[Federal Register Volume 66, Number 27 (Thursday, February 8, 2001)]
[Notices]
[Pages 9615-9621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3238]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43914; File No. SR-NASD-00-78]


Self Regulatory Organizations; Notice of Filing of a Proposed 
Rule Change by the National Association of Securities Dealers, Inc. 
Amending the Nasdaq By-Laws

January 31, 2001.
    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 January 22, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'') through its subsidiary, The Nasdaq Stock Market, Inc. 
(``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 prepared by Nasdaq. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to amend its By-Laws regarding the balancing 
requirements on the Nasdaq Board of Directors (``the Board'') and the 
composition and operation of certain Nasdaq committees. Nasdaq also 
seeks to make certain changes to conform to the General Corporation Law 
of the State of Delaware (``Delaware law''). Proposed new language is 
in italics; proposed deletions are in brackets.

By-Laws of the NASDAQ Stock Market, Inc.

Article I

Definitions

* * * * *
    (j) ``Industry Director'' or ``Industry member'' means a Director 
(excluding [the President or the Chief Executive Officer] any two 
officers of Nasdaq, selected at the sole discretion of the Board, 
amongst those officers who may be serving as Directors (the ``Staff 
Directors'')) or Nasdaq Listing and Hearing Review Council or committee 
member who (1) is or has served in the prior three years as an officer, 
director, or employee of a broker or dealer, excluding an outside 
director or a director not engaged in the day-to-day management of a 
broker or dealer; (2) is an officer, director (excluding an outside 
director), or employee of an entity that owns more than ten percent of 
the equity of a broker or dealer, and the broker or dealer accounts for 
more than five percent of the gross revenues received by the 
consolidated entity; (3) owns more than five percent of the equity 
securities of any broker or dealer, whose investments in brokers or 
dealers exceed ten percent of his or her net worth, or whose ownership 
interest otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer; (4) provides professional services to 
brokers or dealers, and such services constitute 20 percent or more of 
the professional revenues received by the Director or 20 percent or 
more of the gross revenues received by the Director's or member's firm 
or partnership; (5) provides professional services to a director, 
officer, or employee of a broker, dealer, or corporation that owns 50 
percent or more of the voting stock of a broker or dealer, and such 
services relate to the director's officer's, or employee's professional 
capacity and constitute 20 percent or more of the professional revenues 
received by the Director or member or 20 percent or more of the gross 
revenues received by the Director's or member's firm or partnership; or 
(6) has a consulting or employment relationship with or provides 
professional services to the NASD, NASD Regulation, Nasdaq, or Amex 
(and any predecessor) or has had any such relationship or provided any 
such services at any time within the prior three years;
* * * * *
    (p) ``[National] Nominating Committee'' means the [National] 
Nominating Committee appointed

[[Page 9616]]

pursuant to [Article VII, Section 9 of the NASD] these By-Laws;
    (q) ``Non-Industry Director'' or ``Non-Industry member'' means a 
Director (excluding the [President or the Chief Executive Officer] 
Staff Directors) or Nasdaq Listing and Hearing Review Council or 
committee member who is (1) a Public Director or Public member; (2) an 
officer or employee of an issuer of securities listed on Nasdaq [or 
Amex], or traded in the over-the-counter market; or (3) any other 
individual who would not be an Industry Director or Industry member;
* * * * *
    [(u) ``Floor Governor'' or ``Amex Floor Governor'' means a Floor 
Governor of Amex elected pursuant to Article II, Section .01(a) of the 
Amex By-Laws;]
    [(v) ``Nasdaq-Amex'' means Nasdaq-Amex Market Group, Inc.;]
    [(w) (v) ``Amex'' means American Stock Exchange LLC[; and].
    [(x) ``Amex Board'' means the Board of Governors of Amex.]
* * * * *

