the public interest.19

A. Amendments Incident to the

Restructuring and Recapitalization of

Nasdaq

The Commission finds that the

amendments to Nasdaq’s By-laws and

Certificate authorizing certain corporate

actions and implementing procedures

that are necessary to allow Nasdaq to

function as a for-profit corporation are

consistent with Section 15A(b)(2) 20 of

the Act. The Commission believes that

the amendments relating to the

following subject matters, as described

in more detail above, are needed to

reflect the recapitalization and

restructuring of Nasdaq: the issuance of

capital stock (both common and

preferred shares); the procedures for

calling and conducting annual meetings

and special meetings of stockholders;

the nomination and election procedures

for the Board of Directors; the quorum

calculations for interested party

transactions; the defined terms; and the

procedures for amendments to the Bylaws and Certificate. These changes

satisfy the requirements set forth in

Section 15A(b)(2) that NASD be so

organized and have the capacity to carry

out the purposes of the Act.

B. Structure and Governance of

Nasdaq’s Board

Section 15A(b)(4) 21 of the Act

requires fair representation of an

association’s members in the selection

of its directors and administration of its

affairs, and provides that one or more

directors shall be representative of

issuers and investors and not be

associated with a member of the

association, broker, or dealer. The

NASD, through the Delegation Plan, has

the responsibility for ensuring that the

Nasdaq Board fulfills the fair

representation and public participation

requirements.22 The Commission finds

that the proposed structure and

composition of the Board fulfills the

provisions of Section 15A(b)(4).

The fair representation requirement of

Section 15A(b)(4) helps to ensure that

no particular constituency is subject to

the unfair, unfettered actions of another

constituency, and helps to ensure that

the NASD, including its Nasdaq

subsidiary, is administered in a way that

is equitable to NASD members.

In addition, to ensure that the public

interest is adequately represented in an

association’s decision-making process,

Section 15A(b)(4) states that an

association must provide that one or

more of its directors be representatives

of issuers and investors. The

Commission believes that public

directors provide a unique, unbiased

perspective that should enhance the

ability of a board to address issues in a

non-discriminatory fashion.

The Commission finds that the

proposed composition of the Board

meets the fair representation and public

participation criteria as set forth in

Section 15A(b)(4) of the Act. The Bylaws provide that the number of NonIndustry Directors on the Board,

including at least one Public Director

and at least one issuer representative,

shall equal or exceed the number of

Industry Directors, plus the President

and CEO (if they are elected Directors),

unless the Board consists of 10 or more

Directors. If the Board consists of 10 or

more Directors, at least two Directors

shall be issuer representatives. The

Certificate also requires public

participation on the Board. This

structure ensures that all interests,

Industry and Non-Industry, will be

adequately represented on the Board.

Further, the requirement that the

number of Non-Industry Directors equal

or exceed the number of Industry

Directors, and the requirement of Public

Directors helps to ensure that decisions

by the Board are not unfairly

discriminatory between customers,

issuers, brokers, or dealers, and that the

protection of investors and the public

interest is considered. Therefore, the

Commission believes that the Board

structure is consistent with the fair

representation and public participation

requirements of Section 15A(b)(4) of the

Act.

C. Scaled Voting, Exemptions From

Scaled Voting, and Other Limitations on

the Control of Nasdaq

The Commission is concerned that the

NASD’s self-regulatory obligations may

be challenged if a substantial portion of

Nasdaq is owned or controlled by a

broker or dealer that also trades on

Nasdaq. In such a situation, it may be

difficult for NASD to carry out its selfregulatory responsibilities if it is

required to take action against that

broker or dealer. These concerns will be

heightened if NASD goes through with

its plans to register Nasdaq as a national

securities exchange, and sell off

additional shares of Nasdaq to investors.

The scaled voting provision is one

way of limiting the ability of any entity,

particularly a registered broker or

dealer, from controlling Nasdaq.

However, permitting the Board to lift

the voting cap in some cases is

necessary to allow Nasdaq flexibility

should Nasdaq seek to enter into a

business combination in which it would

want to use shares of common stock in

the transaction. The Certificate therefore

provides that the Board may generally

lift the voting cap, but that it cannot be

lifted for a broker or dealer (or an

affiliate of a broker or dealer) 23 or any

other individual or entity subject to

statutory disqualification as defined in

Section 3(a)(39) of the Act. The Board is

also required to consider certain factors

before lifting the voting cap for any

other individual or entity.

The Commission believes that the

proposed rule change relating to scaled

voting, exemptions from scaled voting,

and other limitations affecting the

control of Nasdaq fulfill the obligations

under Section 15A(b)(2) and (6). The

Certificate provides for an absolute bar

on a broker, dealer, or statutorily

disqualified person, from voting shares

owned in excess of 5%. Section

15A(b)(6) requires that rules be in place

that prevent fraudulent and

manipulative acts and practices,

promote just and equitable principles of

trade, facilitate transactions in

securities, and remove impediments to

and perfect the mechanism of a free and

open market and a national market

system. The limitation on voting shares

owned in excess of 5% satisfies this

requirement because it helps to avoid a

situation where the integrity of Nasdaq

might be compromised if the NASD had

to choose between taking action against

a broker or dealer that owned, and could

vote, a Nasdaq share in excess of 5%,

Federal Register / Vol. 65, No. 128 / Monday, July 3, 2000 / Notices 41119

24 15 U.S.C. 78s(b)(2).

