[Federal Register Volume 66, Number 114 (Wednesday, June 13, 2001)]
[Notices]
[Pages 31952-31953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-14831]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44396; File No. 10-131]


The Nasdaq Stock Market, Inc.; Notice of Filing of Application 
for Registration as a National Securities Exchange Under Section 6 of 
the Securities Exchange Act of 1934

June 7, 2001.
    The Nasdaq Stock Market, Inc. (``Nasdaq'') completed its 
application for registration as a national securities exchange (``Form 
1'') under section 6 \1\ of the Securities Exchange Act of 1934 (the 
``Exchange Act'') and submitted it to the Securities and Exchange 
Commission (``SEC'' or ``Commission'') on March 15, 2001.\2\ The 
Commission is publishing this notice to solicit comments on Nasdaq's 
Form 1.
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    \1\ 15 U.S.C. 78(f).
    \2\ See Letter to Annette L. Nazareth, Director, Division of 
Market Regulation (``Division''), Commission, from Edward S. Knight, 
Executive Vice President and General Counsel, Nasdaq, dated November 
9, 2000. Exhibits A and C to Nasdaq's application were incomplete, 
and therefore on March 15, 2001, Nasdaq submitted to the Commission 
revised Exhibits A and C to address the deficiencies. As a result, 
Nasdaq's Form 1 was completed and officially filed with the 
Commission on March 15, 2001.
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I. Background

    Until recently, Nasdaq was a wholly-owned subsidiary of the 
National Association of Securities Dealers, Inc. (``NASD''). On April 
14, 2000, NASD members voted in favor of a restructuring plan that 
broadens the ownership of Nasdaq through a two-phase, private placement 
of common stock and warrants to include not only NASD members, but also 
Nasdaq issuers, institutional investors and strategic partners. In the 
first phase of the private placement, which was completed in June 2000, 
the NASD sold shares and issued warrants overlaying

[[Page 31953]]

shares of Nasdaq it owned, and Nasdaq also issued and sold additional 
shares. As a result, the NASD's ownership interest in Nasdaq was 
reduced from 100% to 60%. The second phase of the private placement was 
completed on January 18, 2001, and as a result the NASD's ownership 
interest in Nasdaq was further reduced to 40%.\3\
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    \3\ For both phases of the private placement, the NASD's 
percentage ownership of Nasdaq assumes that all warrants sold are 
fully exercised. Recently, Nasdaq also announced an agreement to 
sell subordinated debentures convertible into Nasdaq common stock to 
a private equity firm. If fully converted, this private equity firm 
would own approximately 9.8% of Nasdaq common stock. The Division 
currently is considering changes to Nasdaq's Certificate of 
Incorporation that would be necessary to consummate the sale of 
these debentures.
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    Nasdaq currently is operated by the NASD pursuant to a Plan of 
Allocation and Delegation of Functions by the NASD to Subsidiaries as 
approved by the Commission.\4\ Until approval of Nasdaq's exchange 
registration, the shares of common stock underlying unexercised and 
unexpired warrants, as well as the shares of common stock purchased 
through the valid exercise of warrants, will be voted by a trustee at 
the direction of the NASD. Thus, even though the NASD has divested 
itself of its ownership interest and currently does not own a 
controlling interest in Nasdaq, the NASD nonetheless exercises 
effective control over Nasdaq through voting until the Commission 
approves Nasdaq's exchange registration.
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    \4\ Securities Exchange Act Release No. 37107 (April 11, 1996), 
61 FR 16948 (April 18, 1996).
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II. Nasdaq's Exchange Registration

