23874 Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 

23 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 Amendment No. 1 replaced and superseded the 

original filing in its entirety. 

4 Amendment No. 2 was filed and withdrawn on 

April 3, 2007. 

5 17 CFR 230.144A. 

6 See Securities Exchange Act Release No. 27956 

(April 27, 1990), 55 FR 18781 (May 4, 1990) (SR– 

NASD–88–23). The PORTAL Rules were 

subsequently amended. See Securities Exchange 

Act Release Nos. 28678 (December 6, 1990), 55 FR 

51194 (December 12, 1990) (SR–NASD–90–50); 

33326 (December 13, 1993), 58 FR 66388 (December 

20, 1993) (SR–NASD–91–5); 34562 (August 19, 

1994), 59 FR 44210 (August 26, 1994) (SR–NASD– 

94–39); 35083 (December 12, 1994), 59 FR 65104 

(December 16, 1994) (SR–NASD–94–65); 40424 

(September 10, 1998), 63 FR 49623 (September 16, 

1998) (SR–NASD–98–68); 43873 (January 23, 2001), 

66 FR 8131 (January 29, 2001) (SR–NASD–99–65); 

44042 (March 6, 2001), 66 FR 14969 (March 14, 

2001) (SR–NASD–99–66); NASD Notice to Members 

01–19 (March 2001) (the ‘‘2001 PORTAL rule 

filing’’). 

7 See Securities Exchange Act Release No. 27928 

(April 23, 1990), 55 FR 17933 (April 30, 1990). 

8 15 U.S.C. 77e. 

9 17 CFR 230.144A(a)(1). 

(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 

<bullet≤ Use the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml); or 

<bullet≤ Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2007–004 on the 

subject line. 

Paper Comments 

<bullet≤ 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–2007–004. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the principal office of Nasdaq. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make publicly available. All 

submissions should refer to File 

Number SR–NASDAQ–2007–004 and 

should be submitted on or before May 

22, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.23

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8244 Filed 4–30–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55669; File No. SR– 

NASDAQ–2006–065] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing of Proposed Rule Change and 

Amendments Nos. 1, 2, and 3 Thereto 

To Reestablish a Quotation and 

Trading System for Securities That Are 

Designated by The PORTAL[supreg] 

Market as PORTAL Securities 

April 25, 2007. 

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 December 

22, 2006, The NASDAQ Stock Market 

LLC (‘‘Nasdaq’’), filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

substantially prepared by Nasdaq. On 

March 6, 2007, Nasdaq filed 

Amendment No. 1 to the proposed rule 

change.3 On April 3, 2007, Nasdaq filed 

Amendment No. 3 to the proposed rule 

change.4 The Commission is publishing 

this notice to solicit comments on the 

proposed rule change, as amended, from 

interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

Nasdaq proposes to reestablish a 

quotation and trading system for 

securities that are designated by The 

PORTAL[supreg] Market (‘‘PORTAL’’ or 

the ‘‘PORTAL[supreg] Market’’) as 

PORTAL securities. 

The text of the proposed rule change 

is available on Nasdaq’s Web site at 

http://www.nasdaq.com, at Nasdaq’s 

principal office, and at the 

Commission’s Public Reference Room. 

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 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 

Background 

Nasdaq currently operates the 

PORTAL Market for securities that were 

sold in private placements and are 

eligible for resale under SEC Rule 144A 

5 adopted under the Securities Act of 

1933 (‘‘Securities Act’’). The National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) created the PORTAL Market 

in 1990,6 simultaneously with the SEC’s 

adoption of Rule 144A,7 for the 

purposes of quotation, trading, and 

trade reporting in securities deemed 

eligible by the NASD for resale under 

Rule 144A. Rule 144A provides an 

exemption from registration under 

Section 5 of the Securities Act 8 for 

resales of privately placed securities to 

investors that meet the eligibility 

requirements of being a qualified 

institutional buyer (‘‘QIB’’) under Rule 

144A(a)(1),9 i.e., institutional investors 

that in the aggregate own or invest on 

a discretionary basis at least $100 

million in securities and broker/dealers 

that in the aggregate own or invest on 

a discretionary basis at least $10 million 


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10 Investment grade rated debt includes 

nonconvertible debt securities and nonconvertible 

preferred stock that are rated in one of the top four 

generic rating categories by a nationally recognized 

statistical rating organization. 

11 See Securities Exchange Act Release No. 33327 

(December 13, 1993), 58 FR 67878 (December 22, 

1993) (SR–DTC–90–06). 

12 Nasdaq staff historically had responsibility for 

review of PORTAL Market applications to 

determine the eligibility of securities and, 

originally, PORTAL Participants (including broker/ 

dealers and investors). Upon the separation of 

Nasdaq from the NASD and the approval of Nasdaq 

as a registered national securities exchange under 

Section 6 of the Act, the review functions for 

PORTAL Market eligibility were retained by 

Nasdaq, and the PORTAL Market rules in the NASD 

Rule 5300 Series became the Nasdaq Rule 6500 

Series. See Securities Exchange Act Release No. 