Article III

Meeting of Stockholders

[Action by Consent of Stockholder]
Annual Meetings of Stockholders
    Sec. 3.1  (a) Nominations of persons for election to the Board and 
the proposal of business to be considered by the stockholders may be at 
an annual meeting of stockholders only (i) pursuant to Nasdaq's notice 
of meeting (or any supplement thereto), (ii) by or at the direction of 
the Board or the [National] Nominating Committee or (iii) by an 
stockholder of Nasdaq who was a stockholder of record of Nasdaq at the 
time the notice provided for in this Section 3.1 is delivered to the 
Secretary of Nasdaq, who is entitled to vote at the meeting and who 
complies with the notice procedures set forth in this Section 3.1.
    (b) For nominations or other business to be properly brought before 
an annual meeting by a stockholder pursuant to Section 3.1(a)(iii), the 
stockholder must have given timely notice thereof in writing to the 
Secretary of Nasdaq and any such proposed business other than the 
nominations of persons for election to the Board must constitute a 
proper matter for stockholder action. To be timely, a stockholder's 
notice shall be delivered to the Secretary at the principal executive 
offices of Nasdaq not later than the close of business on the ninetieth 
day nor earlier than the close of business on the one hundred twentieth 
day prior to the first anniversary of the preceding year's annual 
meeting (provided, however, that in the event that the date of the 
annual meeting is more than thirty days before or more than seventy 
days after such anniversary date, notice by the stockholder must be so 
delivered not earlier than the close of business on the one hundred 
twentieth day prior to such annual meeting and not later than the close 
of business on the later of the ninetieth day prior to such annual 
meeting or the tenth day following the day on which public announcement 
of the date of such meeting is first made by Nasdaq). For purposes of 
the first annual meeting of stockholders of Nasdaq held after 2000, the 
first anniversary of the 2000 annual meeting of stockholders shall be 
deemed to be May 15, 2001. In no event shall the public announcement of 
an adjournment or postponement of an annual meeting commence a new time 
period (or extend any time period) for the giving of a stockholder's 
notice as described above. Such stockholder's notice shall set forth: 
(i) As to each person whom the stockholder proposes to nominate for 
election as a director all information relating to such person that is 
required to be disclosed in solicitations of proxies of election of 
directors in an election contest, or is otherwise required, in each 
case pursuant to Regulation 14A under the Act and Rule 14a-11 
thereunder (and such person's written consent to being named in the 
proxy statement as a nominee and to serving as a director if elected); 
(ii) as to any other business that the stockholder proposes to bring 
before the meeting, a brief description of the business desired to be 
brought before the meeting, the text of the proposal or business 
(including the text of any resolutions proposed for consideration and 
in the event that such business includes a proposal to amend the By-
Laws of Nasdaq, the language of the proposed amendment), the reasons 
for conducting such business at the meeting and any material interest 
in such business of such stockholder and the beneficial owner, if any, 
on whose behalf the proposal is made; and (iii) as to the stockholder 
giving the notice and the beneficial owners, if any, on whose behalf 
the nomination or proposal is made (A) the name and address of such 
stockholder, as they appear on Nasdaq's books, and of such beneficial 
owner, (B) the class and number of shares of capital stock of Nasdaq 
which are owned beneficially and of record by such stockholder and such 
beneficial owner, (C) a representation that the stockholder is a holder 
of record of stock of Nasdaq entitled to vote at such meeting and 
intends to appear in person or by proxy at the meeting to propose such 
business or nomination, and (D) a representation whether the 
stockholder or the beneficial owner, if any, intends or is part of a 
group which intends (1) to deliver a proxy statement and/or form of 
proxy to holders of at least the percentage of Nasdaq's outstanding 
capital stock required to approve or adopt the proposal or elect the 
nominee and/or (2) otherwise to solicit proxies from stockholders in 
support of such proposal or nomination. Nasdaq may require any proposed 
nominee to furnish such other information as it may reasonably require 
to determine the eligibility of such proposed nominee to serve as a 
director of Nasdaq.
    (c) No change.
Special Meetings of Stockholders
    Sec. 3.2  Only such business shall be conducted at a special 
meeting of stockholders as shall have been brought before the meeting 
pursuant to Nasdaq's notice of meeting. Nominations of persons for 
election to the Board may be made at a special meeting of stockholders 
at which directors are to be elected pursuant to Nasdaq's notice of 
meeting (a) by or at the direction of the Board or the [National] 
Nominating Committee or (b) provided that the Board has determined that 
directors shall be elected at such meeting, by any stockholder of 
Nasdaq who is a stockholder of record at the time the notice provided 
for in this Section 3.2 is delivered to the Secretary of Nasdaq, who is 
entitled to vote at the meeting and upon such election and who complies 
with the notice procedures set forth in this Section 3.2. In the event 
Nasdaq calls a special meeting of stockholders for the purpose of 
electing one or more directors to the Board, any such stockholder 
entitled to vote in such election may nominate a person or persons (as 
the case may be) for election to such position(s) as specified in 
Nasdaq's notice of meeting, if the stockholder's notice required by 
Section 3.1(b) shall be delivered to the Secretary at the principal 
executive offices of Nasdaq not earlier than the close of business on 
the one hundred twentieth day prior to such special meeting and not 
later than the close of business on the later of the ninetieth day 
prior to such special meeting or the tenth day following the day on 
which the public announcement is first made of the date of the special 
meeting and of the nominees proposed by the Board to be elected at such 
meeting. In no event shall the public announcement of an adjournment or 
postponement of a special meeting commence a new time

