Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices 57185 

14 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Lehman Bros Pfd C (LEH–PC); Lehman Bros 

5.67 D (LEH–PD); Lehman Bros Dep SH F (LEH– 

PF); Lehman Dep Pfd G (LEH–PG); Lehman Pfd J 

(LEH–PJ); Lehman CP III 6.375 K (LEH–PK); 

Lehman Br Cap Tr IV (LEH–PL); Lehman Bro Cap 

V 6.0 (LEH–PM); and Lehman Br Hld 6.24 N (LEH– 

PN). 

5See Securities Exchange Act Release No. 51808 

(June 9, 2005), 17 CFR Parts 200, 201, 230, 240, 242, 

249 and 270. 

6See 17 CFR 242.611. 

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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of the Exchange. 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–NYSE–2008–85 and should 

be submitted on or before October 22, 

2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–22964 Filed 9–30–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58631; File No. SR–NYSE– 

2008–84] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by New York 

Stock Exchange LLC Proposing To 

Suspend the Operation of Certain 

NYSE Rules To Respond to the Impact 

to the Marketplace of the Events of 

September 15, 2008, Including the 

Bankruptcy Filing by Lehman Brothers 

Holding Inc. 

September 24, 2008. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

September 15, 2008, New York Stock 

Exchange LLC (‘‘NYSE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the self-regulatory organization. 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 

New York Stock Exchange LLC 

(‘‘NYSE’’ or the ‘‘Exchange’’) is 

proposing to suspend the operation of 

certain NYSE rules to respond to the 

impact to the marketplace of the events 

of September 15, 2008, including the 

bankruptcy filing by Lehman Brothers 

Holding Inc. (LEH) and the proposed 

acquisition of Merrill Lynch by Bank of 

America. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NYSE included statements concerning 

the purpose of, and basis for, the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. NYSE 

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 

On Monday, September 15, 2008, the 

markets experienced almost 

unprecedented turmoil that impacted 

some of the most significant players on 

Wall Street: Lehman Brothers Holding 

Inc. (LEH) (‘‘Lehman’’) filed for 

bankruptcy protection in the United 

States District Court for the Southern 

District of New York under Chapter 11 

of the U.S. bankruptcy code; Bank of 

America agreed to acquire Merrill Lynch 

in an all-stock transaction; and 

American Insurance Group, Inc. (‘‘AIG’’) 

announced a significant restructuring. 

In response to these events, the 

Exchange undertook a number of steps 

to ensure continuity of the marketplace. 

First, the Exchange invoked NYSE Rule 

48, which authorizes the Exchange to 

suspend certain rules relating to the 

opening of trading at the Exchange. 

Second, because the pre-opening market 

in LEH suggested that the stock would 

open below $1.05, at 9 a.m. on 

September 15, 2008, the Exchange 

announced a Rule 123D(3) ‘‘Sub-penny 

trading’’ condition for LEH and halted 

trading in LEH at the Exchange. Third, 

to ensure a fair and orderly market in all 

securities listed at the Exchange, the 

Exchange announced that, pursuant to 

NYSE Rule 103.11, NYSE-listed 

securities for which Lehman Brothers 

Market Makers, a division of Lehman 

Brothers Inc. (‘‘Lehman Brothers’’), had 

been the specialist, would be 

temporarily reallocated to Spear, Leeds 

& Kellogg Specialists LLC (‘‘Spear 

Leeds’’). Notwithstanding the 

reallocation, these stocks will continue 

to trade using Lehman Brothers 

technology and staff until a more 

permanent allocation can be effected. 

To ensure a fair and orderly market 

during this period of market stress, the 

Exchange is seeking temporary relief 

from certain NYSE rules that are 

implicated by the Lehman Brothers 

situation. In particular, the Exchange is 

proposing to suspend the operation of 

NYSE Rule 123D(3) on September 15, 

2008 for derivative securities of LEH 

that trade at the Exchange (‘‘LEH 

Preferreds’’) 4 that would open at a price 

of $1.05 or less. This proposed 

suspension relates only to the opening 

of LEH Preferreds on September 15, 

2008. Immediately following the 

opening of such securities, the Exchange 

intends to halt trading of LEH Preferreds 

pursuant to NYSE Rule 123D(3) and 

invoke a Sub-penny trading condition. 