53128 (January 13, 2006), 71 FR 3550 (January 23, 

2006). 

13 ACT is a system owned and operated by 

Nasdaq that accommodates reporting and 

dissemination of last sale reports for secondary 

market transactions in equity securities and can 

provide automated comparison and confirmation 

services and can forward confirmed trades to DTC 

for settlement. The OTC Trade Reporting Facility 

provides the same functions for reporting trades in 

PORTAL equity securities as previously performed 

by ACT. 

14 See Securities Exchange Act Release No. 40424 

(September 10, 1998), 63 FR 49623 (September 16, 

1998) (SR–NASD–98–68). 

15 TRACE is a system operated by the NASD that 

facilitates the mandatory reporting of over-thecounter secondary market transactions in eligible 

fixed income securities. See NASD Rule 6200 

Series. 

16 See Securities Exchange Act Release No. 43873 

(January 23, 2001), 66 FR 8131 (January 29, 2001) 

(and related NASD Notice to Members 01–18 

(March 2001)). Other changes were subsequently 

made to the TRACE rules. See Securities Exchange 

Act Release Nos. 48056 (June 18, 2003), 68 FR 

37886 (June 25, 2003) (SR–NASD–2003–78) (and 

related NASD Notice to Members 03–36 (June 

2003)); 48305 (August 8, 2003), 68 FR 48656 

(August 14, 2003) (SR–NASD–2003–99) (and related 

NASD Notice to Members 03–45 (August 2003)); 

49854 (June 14, 2004), 69 FR 35088 (June 23, 2004) 

(SR–NASD–2004–57) (and related NASD Notice to 

Members 04–51 (July 2004)); 50317 (September 3, 

2004), 69 FR 55202 (September 13, 2004) (SR– 

NASD–2004–94) (and related NASD Notice to 

Members 04–65 (September 2004)); 50977 (January 

6, 2005), 70 FR 2202 (January 12, 2005) (SR–NASD– 

2004–189) (and related NASD Notice to Members 

05–05 (January 2005)); 51611 (April 26, 2005), 70 

FR 22735 (May 2, 2005) (SR–NASD–2005–026) (and 

related NASD Notice to Members 05–37 (May 

2005)); 52183 (August 1, 2005), 70 FR 46239 

(August 9, 2005) (SR–NASD–2005–63) (and related 

NASD Notice to Members 05–52 (August 2005)); 

53031 (December 28, 2005), 71 FR 634 (January 5, 

2006) (SR–NASD–2005–120) (and related NASD 

Notice to Members 06–01 (January 2006)). 

17 See supra, note 6, the 2001 PORTAL rule filing. 

18 A limited number of PORTAL debt securities 

are not subject to trade reporting to TRACE, e.g., 

mortgage or asset backed securities, collateralized 

mortgage obligations, money market instruments, 

and municipal and municipal-derivative securities. 

19 In another rule change, the NASD amended the 

Uniform Practice Code to apply to re-sales of 

restricted securities as defined in Rule 144(a)(3) 

under the Securities Act. See Securities Exchange 

Act Release No. 38491 (April 9, 1997), 62 FR 18665 

(April 16, 1997) (SR–NASD–97–06); see also 

Section 11100(a) of the NASD Uniform Practice 

Code. 

20 See NASD Rule 6600 Series. 

in securities. The Depository Trust 

Company (‘‘DTC’’) can make Rule 144A 

securities eligible for deposit, bookentry delivery, and other depository 

services provided that such Rule 144A 

securities, except in the case of 

investment grade rated debt,10 are 

designated for inclusion in a system of 

a self-regulatory organization (‘‘SRO’’) 

for the reporting, quoting and trading of 

Rule 144A securities. An issuer of an 

investment grade rated debt issue can 

apply directly to DTC for book-entry 

services under DTC rules (‘‘Rule 144A 

investment grade rated debt issues’’) 

and need not also qualify the security as 

a PORTAL-designated security.11

The sole current function of Nasdaq 

related to the PORTAL Market is to 

review whether an issue of privately 

placed securities meets the eligibility 

requirements of Rule 144A,12 thereby 

qualifying the securities for DTC bookentry services. The PORTAL Market, as 

originally approved by the SEC in 1990, 

was intended to function as a system 

that would allow NASD members and 

QIBs to trade PORTAL-designated 

securities in a closed system in 

compliance with SEC Rule 144A. Thus, 

the PORTAL rules included 

requirements to qualify NASD members 

and QIBs as ‘‘PORTAL Participants’’ for 

qualified NASD members to enter 

quotations in PORTAL securities and to 

submit trade reports for PORTAL trades 

to the PORTAL system for comparison, 

clearance, and settlement. 