[[Page 9617]]

period (or extend any time period) for the giving of a stockholder's 
notice as described above.
General
    Sec. 3.3  (a) Only such persons who are nominated in accordance 
with the procedures set forth in this Article III shall be eligible to 
be elected at an annual or special meeting of stockholders of Nasdaq to 
serve as directors and only such business shall be conducted at a 
meeting of stockholders as shall have been brought before the meeting 
in accordance with the procedures set forth in this Article III. Except 
as otherwise provided by law, the chairman of the meeting shall have 
the power and duty [(a)] (i) to determine whether a nomination or any 
business proposed to be brought before the meeting was made or 
proposed, as the case may be, in accordance with the procedures set 
forth in this Article III (including whether the stockholder or 
beneficial owner, if any, on whose behalf the nomination or proposal is 
made solicited (or is part of a group which solicited) or did not so 
solicit, as the case may be, proxies in support of such stockholder's 
nominee or proposal in compliance with such stockholder's 
representation as required by Section 3.1(b)(iii)(D)) and (ii) if any 
proposed nomination or business was not made or proposed in compliance 
with this Article III, to declare that such nomination shall be 
disregarded or that such proposed business shall not be transacted. 
Notwithstanding the foregoing provisions of this Article III, if the 
stockholder (or a qualified representative of the stockholder) does not 
appear at the annual or special meeting of stockholders of Nasdaq to 
present a nomination or business, such nomination shall be disregarded 
and such proposed business shall not be transacted, notwithstanding 
that proxies in respect of such vote may have been received by Nasdaq.
* * * * *