In addition, pending the installation 

of telephone lines at Lehman Brothers’ 

specialist posts that are connected to 

Spear Leeds, the Exchange proposes to 

temporarily suspend NYSE Rule 36.30 

so that Spear Leeds may conduct 

permitted communications from those 

post locations via non-Exchange 

portable telephones. 

a. NYSE Rule 123D(3) 

(1) Background 

NYSE Rule 123D(3) provides that if a 

security would open on the Exchange at 

a price of $1.05 or less, trading on the 

Exchange shall be immediately halted 

because of a ‘‘Sub-penny trading’’ 

condition. The Exchange adopted Rule 

123D(3) in part to be compliant with 

Regulation NMS. 

Regulation NMS, adopted by the 

Securities and Exchange Commission 

(‘‘SEC’’) in April 2005,5 provides that 

each trading center intending to qualify 

for trade-through protection under 

Regulation NMS Rule 6116 is required 

to have a Regulation NMS-compliant 

trading system fully operational by 


jlentini on PROD1PC65 with NOTICES
57186 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices 

7See Securities Exchange Act Release No. 55160 

(January 24, 2007), 72 FR 4202 (January 30, 2007) 

(S7–10–04). 

8See 17 CFR 242.612. Rule 612 originally was to 

become effective on August 29, 2005, but the date 

was later extended to January 29, 2006. See 

Securities Exchange Act Release No. 52196 (Aug. 2, 

2005), 70 FR 45529 (Aug. 8, 2005). 

9See 17 CFR 242.611(b)(3). 

10See Securities and Exchange Commission 

Release No. 34–55398; File No. SR–NYSE–2007–25 

(Mar. 5, 2007). 

11See Securities and Exchange Commission 

Release No. 34–55537; File No. SR–NYSE–2007–30 

(Mar. 27, 2007). 

12Prior to the open on September 15, 2008, the 

Exchange announced that it was invoking a Rule 

123D(3) ‘‘Sub-penny trading’’ condition for LEH 

and that any trading in that security would take 

place at NYSE Arca. Trading in LEH had begun at 

NYSE Arca at 4 a.m. EST on September 15, 2008. 13 15 U.S.C. 78f(b)(5). 

March 5, 2007 (the ‘‘Trading Phase 

Date’’).7

For stocks priced below $1.00 per 

share, Regulation NMS Rule 612 8

permits markets to accept bids, offers, 

orders and indications of interest in 

increments smaller than $0.01, but not 

less than $0.0001, and to quote and 

trade such stocks in sub-pennies. 

Markets may choose not to accept such 

bids, offers, orders or indications of 

interest and the NYSE has done so, 

maintaining a minimum trading and 

quoting variation of $0.01 for all 

securities trading below $100,000. See 

NYSE Rule 62. 

The SEC’s interpretation of Rule 612 

requires a market that routes an order to 

another market in compliance with Rule 

611 and receives a sub-penny execution, 

to accept the sub-penny execution, 

report that execution to the customer, 

and compare, clear and settle that trade. 

Failure to do so constitutes a violation 

of Rule 611’s Order Protection Rule. 

However, pursuant to Rule 611(b)(3) of 

Regulation NMS,9 transactions that 

constitute a single-priced opening, 

reopening, or closing transaction by a 

trading center are excepted from the 

Order Protection Rule. Accordingly, a 

sub-penny execution at the opening that 

trades through another market center 

does not constitute a violation of 

Regulation NMS Rule 611’s Order 

Protection Rule. 

The Exchange adopted Rule 123D(3) 

to provide for a ‘‘Sub-penny trading’’ 

condition because the Exchange’s 

trading systems did not then 

accommodate sub-penny executions on 

orders routed to better-priced protected 

quotations, nor could it recognize a 

quote disseminated by another market 

center if such quote had a sub-penny 

component and, therefore, could have 

inadvertently traded through better 

protected quotations. The rule allows 

the Exchange to halt trading in a 

security whose price was about to fall 

below $1.00, without delisting the 

security, so that the security could 

continue to trade on other markets that 

deal in bids, offers, orders or indications 

of interest in sub-penny prices, until the 

price of the security had recovered 

sufficiently to permit the Exchange to 

resume trading in minimum increments 

of no less than one penny or the issuer 

is delisted for failing to correct the price 

condition within the time provided 

under NYSE rules.10

A subsequent amendment established 

that any orders received by the NYSE in 

a security subject to a ‘‘Sub-penny 

trading’’ condition would be routed to 

NYSE Arca, Inc. (‘‘NYSE Arca’’) and 

handled in accordance with the rules 

governing that market.11 When a ‘‘Subpenny trading’’ condition is invoked, all 

open limit orders in such security at the 

Exchange will be cancelled and will not 

be routed to NYSE Arca. 