These market-related functions in 

PORTAL securities as originally 

approved by the SEC in 1990 did not, 

however, develop as anticipated. In 

particular, Nasdaq believes that the 

NASD’s adoption of PORTAL rules that 

imposed trade reporting for all 

transactions in PORTAL securities, 

which occurred at a time when no trade 

reporting requirements applied to 

privately-placed securities in general, 

ultimately were not implemented 

because of: (1) A cumbersome 

technology for access to the PORTAL 

Market computer system for reporting 

purposes, which was a stand-alone 

computer system; and (2) resistance to 

the imposition of trade reporting in Rule 

144A equity and in both Rule 144A and 

SEC-registered debt. 

In a continuing effort to encourage 

trade-reporting in PORTAL-designated 

securities, the NASD obtained SEC 

approval in 1998 of an interpretation of 

the definition of the term ‘‘ACT Eligible 

Security’’ in NASD Rule 6110(a) for the 

Automated Confirmation Transaction 

Service (‘‘ACT’’) 13 to include all 

securities designated as PORTAL 

securities pursuant to the PORTAL rules 

to the extent transactions in such 

PORTAL-designated securities were 

voluntarily submitted to ACT solely for 

reconciliation and comparison.14 In 

addition, the NASD submitted a letter to 

the Divisions of Market Regulation and 

Corporation Finance of the SEC, dated 

November 16, 1998, advising that the 

NASD would eliminate the Stratus 

computer system that supported the 

PORTAL Market. On January 23, 2001, 

the SEC approved the establishment of 

a corporate bond trade reporting and 

transaction dissemination facility, 

known as the Trade Reporting and 

Compliance Engine or ‘‘TRACE,’’ 15

which required trade reporting in most 

PORTAL designated securities and 

investment grade debt Rule 144A 

securities that are DTC eligible.16

On March 6, 2001,17 the SEC 

approved amendments to the PORTAL 

rules to require that NASD members 

submit trade reports of secondary 

market transactions in PORTALdesignated equity securities through 

ACT and of most PORTAL-designated 

debt securities through TRACE.18 Only 

trade reporting obligations were 

imposed with respect to secondary 

market transactions in PORTAL equity 

and debt securities. 

The use of TRACE and ACT for 

mandatory trade reporting of secondary 

market transactions in PORTAL 

securities was intended to address the 

technological and cost problems that 

were associated with the reporting of 

such trades through the stand-alone 

PORTAL computer system. The SEC 

also, as part of the same rule change, 

approved the elimination of a large 

number of obsolete provisions in the 

PORTAL rules, including the 

registration requirements for NASD 

members and QIBs to trade in a closed 

system, rules regulating the quotation 

and trading of PORTAL securities, and 

the unsuccessful PORTAL trade 

reporting requirements.19

The Current Trading Environment for 

PORTAL Securities 

The market, trading, and 

technological environments for 

PORTAL securities have evolved. As 

stated previously, mandatory trade 

reporting applies to almost all PORTAL 

securities. Today, pursuant to NASD 

Rule 6700 Series, trade reports in all 

PORTAL-designated equity securities 

are submitted to the NASD’s OTC 

Reporting Facility (‘‘OTC Reporting 

Facility’’) 20 and trade reports in most 

PORTAL-designated debt securities 

continue to be submitted to TRACE. 

There is no public dissemination in any 


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23876 Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 

21 17 CFR 230.144(a)(3). 

22 17 CFR 230.144A(d)(3) and (d)(4). 

23 15 U.S.C. 78m. 

24 15 U.S.C. 78o(d). 

25 17 CFR 240.12g3–2(b). 

26 Current Rule 6522(a)(4) requires that a 

PORTAL security be assigned a CUSIP number that 

is different than the identification number assigned 

to any unrestricted securities of the same class. As 

a matter of practice by PORTAL and Standard & 

Poor’s (‘‘S&P’’), the CUSIP number assigned to those 

securities that are initially sold to QIBs pursuant to 

Rule 144A is different than the CUSIP numbers 

assigned to those securities that are part of the same 

offering that are sold to accredited investors 

pursuant to SEC Regulation D and to non-U.S. 

investors under SEC Regulation S. Thus, PORTALdesignation is limited to those securities that have 

initially been sold to QIBs. Nasdaq is proposing to 

amend this rule, which will be renumbered Rule 

6502(b)(1)(D), to reflect this policy. 

27 15 U.S.C. 78o. 

28 17 CFR 240.17a–5(d). 