Article IV

Board of Directors

* * * * *
Qualifications
    Sec. 4.3  Directors need not be stockholders of Nasdaq. The number 
of Non-Industry Directors, 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 the Chief Executive Officer 
(if they are elected Directors),] unless the Board consists of ten or 
more Directors. In such case at least two Directors shall be issuer 
representatives. [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.]
Election
    Sec. 4.4  No change.
Resignation
    Sec. 4.5  Any Director may resign at any time either upon [written] 
notice of resignation to the Chair of the Board, the Chief Executive 
Officer, the President, or the Secretary. Any such resignation shall 
take effect at the time specified therein or, if the time is not 
specified, upon receipt thereof, and the acceptance of such 
resignation, unless required by the terms thereof, shall not be 
necessary to make such resignation effective.
* * * * *
Filling of Vacancies
    Sec. 4.8  If a Director position becomes vacant, whether because of 
death, disability, disqualification, removal, or resignation, the 
[National] Nominating Committee shall nominate, and the Board shall 
elect by majority vote, a person satisfying the classification 
(Industry, Non-Industry, or Public Director), if applicable, for the 
directorship as provided in Section 4.3 to fill such vacancy, except 
that if the remaining term of office for the vacant Director position 
is not more than six months, no replacement shall be required.
* * * * *
    Sec. 4.11  (a)-(c) No change.
    (d) Directors or members of any committee appointed by the Board 
may participate in a meeting of the Board or of such committee through 
the use of a conference telephone or [similar] other communications 
equipment by means of which all persons participating in the meeting 
may hear one another, and such participation in a meeting shall 
constitute presence in person at such meeting for all purposes.
Notice of Meetings; Waiver of Notice
    Sec. 4.12  (a) No change.
    (b) Notice of any meeting of the Board need not be given to any 
Director if waived by that Director in writing or by electronic 
transmission (or by telegram, telefax, cable, radio, or wireless and 
subsequently confirmed in writing or by electronic transmission) 
whether before or after the holding of such meeting, or if such 
Director is present at such meeting, subject to Article X, Section 
10.3(b).
    (c) No change.
Committees
    Sec. 4.13  (a) The Board may, by resolution or resolutions adopted 
by [a majority of] the [whole] Board, appoint one or more committees. 
Except as herein provided, vacancies in membership of any committee 
shall be filled by the [vote of a majority of the whole] Board. The 
Board may designate one or more Directors as alternate members of any 
committee, who may replace any absent or disqualified member at any 
meeting of the committee. In the absence or disqualification of any 
member of a committee, the member or members thereof present at any 
meeting and not disqualified from voting, whether or not such member or 
members constitute a quorum, may unanimously appoint another Director 
to act at the meeting in the place of any such absent or disqualified 
member. Members of a committee shall hold office for such period as may 
be fixed by a resolution adopted by [a majority of] the [whole] Board. 
Any member of a committee may be removed from such committee only 
[after a majority vote] by [of] the [whole] Board, after appropriate 
notice.
    (b) The Board may, be resolution or resolutions adopted by a 
majority of the whole Board, delegate to one or more committees the 
power and authority to act on behalf of the Board in carrying out the 
functions and authority delegated to Nasdaq by the NASD under the 
Delegation Plan. Such delegations shall be in conformance with 
applicable law, the Restated Certificate of Incorporation, these By-
Laws, and the Delegation Plan. Action taken by a committee pursuant to 
such delegated authority shall be subject to review, ratification, or 
rejection by the Board. In all other matters, the Board may, by 
resolution or resolutions adopted by [a majority of] the [whole] Board, 
delegate to one or more committees that consist solely of one or more 
Directors the power and authority to act on behalf of the Board in the 
management of the business and affairs of Nasdaq to the extent 
permitted by law and not inconsistent with the Delegation Plan. A 
committee, to the extent permitted by law and provided in the 
resolution or resolutions creating such committee may authorize the 
seal of Nasdaq to be affixed to all papers that may require it.
    (c) No change.
    (d) The Board may appoint an Executive Committee, which shall, to 
the fullest extent permitted by Delaware law and other applicable law, 
have and be permitted to exercise all the powers and authority of the 
Board in the management of the business and affairs

[[Page 9618]]