(2) Proposed Suspension of Rule 

123D(3) for LEH Preferreds 

Pre-opening quoting and trading in 

away markets relating to LEH Preferreds 

indicated that such securities would 

open at prices below $1.05.12 Prior to 

the opening, the Exchange received preopening orders in LEH Preferreds. If the 

Exchange were to invoke a ‘‘Sub-penny 

trading’’ condition for those securities 

prior to the opening, such orders would 

be cancelled and would not be routed to 

NYSE Arca. Therefore, such orders 

would not be executed, potentially 

harming the investing public that routed 

such orders to the Exchange before the 

Exchange’s announcement of a subpenny trading halt. 

The Exchange notes that while such 

an opening transaction would be a 

violation of NYSE Rule 123D(3), an 

execution at a sub-penny price at the 

opening at the Exchange would not be 

a violation of Regulation NMS. 

Accordingly, because a sub-penny 

execution at the opening would not 

constitute a violation of the Regulation 

NMS Rule 611 Order Protection Rule, 

the Exchange believes that the harm to 

the investing public in not having their 

orders in LEH Preferreds executed at the 

opening outweighs any harm that may 

result from a violation of NYSE Rule 

123D(3). The Exchange therefore 

proposes a one-day suspension of the 

operation of NYSE Rule 123D(3) that 

would be in effect only for the opening 

transactions of LEH Preferreds on 

September 15, 2008. 

Once trading in LEH Preferreds open 

at the Exchange, should such opening 

prices be at or below $1.05, the 

Exchange would, in compliance with 

NYSE Rule 123D(3), immediately halt 

trading and invoke a ‘‘Sub-penny 

trading’’ condition for such securities. 

b. Proposed Suspension of NYSE Rule 

36.30 

NYSE Rule 36 bars members or 

member organizations from establishing 

or maintaining any telephonic or 

electronic location between the Floor of 

the Exchange and any other location 

without the approval of the Exchange. 

NYSE Rule 36.30 permits a specialist 

unit to maintain telephone lines at its 

stock trading post locations that connect 

to off-Floor offices of the specialist unit 

or the unit’s clearing firm. Specialists, 

however, are not permitted to use cell 

phones from the Floor of the Exchange. 

As permitted by NYSE Rule 36.30, the 

Lehman Brothers specialist posts (posts 

10 and 11), which are located in the 

Main Room of the Floor of the 

Exchange, have telephone lines 

connected to its off-Floor offices. Those 

post locations do not have telephone 

lines connected to any other entities. 

Because the temporary reallocation to 

Spear Leeds of the securities registered 

with Lehman as specialist was done 

shortly before the opening of trading at 

the Exchange, the Exchange was unable 

to install telephone lines at posts 10 and 

11 that connect to Spear Leeds in time 

for the opening of trading or otherwise 

reorganize so that the Lehman Brothers 

and Spear Leeds posts are located in 

contiguous space. 

Without telephone lines from the 

posts 10 and 11 to Spear Leeds’ offFloor location, Spear Leeds is limited in 

its ability to engage in permitted 

telephonic communications from posts 

10 and 11. Accordingly, the Exchange 

proposes to temporarily suspend NYSE 

Rule 36.30 as it applies only to Spear 

Leeds at posts 10 and 11. Such 

suspension would end the earlier of (i) 

the installation of telephone wires at 

posts 10 and 11 that connect to Spear 

Leeds’ off-Floor locations; or (ii) the end 

of the temporary reallocation of the 

securities assigned to Lehman Brothers 

to Spear Leeds. 

In connection with this temporary 

relief, the Exchange will advise Spear 

Leeds’ management and risk personnel 

that use of the mobile telephones is 

limited to permitted communications, 

and may not be used from the Lehman 

Brothers’ posts for any other purposes. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with and 

furthers the objectives of Section 6(b)(5) 

of the Act,13 in that it is designed to 

prevent fraudulent and manipulative 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices 57187 

14 15 U.S.C. 78s(b)(3)(A). 

15 17 CFR 240.19b–4(f)(6). 

16 Id. In addition, Rule 19b–4(f)(6)(iii) requires a 

self-regulatory organization to give the Commission 

written notice of its intent to file the proposed rule 

change at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. 

NYSE has satisfied this requirement. 

17 Id. 

18Subsequent to filing this proposed rule change, 

the Exchange informed the Commission that 

installation of telephone wires at posts 10 and 11 

connecting to Spear Leeds’s off-Floor locations was 

completed the afternoon of September 15, 2008. 