29 The SEC noted that pursuant to Rule 144A, 

broker/dealers are permitted to enter quotations in 

an inter-dealer quotation system so long as the offer 

is made to QIBs or persons whom dealers 

reasonably believe to be QIBs. See supra, note 6, the 

2001 PORTAL rule filing. 

form of information in trade reports 

submitted with respect to PORTAL 

securities and depository-eligible Rule 

144A investment grade rated debt 

issues. NASD provides ongoing 

surveillance of the trade reports in 

PORTAL securities that are submitted 

through the OTC Reporting Facility and 

TRACE, including trade reports with 

respect to PORTAL securities and 

depository-eligible Rule 144A 

investment grade rated debt issues. 

The existence of mandatory trade 

reporting for most PORTAL securities 

has led to an increased interest on the 

part of the securities industry for greater 

market transparency in PORTAL 

securities in the form of centralized 

quotations and last sale trade 

information. In addition, technological 

advances now allow a quotation, trade 

negotiation, and reporting system to be 

more easily integrated into the existing 

PORTAL Market structure. 

Nasdaq’s PORTAL Proposal 

Nasdaq is proposing to establish an 

updated version of the PORTAL Market 

that was originally envisioned when 

PORTAL was first approved in 1990. 

The proposed amendments to the 

PORTAL rules will: (i) Establish 

qualification requirements for brokers 

and dealers that are Nasdaq members 

and QIBs that wish to access PORTAL; 

and (ii) implement quotation, trade 

negotiation and trade reporting 

functions in the PORTAL Market with 

respect to PORTAL-designated 

securities. Most of the proposed 

amendments were previously approved 

by the Commission with respect to the 

earlier attempt by the NASD to establish 

PORTAL as a closed trading system for 

Rule 144A securities. Nasdaq’s 

proposed PORTAL system is 

summarized below. 

Security Designation: Nasdaq will 

continue to qualify ‘‘restricted 

securities,’’ as that term is defined in 

SEC Rule 144(a)(3) 21 and securities that 

are restricted pursuant to contract or 

through the terms of the security for 

designation as PORTAL securities based 

on, among other things, the security and 

information requirements for the resale 

of a security under Rule 144A(d)(3) and 

(d)(4).22 Thus, PORTAL securities must 

not be, or have been when issued, of the 

same class as securities listed on a 

national securities exchange or quoted 

in a U.S. automated inter-dealer 

quotation system, nor be securities of an 

open-end investment company, unit 

investment trust or face-amount 

certificate company that is or is required 

to be registered under Section 8 of the 

Investment Company Act of 1940. With 

respect to the information requirements 

under Rule 144A(d)(4), an issuer of a 

PORTAL-designated security must be 

subject to reporting under Section 13 of 

the Act 23 or Section 15(d) of the Act,24

a foreign private issuer that is exempt 

from reporting pursuant to Rule12g3– 

2(b) under the Act,25 a foreign 

government eligible to register securities 

under Schedule B of the Securities Act, 

or include disclosure in the private 

placement memorandum that the issuer 

agrees to provide to a holder of a Rule 

144A security and a prospective 

purchaser designated by the holder 

reasonably current information about 

the issuer’s business and financial 

statements. 

As a matter of practice, PORTAL 

designation is limited to those Rule 

144A securities that are initially sold to 

QIBs by a broker/dealer acting as initial 

placement agent or initial purchaser.26

Moreover, Nasdaq will continue to have 

authority under PORTAL rules to 

suspend or terminate the designation of 

a PORTAL security if Nasdaq 

determines that the security is not in 

compliance with PORTAL rules, a 

holder or prospective purchaser that 

requested information pursuant to Rule 

144A(d)(4) did not receive the 

information, any application or other 

document relative to such securities 

submitted to Nasdaq contained an 

untrue statement of material fact or 

omitted to state a material fact necessary 

to make the statements therein not 

misleading, or failure to withdraw 

designation of such securities would for 

any reason be detrimental to the 

interests and welfare of Nasdaq, Nasdaq 

members, or investors. 

Broker/Dealer Access: Similar to 

NASD’s original PORTAL system 

approved by the SEC, Nasdaq members 

that meet the PORTAL qualification 

requirements will be designated as 

‘‘PORTAL Dealers’’ and ‘‘PORTAL 

Brokers.’’ The purpose of distinguishing 

between Nasdaq members thatualify as 

‘‘PORTAL Dealers’’ and ‘‘PORTAL 

Brokers’’ is to identify in PORTAL those 

Nasdaq members that qualify as a QIB 

under Rule 144A to purchase Rule 144A 

securities on a principal basis. To 

qualify as a PORTAL Broker, a Nasdaq 

member will be required by PORTAL 

rules to execute a subscriber agreement 

with PORTAL, be a member of Nasdaq, 

be qualified to do business as a general 

securities firm, and agree to comply 

with the PORTAL rules. Pursuant to 

Rule 144A(a)(1)(iii), a dealer registered 

under Section 15 of the Act 27 is 

authorized to act as an agent for a QIB 

on a non-discretionary basis pursuant to 

Rule 144A or to act in a riskless 

principal capacity on behalf of a QIB. To 

qualify as a PORTAL Dealer, a Nasdaq 

member will be required by PORTAL 

rules to meet these same requirements 

and also to demonstrate to the 

satisfaction of Nasdaq that it is eligible 

to purchase securities under the 

financial criteria of SEC Rule 144A. 