of Nasdaq between meetings of the Board, and which may authorize the 
seal of Nasdaq to be affixed to all papers that may require it. [The 
Executive Committee shall consist of three or four Directors, including 
at least one Public Director. The Chief Executive Officer of Nasdaq 
shall be a member of the Executive Committee.] The number of Non-
Industry [committee members] Directors on the Executive Committee shall 
equal or exceed the number of Industry [committee members] Directors on 
the Executive Committee [plus the Chief Executive Officer]. The 
percentage of Public Directors on the Executive Committee shall be at 
least as great as the percentage of Public Directors on the whole 
Board. An Executive Committee member shall hold office for a term of 
one year. [At all meetings of the Executive Committee, a quorum for the 
transaction of business shall consist of a majority of the Executive 
Committee. In the absence of a quorum, a majority of the committee 
members present may adjourn the meeting until a quorum is present].
    (e) The Board may appoint a Finance Committee. The Finance 
Committee shall advise the Board with respect to the oversight of the 
financial operations and conditions of Nasdaq, including 
recommendations for Nasdaq's annual operating and capital budgets and 
proposed changes to the rates and fees charged by Nasdaq. [The Finance 
Committee shall consist of three or four Directors. The Chief Executive 
Officer of Nasdaq shall serve as a member of the Committee]. A Finance 
Committee member shall hold office for a term of one year.
    (f) The Board shall appoint a Management Compensation Committee. 
The Management Compensation Committee shall consider and recommend 
compensation policies, programs, and practices for employees of Nasdaq. 
A majority of Management Compensation Committee members shall be Non-
Industry Directors. The Chief Executive Officer shall be an ex-officio, 
non-voting member of the Management Compensation Committee. A 
Management Compensation Committee member shall hold office for a term 
of one year.
    (g) The Board shall appoint an Audit Committee.
    (i) The Audit Committee shall consist of four or five Directors, 
none of whom shall be officers or employees of Nasdaq. A majority of 
the Audit Committee members shall be Non-Industry Directors. The Audit 
Committee shall include two Public Directors. A Public Director shall 
serve as Chair of the Committee. An Audit Committee member shall hold 
office for a term of one year.
    (ii) No member of the Audit Committee shall participate in the 
consideration or decision of any matter relating to a particular Nasdaq 
member, company, or individual if such Audit Committee member has a 
material interest in, or a professional, business, or personal 
relationship with, that member, company, or individual, or if such 
participation shall create an appearance of impropriety. An Audit 
Committee member shall consult with the General Counsel of Nasdaq to 
determine if recusal is necessary. If a member of the Audit Committee 
is recused from consideration of a matter, any decision on the matter 
shall be by a vote of a majority of the remaining members of the Audit 
Committee.
    (h) The Board may appoint a Nominating Committee. The Nominating 
Committee shall nominate Directors for each vacant or new Director 
position on the Board and members for each vacant or new position on 
the Nasdaq Listing and Hearing Review Council for appointment by the 
Board.
    (i) The Nominating Committee shall consist of no fewer than six and 
no more than nine members. The number of Non-Industry members on the 
Nominating Committee shall equal or exceed the number of Industry 
members on the Nominating Committee. If the Nominating Committee 
consists of six members, at least two shall be Public committee 
members. If the Nominating Committee consists of seven or more members, 
at least three shall be Public committee members. No officer or 
employee of Nasdaq shall serve as a member of the Nominating Committee 
in any voting or non-voting capacity. No more than three of the 
Nominating Committee members and no more than two of the Industry 
committee members shall be current members of the Nasdaq Board.
    (ii) A Nominating Committee member may not simultaneously serve on 
the Nominating Committee and the Board, unless such member is in his or 
her final year of service on the Board, and following that year, that 
member may not stand for election to the Board until such time as he or 
she is no longer a member of the Nominating Committee.
    (iii) Members of the Nominating Committee shall be appointed 
annually by the Board and may be removed by majority vote of the Board.
    (iv) The Secretary shall collect from each nominee for Director 
such information as is reasonably necessary to serve as the basis for a 
determination of the nominee's classification as an Industry, Non-
Industry, or Public Director, if applicable, and the Secretary shall 
certify to the Nominating Committee each nominee's classification, if 
applicable. Directors shall update the information submitted under this 
subsection at least annually and upon request of the Secretary, and 
shall report immediately to the Secretary and change in such 
information.
    [(f)] (i) Each committee may adopt its own rules of procedure and 
may meet at stated times or on such notice as such committee may 
determine. Each committee shall keep regular minutes of its proceedings 
and report the same to the Board when required.
    [(g)] (j) Unless otherwise provided by these By-Laws, a majority of 
a committee shall constitute a quorum for the transaction of business, 
and the vote of a majority of the members of such committee present at 
a meeting at which a quorum is present shall be an act of such 
committee.
    [(h)] (k) Upon request of the Secretary of Nasdaq, each prospective 
committee member who is not a Director shall provide to the Secretary 
such information as is reasonably necessary to serve as the basis for a 
determination of the prospective committee member's classification as 
an Industry, Non-Industry, or Public committee member. The Secretary of 
Nasdaq shall certify to the Board each prospective committee member's 
classification. Such committee members shall update the information 
submitted under this [Section] subsection at least annually and upon 
request of the Secretary of Nasdaq, and shall report immediately to the 
Secretary any change in such information.
* * * * *
    Sec. 4.16  Any action required or permitted to be taken at a 
meeting of the Board or of a committee may be taken without a meeting 
if all Directors or all members of such committee, as the case may be, 
consent thereto in [writing, and the writing or writings are filed with 
the minutes of proceedings of the Board or the committee] accordance 
with applicable law.