    Nasdaq currently is exempt from the definition of ``exchange'' 
under Rule 3a1-1 because it is operated by the NASD.\5\ Before the NASD 
may relinquish control, Nasdaq must register as a national securities 
exchange.\6\ Accordingly, Nasdaq has filed a complete Form 1, including 
all of the required exhibits, to register as a national securities 
exchange.
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    \5\ Pursuant to Rule 3a1-1, an organization, association, or 
group of persons shall be exempt from the definition of ``exchange'' 
if it is operated by a national securities association. Unless 
another exemption from the definition of ``exchange'' applies, such 
organization, association, or group of persons that otherwise meets 
the definition of an ``exchange'' must register as such with the 
Commission. 17 CFR 240.3a1-1.
    \6\ The voting trust will automatically expire and the NASD will 
no longer control or operate Nasdaq upon Nasdaq's registration as an 
exchange.
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    The Form 1 provides detailed information about Nasdaq and how it 
proposes to satisfy the requirements of the Exchange Act. The 
Commission shall grant such registration if it finds that the 
requirements of the Exchange Act and the rules and regulations 
thereunder with respect to Nasdaq are satisfied.\7\ There are a number 
of implications to Nasdaq's separation from the NASD and application to 
register and operate as an exchange. For example, Nasdaq will have to 
demonstrate that it has the capacity to comply, and enforce compliance 
by its members, with the Exchange Act and its own rules.\8\ In 
addition, while members of a national securities association are not 
subject to section 10(a) \9\ when trading Nasdaq stocks, if the 
Commission approves Nasdaq's registration as an exchange, Section 10(a) 
will apply to such trading. Moreover, while Nasdaq members are not 
subject to section 11(a) \10\ of the Exchange Act for their Nasdaq 
transactions, they would be subject to section 11(a) if Nasdaq becomes 
an exchange. Furthermore, while the Form 1 contemplates that Nasdaq 
will be an exchange trading Nasdaq National Market securities and 
Nasdaq SmallCap securities, the future operation of the Over-the-
Counter Bulletin Board must be addressed. Before Nasdaq can register as 
a national securities exchange, it must be able to satisfy its 
obligations under section 11A \11\ of the Act. Finally, Nasdaq's 
exchange registration has implications for the NASD which, as a 
national securities association, will continue to be required to 
collect bids, offers and quotation sizes for those entities seeking to 
trade listed securities, including Nasdaq securities, otherwise than on 
a national securities exchange.\12\ The Commission notes that the 
NASD's quotation and transaction reporting facility must be operational 
upon Nasdaq's exchange registration.
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    \7\ Section 19(a) of the Exchange Act, 15 U.S.C. 78(s)(a).
    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78j(a).
    \10\ 15 U.S.C. 78k(a).
    \11\ 15 U.S.C. 78k-1.
    \12\ 17 CFR 240.11Ac1-1(b)1(ii).
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III. Solicitation of Comments

    A complete copy of Nasdaq's Form 1 is available in the Commission's 
Public Reference Room, File No. 10-131. Portions of Nasdaq's Form 1, 
including Nasdaq's rules, also are available on the Commission's 
website at http:/www.sec.gov/rules/other.shtml. Interested persons 
should submit three copies of their written data, views and opinions on 
Nasdaq's Form 1 to Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, D.C. 20549-0609. 
Comments also may be submitted electronically at the following E-mail 
address: <a href="/cdn-cgi/l/email-protection#592b2c353c743a3634343c372d2a192a3c3a773e362f"><span class="__cf_email__" data-cfemail="5c2e293039713f3331313932282f1c2f393f723b332a">[email protected]</span></a>. Comments must be received on or before 
July 30, 2001. All comment letters should refer to File No. 10-131; 
this file number should be included on the subject line if comments are 
submitted using E-mail. The Commission requests that commenters focus 
on issues raised in Nasdaq's Form 1, File No. 10-131, when submitting 
comments in response to this notice. Commenters wishing to address 
another specific rule filing by the NASD pending with the Commission 
should direct their comments to that specific rule proposal. Copies of 
all submissions, amendments, and all written statements will be 
available for public inspection and copying at the Commission's Public 
Reference Room. Electronically submitted comment letters will be posted 
on the Commission's Internet website (http://www.sec.gov).
    For questions regarding this release, contact Rebekah Liu, Special 
Counsel, at (202) 942-0133; Geoffrey Pemble, Attorney, at (202) 942-
0757, Division of Market Regulation, Securities and Exchange 
Commission, 450 Fifth Street, Washington, DC 20549-1001.

By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-14831 Filed 6-12-01; 8:45 am]
BILLING CODE 8010-01-U


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