Under Rule 144A(a)(1)(ii), a dealer so 

registered will qualify as a QIB if the 

dealer in the aggregate owns and invests 

on a discretionary basis at least $10 

million of securities of issuers that are 

not affiliated with the dealer and may 

act for its own account or the accounts 

of other QIBs. Nasdaq proposes to 

qualify a Nasdaq member as a PORTAL 

Dealer based on the member’s Audited 

Financial Statements filed with the SEC 

pursuant to Rule 17a–5(d) under the 

Act.28 Nasdaq would annually update 

its qualification of PORTAL Dealers. 

PORTAL Dealers and PORTAL 

Brokers would be permitted to post 

anonymous one- or two-sided indicative 

quotations in PORTAL securities that 

may be accessed by other PORTAL 

Dealers and Brokers and QIBs qualified 

as ‘‘PORTAL Qualified Investors.’’ 29 In 

addition, PORTAL Dealers and Brokers 

will be permitted to negotiate 

anonymously, execute trades in 

PORTAL securities, and submit trade 

reports in PORTAL-negotiated trades 

that will be forwarded to TRACE and 

the OTC Reporting Facility for 

comparison and confirmation. 

Investor Access: Like the original 

PORTAL system approved by the SEC, 

an institution that executes a subscriber 

agreement, agrees to comply with the 

PORTAL rules and meets the $100 

million standard of being a QIB under 


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30 15 U.S.C. 77(e). 

31 Trade report information on Rule 144A 

investment grade debt that is not a PORTAL 

security would not be disseminated in PORTAL. To 

the extent that Nasdaq members desire to quote, 

execute, and view trade report information on any 

Rule 144A investment grade debt security in 

PORTAL, the security must be qualified as a 

PORTAL security. 32 17 CFR 240.15c2–11. 33 15 U.S.C. 78l(g). 

34 Id. 

35 15 U.S.C. 78l(a). 

36 15 U.S.C. 78l(b). 

37 15 U.S.C. 78f. 

38 15 U.S.C. 78f(b)(5). 

39 15 U.S.C. 78k-1(a)(1). 

40 15 U.S.C. 78f(b)(1). 

41 Section 6(b)(1) of the Act requires that Nasdaq, 

as a national securities exchange, be so organized 

Continued 

Rule 144A would be qualified by 

Nasdaq as a ‘‘PORTAL Qualified 

Investor’’ to access the PORTAL Market 

through a password protected linkage 

and view quotations by PORTAL 

Dealers and PORTAL Brokers, and 

confirm transactions where the investor 

uses a PORTAL Dealer or Broker to 

execute a trade in PORTAL. In addition, 

in order to comply with the requirement 

of Rule 144A(d)(2) that the seller of Rule 

144A securities take reasonable steps to 

ensure that the purchaser is aware that 

the seller may rely on Rule 144A, the 

subscriber agreement will include an 

undertaking that the PORTAL Qualified 

Investor is aware that it may purchase 

a PORTAL security from another 

qualified investor who may rely on an 

exemption from the provisions of 

Section 5 of the Securities Act.30

Trade Negotiation/Execution: Unlike 

the original PORTAL system, the 

reestablished PORTAL system would 

use electronic negotiation features in 

order to allow PORTAL Dealers and 

PORTAL Brokers to negotiate both 

openly and anonymously and execute 

trades in PORTAL securities. All quotes 

in the PORTAL system will be 

indicative, not firm. Once an 

anonymous trade is negotiated in the 

PORTAL system, the identity of the 

counter-parties will be revealed to each 

other for purposes of comparison, 

confirmation, and settlement. 

Trade Reporting: Trade reports in 

reportable PORTAL debt and equity 

securities will continue to be submitted 

to the TRACE and the OTC Reporting 

Facility, respectively. In addition, 

PORTAL-negotiated trades will be 

submitted through the PORTAL System 

to TRACE and the OTC Reporting 

Facility. Nasdaq also intends to provide 

the ability to forward PORTAL trades to 

an appropriate subsidiary of Depositary 

Trust and Clearing Corporation for 

settlement. 