Article V

NASDAQ Listing and Hearing Review Council

* * * * *
Nomination Process
    Sec. 5.3  The Secretary of Nasdaq shall collect from each nominee 
for the office of member of the Nasdaq Listing and Hearing Review 
Council such information as is reasonably necessary

[[Page 9619]]

to serve as the basis for a determination of the nominee's 
qualifications and classification as an Industry or Non-Industry 
member, and the Secretary shall certify to the [National] Nominating 
Committee each nominee's qualifications and classification. After 
appointment to the Nasdaq Listing and Hearing Review Council, each 
member shall update such information at least annually and upon request 
of the Secretary, and shall report immediately to the Secretary any 
change in such information.
* * * * *
Filling of Vacancies
    Sec. 5.8  If a position on the Nasdaq Listing and Hearing Review 
Council becomes vacant, whether because of death, disability, 
disqualification, removal, or resignation, the [National] Nominating 
Committee shall nominate, and the Board shall appoint a person 
satisfying the qualifications for the position as provided in Section 
5.2(a) to fill such vacancy, except that if the remaining term of 
office for the vacant position is not more than six months, no 
replacement shall be required.
Quorum and Voting
    Sec. 5.9  No change.
Meetings
    Sec. 5.10  The members of the Nasdaq Listing and Hearing Review 
Council may participate in a meeting through the use of a conference 
telephone or [similar] other communications equipment by means of which 
all persons participating in the meeting may hear one another, and such 
participation in a meeting shall constitute presence in person at such 
meeting for all purposes.
* * * * *

Article VII

Officers, Agents, and Employees

Principal Officers
    Sec. 7.1  The principal officers of Nasdaq shall be elected by the 
Board and shall include a Chair, a Chief Executive Officer, a 
President, a Secretary, a Treasurer, and such other officers as may be 
designated by the Board. One person may hold the offices and perform 
the duties of any two or more of said principal offices, except the 
offices and duties of President and Vice President or of President and 
Secretary. None of the principal officers, except the Chair of the 
Board [and the Chief Executive Officer], need be Directors of Nasdaq.
* * * * *
Resignation and Removal of Officers
    Sec. 7.5  (a) Any officer may resign at any time upon [written] 
notice of resignation to the Board, the Chief Executive Officer, the 
President, or the Secretary. Any such resignation shall take effect 
upon receipt of such notice or at any later time specified therein. The 
acceptance of a resignation shall not be necessary to make the 
resignation effective.
* * * * *

Article X

Miscellaneous Provisions

* * * * *
Waiver of Notice
    Sec. 10.3  (a) Whenever notice is required to be given by law, the 
Restated Certificate of Incorporation, or these By-Laws, a [written] 
waiver thereof [,signed] by the person or persons entitled to such 
notice, whether before or after the time stated therein, shall be 
deemed equivalent to notice. Neither the business to be transacted at, 
nor the purpose of, any regular or special meeting of the stockholders, 
Directors, or members of a committee of Directors need be specified in 
any [written] waiver of notice.