Thus, the suspension would end and Rule 36.30 

would be in effect again prior to the opening of 

trading on September 16, 2008. Telephone 

conversation between Clare Saperstein, Director, 

Office of the General Counsel, Exchange, and 

Nathan Saunders, Special Counsel, Division of 

Trading and Markets, Commission, September 15, 

2008. 

19For purposes only of waiving the 30-day 

operative delay of this proposal, the Commission 

has considered the proposed rule’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

practices, to promote just and equitable 

principles of trade, to remove 

impediments to, and perfect the 

mechanisms of, a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

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 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The Exchange has designated the 

proposed rule change as one that: (1) 

Does not significantly affect the 

protection of investors or the public 

interest; (2) does not impose any 

significant burden on competition; and 

(3) does not become operative for 30 

days from the date of filing, or such 

shorter time as the Commission may 

designate if consistent with the 

protection of investors and the public 

interest. Therefore, the foregoing rule 

change has become effective pursuant to 

Section 19(b)(3)(A) of the Act 14 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.15

A proposed rule change filed under 

19b–4(f)(6) normally does not become 

operative until 30 days after the date of 

filing.16 However, Rule 19b–4(f)(6)(iii) 17

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. In view of the 

immediate nature of the relief requested, 

the Exchange seeks to have the 

proposed amendments become 

operative immediately. The Exchange 

requests that the Commission waive the 

30-day delayed operative date, so that 

the proposed rule change may become 

immediately operative pursuant to 

Section 19(b)(3)(A) and Rule 19b–4(f)(6) 

thereunder. Waiver of these periods will 

allow the Exchange to immediately 

implement the proposed rule change. 

As outlined more fully above, the 

Exchange believes that the proposed 

relief is limited in nature, and that the 

benefits of the proposed relief outweigh 

the potential harms. In particular, the 

proposed suspension of NYSE Rule 

123D(3) would be applicable only to the 

opening transactions on September 15, 

2008 for nine Lehman Preferred 

securities. Similarly, the proposed 

temporary suspension of NYSE Rule 

36.30 is only applicable for posts 10 and 

11 on the Floor of the Exchange to 

respond to the emergency reallocation 

of Lehman Brothers securities to Spear 

Leeds, and the suspension would end 

the earlier of (i) the installation of 

telephone wires at posts 10 and 11 that 

connect to Spear Leeds’ off-Floor 

locations; or (ii) the end of the 

temporary reallocation of the securities 

assigned to Lehman Brothers to Spear 

Leeds.18 Moreover, given the rapidity of 

recent developments, the NYSE believes 

that immediate effectiveness is required 

in order to avoid significant disruption 

to the market. The NYSE believes that 

this need satisfies the standards set out 

in the Exchange Act and related rules 

regarding immediate effectiveness 

filings. 

The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest. The 

Commission therefore grants the 

Exchange’s request and designates the 

proposal to be operative upon filing.19

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

No. SR–NYSE–2008–84 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, Station Place, 100 F Street, 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSE–2008–84. 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, on official business days between 

the hours of 10 a.m. and 3 p.m. Copies 

of such filing also will be available for 

inspection and copying at the principal 

office of NYSE. 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—NYSE– 

2008–84 and should be submitted on or 

before October 22, 2008. 


jlentini on PROD1PC65 with NOTICES
57188 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices 

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4Changes are marked to the rule text that appears 

in the electronic Nasdaq Manual found at http:// 

wallstreet.cch.com/nasdaq. 

5Securities Exchange Act Release No. 56172 (July 

31, 2007), 72 FR 44196 (SR–NASDAQ–2006–065). 

At the time of approval, Nasdaq indicated that it 

would first operate a system for trading PORTAL 

equity, and thereafter would enable the system to 

trade PORTAL debt securities. While the PORTAL 

equity functionality has been available since August 

15, 2007, Nasdaq has yet to implement trading 

functionality for PORTAL debt securities. 

Subsequently, on February 21, 2008, the SEC 

approved amendments to the qualification 

requirements for equity securities to be designated 

for inclusion in PORTAL in cases where the 

security does not receive book-entry settlement 

services at The Depository Trust Corporation 

(‘‘DTC’’) as had previously been required by 

PORTAL Rule 6502(b)(1)(C), but is nonetheless 

subject to an alternative regular-way non-DTC 

settlement procedure. Securities Exchange Act 

Release No. 57368 (February 21, 2008), 73 FR 10852 

(SR–NASDAQ–2008–011). 