Dissemination of PORTAL Trade 

Report Information: All trade report 

information for trades that are 

negotiated via the PORTAL system will 

be disseminated in PORTAL to PORTAL 

Brokers, Dealers and Qualified Investors 

(‘‘PORTAL Participants’’), but would 

not include the identity of the parties 

and, in the case of PORTAL debt, would 

not aggregate or otherwise follow the 

dissemination protocols applicable to 

debt trades reported to TRACE.31

PORTAL Participants would be 

prohibited from disclosing any PORTAL 

Market information, including 

quotations, transactions and other 

information displayed in the PORTAL 

Market (‘‘PORTAL Market 

Information’’), to any party other than 

another PORTAL Participant. Nasdaq 

will not disseminate PORTAL Market 

Information to the public. 

Regulatory Surveillance: NASD 

currently provides and would continue 

to provide surveillance of the trade 

reports in PORTAL securities that are 

submitted through TRACE and the OTC 

Reporting Facility. Real-Time 

Surveillance of quoting and trading 

activity in the PORTAL system will be 

conducted by Nasdaq’s MarketWatch 

Department. 

SEC Exemptions 

As part of its original review and 

approval of a PORTAL trading system, 

the Commission and its staff granted 

several exemptions and no-action 

requests to the NASD as the thenoperator of the PORTAL Market and 

made other related determinations. 

Nasdaq, through letter requests to be 

separately submitted to the 

Commission, will seek the issuance of 

similar and new exemptions so as to 

allow the operation of the PORTAL 

trading system as described in this 

filing. In summary, Nasdaq is seeking 

Commission exemptions in the 

following areas: 

SEC Rule 15c2–11: Through a separate 

letter request, Nasdaq is seeking an 

exemption from Rule 15c2–11 under the 

Act 32 with respect to the gathering and 

furnishing of the prescribed information 

by PORTAL Dealers and PORTAL 

Brokers that intend to publish, or 

submit for publication, quotations for 

PORTAL-designated securities through 

the PORTAL system. 

Registration Under Section 12(g) of 

the Act: Through a separate letter 

request, Nasdaq is seeking an exemption 

from the provisions of Section 12(g) of 

the Act 33 to permit Nasdaq members 

and brokers and dealers to trade 

PORTAL-designated equity securities 

that are not registered under Section 

12(g) of the Act.34

Registration Under Section 12(b) of 

the Act: Through a separate letter 

request, Nasdaq is seeking an exemption 

from the provisions of Section 12(a) of 

the Act 35 to permit Nasdaq members 

and brokers and dealers to trade 

PORTAL securities that are not 

registered under Section 12(b) of the 

Act.36

R2. Statutory Basis 

Nasdaq believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,37 in 

general and with Section 6(b)(5) of the 

Act,38 in particular, in that it is designed 

to prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, remove 

impediments to a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. In particular, the 

proposal can be expected to enhance the 

efficiency and transparency of trading 

Rule 144A securities. 

In addition, Nasdaq believes that the 

proposed rule change is consistent with 

Section 11A(a)(1) of the Act. 39 Section 

11A(a)(1) articulates the Congressional 

findings and policy goals and objectives 

respecting the development of a 

national market system. Essentially, 

Congress found that new data 

processing and communication 

techniques should be applied to 

improve the efficiency of market 

operations, broaden the distribution of 

market information, enhance 

opportunities to achieve best execution 

and promote competition among market 

participants. That provision stresses the 

importance of implementing 

communication enhancements that will 

advance the efficiency and effectiveness 

of a securities market in servicing the 

needs of investors. Currently, the 

secondary placement market in 

unregistered securities is a traditional 

over-the-counter market, in which 

negotiations are conducted over the 

phone without the benefit of a quotation 

or last sale trade information 

dissemination system. Nasdaq believes 

that the proposed amendments to the 

PORTAL Market will provide these 

benefits and, thus, will enhance the 

efficiency of the market’s operation in 

Rule 144A-eligible securities. 

Rule 144A Under the Securities Act: 

Because Nasdaq has designed the 

amendments to the PORTAL Market to 

facilitate compliance with Rule 144A, 

Section 6(b)(1) of the Act 40 also 

requires a determination as to whether 

it is reasonably designed to accomplish 

this purpose.41 Nasdaq believes that the 


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23878 Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 

and have the capacity to enforce compliance with, 

among other things, the federal securities laws. See 

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

42 15 U.S.C. 77(e). 

43 See Nasdaq Rules 6521(a) and 6522(a)(5). 

44 15 U.S.C. 78m. 

45 15 U.S.C. 78o(d). 

46 17 CFR 240.12g3–2(b). 

PORTAL system is designed to provide 

that participants who comply with its 

requirements will also be in compliance 

with the requirements of Rule 144A, 

except where information is not 

provided upon request in compliance 

with Rule 144A(d)(4). 