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
    Nasdaq proposes to amend its By-Laws regarding the balancing 
requirements on the Nasdaq Board of Directors and the composition and 
operation of certain Nasdaq committees and to make certain changes to 
conform Nasdaq's By-Laws to Delaware law. NASD members approved a 
restructuring plan on April 14, 2000, with 3,423 members voting in 
favor and 652 against. The plan involves broadening the ownership in 
Nasdaq through a two-phase private placement of common stock and 
warrants to NASD members, Nasdaq issuers, and certain others. Before 
Phase 1 of the private placement closed on June 28, 2000, the NASD 
owned 100 percent of Nasdaq. Now, after the closing of Phase 2 of the 
private placement, Nasdaq has numerous shareholders, but the NASD will 
retain voting control of Nasdaq until Nasdaq obtains approval of its 
exchange registration application. On November 9, 2000, Nasdaq filed a 
Form 1 with the Commission, which, if granted, would change Nasdaq's 
status to an exchange and a separate self-regulatory organization from 
the NASD. Until the SEC approves the Form 1, Nasdaq's activities, 
including the activities of committees described below that involve 
functions or responsibilities of a registered securities association 
will be subject to the NASD's oversight under the Plan of Allocation 
and Delegation of Functions by NASD to Subsidiaries (``Delegation 
Plan''), as approved by the Commission.
    Nasdaq proposes to amend its By-Laws to make certain changes to its 
corporate governance while it is operating under the Delegation Plan. 
Nasdaq believes that these changes will allow it to operate consistent 
with the requirements of its Restated Certificate of Incorporation and 
Delaware law and operate with more flexibility insofar as the balancing 
requirements are concerned.

Article I

    Nasdaq proposes that up to two officers of Nasdaq who may be 
elected to the Board be treated as neutral for purposes of calculating 
the balance between Industry and Non-Industry Directors. Article IV, 
Section 4.3 of the Nasdaq By-Laws requires that the number of Non-
Industry Directory equal or exceed the number of Industry Directors. 
Currently, Nasdaq officers who serve on the Board are treated as 
Industry Directors for purposes of calculating the compositional 
balance of the Nasdaq Board.
    To effectuate this change, Nasdaq proposes to exclude from the 
definitions of Industry Director and Non-Industry Director up to two 
Nasdaq officers who are elected to the Board (hereinafter referred to 
as ``Staff Directors''). Thus, if the stockholders elected one or two 
officers to the Board, they would be deemed neutral Staff Directors and 
would not be included in calculating the balance between Industry and 
Non-Industry Directors on the Nasdaq Board pursuant to Article IV, 
Section 4.3. If the stockholders elected three or more officers to the 
Board, then the Board, in its discretion, would designate two as

[[Page 9620]]

neutral Staff Directors and the others would be considered Industry 
Directors.
    Definitions for ``Amex Floor Governors,'' ``Nasdaq-Amex,'' and 
``Amex Board'' are deleted because the terms are no longer used in the 
Nasdaq By-Laws.