25 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 15 U.S.C. 78s(b)(3)(A).

4 17 CFR 240.19b–4(f)(6).

5Nasdaq provided written notice to the

Commission on June 8, 2000, that is intended to file

this proposal. The Commission agreed to waive the

5-day pre-filing notice requirement. See Rule 19b–

4(f)(6)(iii). 17 CFR 240.19b–4(f)(6)(iii). 6 17 CFR 240.19b–4(f)(6)(iii).

and fulfilling its self-regulatory

responsibilities.

The Commission also finds that the

current requirement that the Board

consider factors relating to the

qualifications of any shareholder (other

than a broker or dealer or statutorily

disqualified person) before lifting the

voting cap also helps to address the

Commission’s concern that Nasdaq not

be controlled or substantially influenced

by an entity that may promote acts or

practices that would be inimical to the

purposes of the Act.

Two other provisions also act as a

deterrent to a shareholder’s ability to

effect a rapid change in control of

Nasdaq. The classified Board structure

ensures that it will take at least two

shareholder meetings, instead of one, for

majority control of the board to shift. As

discussed previously, the Certificate

also provides that Directors may only be

removed for cause and by a

supermajority vote of the shareholders.

These provisions, together with the

scaled voting provision, help to ensure

that control of Nasdaq will be attained

only in a measured manner and

consistent with the requirements set

forth in the Act.

Finally, the Commission notes that as

currently stated, a person or entity

could own a substantial portion of

Nasdaq and yet be limited in its actual

control of Nasdaq by virtue of the scaled

voting provisions, the classified Board

structure, and the limitations on the

removal of Directors in the By-laws and

Certificate. While these provisions help

ameliorate the Commission’s concern

about the control of Nasdaq, concerns

about the ability of an entity—in

particularly a broker, dealer or

affiliate—to own up to 100 percent of

Nasdaq remain. Thus, further action to

address the ownership of a substantial

portion of Nasdaq by a broker, dealer or

affiliate may be warranted if Nasdaq

registers as a national securities

exchange.

D. Certificate, Article Eleventh

(‘‘Constituency Provision’’)

By its own terms Article Eleventh

applies when Nasdaq achieves ‘‘status

as a self-regulatory organization,’’ and it

therefore will become operative only if

the Commission approves Nasdaq’s

anticipated application to register as a

national securities exchange. The

Commission notes preliminarily,

however, that Article Eleventh balances

the need to ensure that Nasdaq fulfill

the self-regulatory obligations

incumbent upon it if it registers as a

national securities exchange without

unduly hampering Nasdaq’s ability to

consummate major corporate

transactions. Therefore, the Commission

finds that new Article Eleventh of the

Certificate is consistent with Section

15A(b)(6) of the Act and outlines a

legitimate and useful set of criteria that

should be considered by the Board if it

considers major corporate transactions

after exchange registration.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,24 that the

proposed rule change (SR–NASD–00–

27) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–16745 Filed 6–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42984; File No. SR–NASD–

00–35]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to a Cap on ACT

Risk Management Charges

June 27, 2000.

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 June 12,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its wholly

owned subsidiary, The Nasdaq Stock

Market, Inc. (‘‘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. Nasdaq filed the

proposal pursuant to Section 19(b)(3)(A)

of the Act,3 and Rule 19b–4(f)(6)

thereunder,4 which renders the proposal

effective upon filing with the

Commission.5 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 filed the proposed rule change

to amend NASD Rule 7010, Systems

Services, to establish a cap on the

Automation Confirmation Transaction

Service (‘‘ACT’’) risk management

charge. Nasdaq has designated this

proposal as non-controversial, and

requests that the Commission waive the

30-day pre-operative waiting period

contained in Rule 19b–4(f)(6)(iii) under

the Act,6 to allow the proposal to be

both effective and operative

immediately upon filing with the

Commission. The text of the proposed

rule is below. Proposed new language is

in italics.

* * * * *

Rule 7010. Systems Services

(g) Automated Confirmation

Transaction Service

The following charges shall be paid

by the participant for use of the

Automated Confirmation Transaction

Service (ACT):

Transaction Related Charges:

No change.

Risk Management Charges: $0.035/side

and $17.25/month per correspondent

firm (maximum $10,000/month per

correspondent firm)

* * * * *

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 its proposal

and discussed any comments it received

regarding the proposal. 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

ACT is an automated trade reporting

and reconciliation service that speeds

the post-execution steps of price and

volume reporting, comparison, and

clearing of pre-negotiated trades

completed in Nasdaq, OTC Bulletin