Rule 144A is available only to 

institutional investors meeting the 

definition of ‘‘qualified institutional 

buyer’’ under Rule 144A(a)(1). A seller 

is required to form a reasonable belief 

that a purchaser is a ‘‘qualified 

institutional buyer’’ as the term is 

defined in Rule 144A(a)(1). With the 

exception of broker-dealers, a qualified 

institutional buyer is required to in the 

aggregate own and invest on a 

discretionary basis at least $100 million 

in securities of non-affiliated issuers. 

The proposed amendments to the 

PORTAL rules require that any investor 

applying to qualify as a PORTAL 

Qualified Investor meet the Rule 144A 

standards for qualified institutional 

buyers. 

Rule 144A(d)(2) requires that the 

seller of 144A securities take reasonable 

steps to ensure that the purchaser is 

aware that the seller may rely on Rule 

144A. To meet this requirement of Rule 

144A, the proposed amendments to the 

PORTAL rules also provide in the 

designation requirements for PORTAL 

Qualified Investors that applicants sign 

an undertaking in a subscriber 

agreement that states that they are aware 

that they may purchase a PORTAL 

security from another qualified investor 

who may rely on an exemption from the 

provisions of Section 5 of the Securities 

Act 42 pursuant to Rule 144A. 

The PORTAL rules also have current 

eligibility requirements for admitting 

securities into the PORTAL system that 

parallel the Rule 144A eligibility 

requirements for securities. The 

PORTAL rules require, therefore, that 

the security be eligible to be sold 

pursuant to Rule 144A under the 

Securities Act. The application for 

designation of a PORTAL security 

requires the submission of specific 

information necessary to support the 

applicant’s claim that the security meets 

the requirements of Rule 144A. In 

addition, the current PORTAL Rules 

provide Nasdaq with the authority to 

request any additional information that 

Nasdaq believes is necessary to make a 

determination of whether a security is 

eligible under Rule 144A.43

Furthermore, Rule 144A conditions 

the eligibility of certain securities under 

Rule 144A on certain information being 

available to holders and prospective 

purchasers. Rule 144A(d)(4) provides 

that, with respect to securities of an 

issuer that is neither subject to Section 

13 of the Act 44 nor Section 15(d) of the 

Act,45 nor exempt from reporting 

pursuant to Rule 12g3–2(b) under the 

Act,46 nor a foreign government eligible 

to register securities under Schedule B 

of the Securities Act, the holder and a 

prospective purchaser designated by the 

holder must have the right to obtain 

from the issuer, upon request of the 

holder, and the purchaser must have 

received at or prior to the time of sale, 

upon such purchaser’s request to the 

holder, certain information about the 

issuer. Because the PORTAL rules 

currently require that a security meet 

the Rule 144A security eligibility 

requirements and that the issuer 

undertake to provide the information 

required by Rule 144A(d)(4), where 

applicable, Nasdaq must, as part of the 

PORTAL security designation process, 

assess whether the issuer is required to 

provide such information to holders and 

prospective purchasers. 

In addition to structuring the 

PORTAL rules to provide that 

participants who comply with its 

requirements also are in compliance 

with the requirements of Rule 144A, the 

proposed rule change would structure 

PORTAL to limit the possibility that 

unregistered securities enter the U.S. 

retail market by requiring that PORTALdesignated securities be assigned a 

CUSIP or CINS security identification 

number that is different than the 

identification number assigned to any 

securities of the same class that do not 

satisfy the eligibility requirements for 

PORTAL securities. Since the original 

approval of the PORTAL Market, the 

security explanation protocol employed 

by S&P related to the CUSIP number 

assigned to PORTAL securities 

specifically distinguishes those 

securities from all other publicly-traded 

and restricted securities by using the 

words ‘‘Rule 144A’’ and ‘‘PORTAL.’’ For 

these reasons, Nasdaq believes that the 

PORTAL system, as proposed, is 

reasonably designed to facilitate 

compliance with Rule 144A, so long as 

there is compliance with the PORTAL 

rules and procedures, except where 

information is not provided on request 

pursuant to Rule 144A(d)(4). 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

Nasdaq does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

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 is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

<bullet≤ Use the Commission’s 

Internet comment form (http:// 

www.sec.gov/rules/sro.shtml); or 

<bullet≤ Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2006–065 on the 

subject line. 

Paper Comments 

<bullet≤ 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–2006–065. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 


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Federal Register / Vol. 72, No. 83 / Tuesday, May 1, 2007 / Notices 23879 

47 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). 