Article IV

    Nasdaq proposes to modify its By-Law provision establishing the 
balancing requirements between Industry and Non-Industry Directors, by 
removing references to Nasdaq officers who may be elected to the Board. 
Nasdaq represents that the effect of this amendment, in conjunction 
with the amendments to the definitions of Industry and Non-Industry 
Directors described above, will ensure that the two neutral Staff 
Directors are not counted when calculating the Industry/Non-Industry 
balance of the Board.
    Nasdaq proposes to delete the provision of Section 4.3 that 
requires that certain Directors be drawn from candidates proposed to 
the National Nominating Committee by a majority of the non-NASD 
stockholders of Nasdaq. This provision is no longer operative as Nasdaq 
has solicited the recommendations of the non-NASD stockholders and has 
mailed a ballot to non-NASD stockholders asking them to vote on such 
candidates. Nasdaq anticipates that the four new directors will be 
selected and begin serving on the Board by the end of January 2001.
    Delaware law does not require director and officer resignations to 
be in writing.\3\ Conforming changes are made in Article IV, Section 
4.5 and Article VII, Section 7.5 of the By-Laws.
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    \3\ 8 Del. C. Section 141(b).
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    Certain Nasdaq By-Laws relating to committees currently requires 
resolutions to be adopted by a majority vote of the whole Board (e.g., 
to appoint a committee, delegate authority to a committee, remove a 
committee member). Nasdaq proposes to remove this high vote requirement 
since it is no longer required for Nasdaq under applicable Delaware 
law.\4\
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    \4\ 8 Del. C. Section 141(c)(2).
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    Nasdaq proposes several amendments to Section 4.13 relating to 
committees. With respect to the Executive and Finance Committees, 
Nasdaq proposes to remove limitations on the size of the Committees. As 
currently provided in the By-Laws, the Executive Committee would 
continue to have balancing requirements for Industry, Non-Industry, and 
Public Directors, but no such requirements would apply to the Finance 
Committee.
    Under Delaware law, the Board of a stockholder-owned corporation 
must appoint the Directors who serve on Board committees. Moreover, 
Board committees must be comprised solely of directors to be validly 
constituted as such under Delaware law.\5\ Therefore, Nasdaq proposes 
to remove the By-Law provision that requires the Nasdaq Chief Executive 
Officer to serve on the Executive and Finance Committees because it is 
inconsistent with the Board's exclusive authority in this respect and 
inconsistent with the requirement that such committees be comprised 
solely of directors if the Chief Executive Officer is not a director. 
In the future, any Nasdaq officer elected to the Board may be appointed 
to these Committees.
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    \5\ Id.
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    New provisions for an Audit Committee and a Management Compensation 
Committee are added to Section 4.13. These provisions are modeled on 
the provisions for the counterpart NASD committees and comply with the 
balancing requirements of the NASD's August 8, 1996 settlement order 
with the Commission (``1996 Order'').
    Nasdaq proposes new provision for a Nominating Committee. Currently 
the NASD Nominating Committee nominates candidates for the Nasdaq Board 
and Listing and Review Council.\6\ In light of the broadening of the 
ownership of Nasdaq, Nasdaq proposes that a committee of its Board, 
rather than a committee of the board of one of its stockholders, would 
be the appropriate nomination body for the organization. The NASD has 
proposed conforming changes.\7\ The Nasdaq Nominating Committee 
compositional requirements would mirror the compositional requirements 
for the NASD Nominating Committee and comply with the requirements of 
the 1996 Order. Throughout the By-Laws, references to the NASD's 
National Nominating Committee would be replaced with references to 
Nasdaq's Nominating Committee.\8\ Nasdaq believes that, in general, 
establishment of these committee will help Nasdaq conduct its Board 
meetings in a more streamlined and efficient manner.
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    \6\ Nasdaq By-Laws Article IV, Section 4.13(h).
    \7\ Special NASD Notice to Members 00-90.
    \8\ Nasdaq By-Laws Article I(p); Article III, Sections 3.1, 3.2; 
Article IV, Sections 4.8; and Article V, Sections 5.3, 5.8.
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    Nasdaq proposes to amend Section 4.16 to conform it with amendments 
to Delaware law affording greater use of technology. Specifically, 
under Delaware law, directors are now permitted to take action without 
a meeting if all directors consent in writing or by electronic 
transmission.\9\
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    \9\ 8 Del. C. Section 141(f).
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Article VII

    Section 7.1 currently provides that none of the principal officers 
of Nasdaq, except the Chair and Chief Executive Officer, need be 
Directors. Nasdaq proposes to remove the reference to the Chief 
Executive Officer to provide the flexibility to have a Chief Executive 
Officer who is not a Director.

Article X

    Delaware law no longer requires a waiver of certain notices to be 
in writing.\10\ Nasdaq proposes a conforming change in Section 10.3.
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    \10\ 8 Del. C. Section 229.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\11\ which requires, 
among other things, that the rules of the association be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest. Nasdaq believes that the changes 
proposed to its corporate governance will improve the efficiency of the 
Board and make it practices and procedures consistent with the Delaware 
law requirements for shareholder corporations.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    Nasdaq did not solicit or receive written comments on the proposed 
rule change.

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

[[Page 9621]]

(ii) as to which the NASD 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-78 and should be 
submitted by March 1, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-3238 Filed 2-7-01; 8:45 am]
BILLING CODE 8010-01-M