6Rule 144A was adopted by the SEC in 1990 in 

Securities Act Release No. 6862 (April 23, 1990), 55 

FR 17933 (S7–23–88). PORTAL was approved by 

the SEC in Securities Exchange Act Release No. 

27956 (April 27, 1990), 55 FR 18781 (SR–NASD– 

88–23). For an explanation of the history of the 

development of the PORTAL Market, see Securities 

Exchange Act Release No. 55669 (April 25, 2007), 

72 FR 23874 (SR–NASDAQ–2006–065). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–22966 Filed 9–30–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58638; File No. SR– 

NASDAQ–2008–076] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Nasdaq’s PORTAL Market 

September 24, 2008. 

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 

September 19, 2008, 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. Nasdaq 

has designated the proposed rule change 

as constituting a non-controversial rule 

change under Rule 19b–4(f)(6) under the 

Act,3 which renders the proposal 

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 the Substance 

of the Proposed Rule Change 

The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’) is filing with the Securities 

and Exchange Commission 

(‘‘Commission’’) a proposed rule change 

to: (1) Cease operation, as a selfregulatory organization, of Nasdaq’s 

electronic platform for the quoting and 

trading of restricted equity securities 

designated for inclusion in The 

PORTAL Market (‘‘PORTAL’’ or the 

‘‘PORTAL Market’’); and (2) file, 

pursuant to Nasdaq Rule 2140, for 

Nasdaq to (a) acquire a minority 

ownership interest in a Delaware 

limited liability company to be known 

as The PORTAL Alliance LLC (the 

‘‘Alliance’’) that would, in turn, own 

and operate an open electronic platform 

for the posting of indicative quotations 

and negotiation of transactions in equity 

securities designated as PORTAL 

securities and (b) enter into an 

agreement to operate the platform on 

behalf of the Alliance. Other members of 

the Alliance would include certain 

Nasdaq members or their affiliates. The 

text of the proposed amendment to the 

Nasdaq PORTAL Rules is below. 

Proposed new language is underlined, 

proposed deletions are in brackets. 

The text of the proposed rule change 

is below. Proposed new language is in 

italics; proposed deletions are in 

brackets.4

* * * * * 

6501 Definitions 

For purposes of the PORTAL Rules, 

unless the context requires otherwise: 

(a)–(e) No Change. 

(f) The term ‘‘PORTAL security’’ or 

‘‘PORTAL securities’’ shall mean a security 

that is currently designated [and authorized 

for inclusion in the] as a PORTAL security 

[Market] by Nasdaq pursuant to the Rule 

6500 Series. 

(g) The term ‘‘PORTAL Market’’ or 

‘‘System’’ shall mean the system for the 

quotation, negotiation, execution and 

automated trade reporting of PORTAL Debt[s] 

Securities that is owned and operated by The 

NASDAQ Stock Market LLC. 

(h)–(x) No Change. 

* * * * * 

6504 Reporting Transactions in 

PORTAL Securities 

Transactions in PORTAL Debt[s] 

Securities shall be reported by the 

System in accordance with applicable 

self-regulatory organization rules. 

* * * * * 

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 

On July 31, 2007, the SEC approved 

amendments to the PORTAL Rules that 

reestablished a trading system for the 

purpose of quoting and trading 

securities eligible for resale by qualified 

institutional buyers under SEC Rule 

144A.5 This approval represented a new 

phase in the operation of the Nasdaq 

PORTAL Market, which was originally 

approved by the SEC in 1990 

simultaneously with the SEC’s approval 

of Rule 144A.6

During the period following the 

reestablishment of the Nasdaq PORTAL 

Market, Nasdaq has reexamined the 

operational and ownership structure of 

PORTAL with a view to adopting 

changes that reflect the preferences of 

market participants and enhance the 

operation of the system, which, in turn, 

Nasdaq believes will achieve the goals 

of enhanced transparency and efficiency 

in the trading of restricted securities 

that are at the heart of Nasdaq’s 

PORTAL initiatives. 

As a result, Nasdaq is proposing to: 

(1) Terminate the current Nasdaq 

PORTAL Market for equity securities, 

while continuing to review and 

designate both restricted debt and 

equity securities as PORTAL-eligible 

securities in its SRO capacity; and (2) 

Enter into agreements with certain of its 

members or their affiliates (the ‘‘Firms’’) 

to create, and take a minority interest in, 

the Alliance, a Delaware limited 


jlentini on PROD1PC65 with NOTICES