5 The Pilot Program was initially approved by the 

Commission on June 11, 2003, and extended until 

June 5, 2007. See Securities Exchange Act Release 

Nos. 48013 (June 11, 2003), 68 FR 35933 (June 17, 

2003) (SR–Phlx–2002–55) (‘‘Phlx Approval Order’’); 

49801 (June 3, 2004), 69 FR 32652 (June 10, 2004) 

(SR–Phlx–2004–38); 51768 (May 31, 2005), 70 FR 

33250 (June 7, 2005) (SR–Phlx–2005–35); and 

53938 (June 5, 2006), 71 FR 34178 (June 13, 2006) 

(SR–Phlx–2006–36) (collectively, ‘‘Phlx Pilot 

Extensions’’). The other options exchanges have 

similar $1 strike price listing pilot programs that 

were likewise extended through June 5, 2007. See 

Securities Exchange Act Release Nos. 53843 (May 

19, 2006), 71 FR 30455 (May 26, 2006) (SR–Amex– 

2006–49); 53885 (May 24, 2006), 71 FR 30973 (May 

31, 2006) (SR–BSE–2006–19); 53805 (May 15, 

2006), 71 FR 29690 (May 23, 2006) (SR–CBOE– 

2006–31); 53806 (May 15, 2006), 71 FR 29694 (May 

23, 2006) (SR–ISE–2006–20); and 53807 (May 15, 

2006), 71 FR 29373 (May 22, 2006) (SR–NYSEArca– 

2006–14). 

6 See Phlx Approval Order and Phlx Pilot 

Extensions, supra note 5. 7 Phlx continues to list the $1 strike prices in the 

options classes that it initially chose for the Pilot 

Program: TYCO International, LTD (TYC), Micron 

Tech. (MU), Oracle Co. (ORQ), Brocade Comm. 

(UBF), and Juniper Networks (JUP). Because TYC is 

presently trading outside the strike price range 

permissible in the Pilot Program, however, it is not 

trading at $1 strike price intervals. 

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 the Nasdaq. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2006–065 and 

should be submitted on or before May 

22, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.47

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–8252 Filed 4–30–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55666; File No. SR–Phlx– 

2007–29] 

Self-Regulatory Organizations; 

Philadelphia Stock Exchange, Inc.; 

Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Extension of the $1 

Strike Pilot Program 

April 25, 2007. 

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 16, 2007, the 

Philadelphia Stock Exchange, Inc. 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by Phlx. The 

Exchange has filed the proposal as a 

‘‘non-controversial’’ rule change 

pursuant to Section 19(b)(3)(A) of the 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Commentary .05 to Exchange Rule 1012 

in order to extend for a period of one 

year a pilot program that allows the 

Exchange to list options classes 

overlying five individual stocks with 

strike price intervals of $1.00 where, 

among other things, the underlying 

stock closes below $20.00 on the 

primary market trading it on the day 

before selection by the Exchange to list 

pursuant to the pilot, and the Exchange 

can list $1.00 strike prices on any 

options classes specifically designated 

by other securities exchanges that 

employ a similar pilot program under 

their rules (‘‘Pilot Program’’).5 The text 

of the proposed rule change is available 

at Phlx, the Commission’s Public 

Reference Room, and http:// 

www.phlx.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Phlx 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. Phlx 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 

The purpose of the proposed rule 

change is to extend the Pilot Program for 

one year until June 5, 2008, so that the 

Exchange may continue to list options at 

$1.00 strike price intervals within the 

parameters specified in Commentary .05 

to Phlx Rule 1012. 

The Commission approved the Pilot 

Program allowing the listing of strike 

prices for options at $1.00 intervals for 

securities trading under $20.00, and 

extended it through June 5, 2007.6 The 

Exchange is proposing to extend the 

Pilot Program for a period of one year, 

through June 5, 2008. The Pilot Program 

will remain unchanged such that 

pursuant to it Phlx can establish $1 

strike price intervals on options classes 

overlying no more than five individual 

stocks designated by the Exchange 

where the underlying stock closes below 

$20.00 on its primary market on the 

trading day before selection by the 

Exchange to list pursuant to the Pilot 

Program; the $1.00 strike price is from 

$3.00 to $20.00; the $1.00 strike price is 

no more than $5.00 from ($5.00 above 

or below) the closing price of the 

underlying stock on the preceding day; 

the $1.00 strike price will not be listed 

within $0.50 of an existing $2.50 strike 

price within the same series; and the 

$1.00 strike price will not be applied to 

Long-Term Equity AnticiPation 

Securities. And, pursuant to the Pilot 

Program, the Exchange can multiply list 

those option classes specifically 

designated to be listed at $1.00 strike 

prices by other options exchanges that 

have similar $1.00 pilot programs 

pursuant to their own rules. 

In July 2003, Phlx chose and listed 

five options classes with $1 strike price 

intervals, thereafter listed on a multiple 

listing basis $1 strike prices options 

classes that were listed by other options 

exchanges pursuant to their $1 strike 

price pilot programs, and currently lists 

22 options classes with $1 strike prices.7

The Exchange continues to believe that 

the ability to list stocks at $1 strike price 

intervals pursuant to the Pilot Program 

has given investors flexibility and the 

opportunity to more closely and 


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