Document ID: SEC-2008-0679-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2008-05-08T04:00Z

[Federal Register: May 8, 2008 (Volume 73, Number 90)]
[Notices]               
[Page 26182-26185]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my08-141]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57761; File No. SR-NASDAQ-2008-035]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change to Amend the By-Laws of The 
NASDAQ OMX Group, Inc. in Connection With Acquisitions of Boston Stock 
Exchange, Incorporated and Philadelphia Stock Exchange, Inc.

May 1, 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 April 21, 2008, The NASDAQ Stock Market LLC (``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 prepared substantially 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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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes changes to the by-laws of its parent 
corporation, The NASDAQ OMX Group, Inc. (``NASDAQ OMX''). The proposed 
changes will be implemented upon approval by the Commission. The text 
of the proposed rule change is available at the Exchange's Web site at 
http://nasdaq.complinet.com, the Exchange's principal office, and 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, the Exchange 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. The Exchange 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 October 2, 2007, The Nasdaq Stock Market, Inc. announced that it 
had entered into an agreement with Boston Stock Exchange, Incorporated 
(``BSE'') pursuant to which NASDAQ OMX will acquire all of the 
outstanding membership interests in BSE, and BSE will be merged with 
and into Yellow Merger Corporation, a Delaware corporation and wholly 
owned subsidiary of NASDAQ OMX, with BSE surviving the merger (the 
``BSE Merger''). As a result of the BSE Merger, BSE will become a 
Delaware stock corporation, with 100% of its outstanding stock owned by 
NASDAQ

[[Page 26183]]

OMX. BSE members will receive cash as consideration for their ownership 
interests, and therefore will not retain ownership interests in BSE or 
its affiliates. On November 7, 2007, The Nasdaq Stock Market, Inc. 
announced that it had entered into an agreement with Philadelphia Stock 
Exchange, Inc. (``PHLX'') pursuant to which NASDAQ OMX will acquire all 
of the outstanding capital stock of PHLX, and PHLX will be merged with 
and into Pinnacle Merger Corp., a Delaware corporation and wholly owned 
subsidiary of NASDAQ OMX, with PHLX surviving the merger (the ``PHLX 
Merger'', and together with the BSE Merger, the ``Mergers''). NASDAQ 
OMX will operate BSE and PHLX as wholly owned subsidiaries, with rules, 
membership rosters, and listings that are separate and distinct from 
the rules, membership rosters, and listings of the Exchange. By virtue 
of the BSE Merger and the PHLX Merger, NASDAQ OMX will also acquire 
control of Boston Stock Exchange Clearing Corporation (``BSECC'') and 
Stock Clearing Corporation of Philadelphia (``SCCP''), each a 
registered clearing agency.
    To reflect its ownership of these four self-regulatory 
organizations (``SROs''), NASDAQ OMX is amending its by-laws (``By-
Laws'') to make certain governance provisions that are currently 
applicable to the Exchange also applicable to the newly acquired SROs. 
The provisions collectively regulate the actions of NASDAQ OMX and its 
directors, officers and employees in light of its ownership of the 
SROs.
    First, to assist in the clear drafting of the changes, NASDAQ OMX 
is adopting a definition of ``Self-Regulatory Subsidiary,'' which means 
each of: (i) the Exchange; (ii) upon the closing of their acquisition 
by NASDAQ OMX, BSE and BSECC; and (iii) upon the closing of their 
acquisition by NASDAQ OMX, PHLX and SCPP. Thus, although NASDAQ OMX 
will adopt the amendment immediately upon Commission approval, 
provisions of its By-Laws that reference the definition of Self-
Regulatory Subsidiary will expand to include the new subsidiaries as 
each Merger closes. Separately, BSE, BSECC, PHLX and SCPP are filing 
proposed rule changes to amend their respective charters and by-laws to 
reflect the Mergers. The BSE Merger will not close until this filing 
and the filings by BSE and BSECC have been approved by the Commission, 
and the PHLX Merger will not close until this filing and the filings by 
PHLX and SCPP have been approved by the Commission. NASDAQ OMX is also 
amending the definitions of ``Industry Director,'' ``Industry committee 
member,'' ``Non-Industry Director,'' and ``Non-Industry committee 
member'' to include appropriate references to the Self-Regulatory 
Subsidiaries.
    Second, NASDAQ OMX is amending Section 11.3 of its By-Laws. This 
section currently provides for review by the Exchange's board of 
directors of any proposed adoption, alteration, amendment, change or 
repeal (an ``amendment'') of any By-Law, and when required by the Act, 
the filing of such amendments with the Commission prior to 
implementation. NASDAQ OMX proposes amending this provision to state 
that any amendment of any By-Law shall be submitted to the board of 
directors of each Self-Regulatory Subsidiary, and if any such proposed 
amendment must, under Section 19 of the Act and the rules promulgated 
thereunder, be filed with, or filed with and approved by, the 
Commission before such amendment may be effective, then such amendment 
shall not be effective until filed with, or filed with and approved by, 
the Commission, as the case may be. NASDAQ OMX also proposes adopting 
new Section 12.6 of its By-Laws to state that any amendment of any 
provision of the NASDAQ OMX Restated Certificate of Incorporation 
(``Certificate'') shall be submitted to the board of directors of each 
Self-Regulatory Subsidiary, and if any such proposed amendment must, 
under Section 19 of the Act and the rules promulgated thereunder, be 
filed with, or filed with and approved by, the Commission before such 
amendment may be effective, then such amendment shall not be filed with 
the Secretary of State of the State of Delaware until filed with, or 
filed with and approved by, the Commission, as the case may be.
    Third, NASDAQ OMX proposes amending each of the existing provisions 
of Article XII of its By-Laws to make them applicable to each of the 
Self-Regulatory Subsidiaries. Thus, Section 12.1(a) will provide that 
for so long as NASDAQ OMX shall control any Self-Regulatory Subsidiary, 
the board of directors, officers, employees and agents of NASDAQ OMX 
shall give due regard to the preservation of the independence of the 
self-regulatory function of each such Self-Regulatory Subsidiary and to 
its obligations to investors and the general public and shall not take 
any actions that would interfere with the effectuation of any decisions 
by the board of directors of any Self-Regulatory Subsidiary relating to 
its regulatory functions (including disciplinary matters) or the market 
structures or clearing systems \3\ which it regulates, or that would 
interfere with the ability of any Self-Regulatory Subsidiary to carry 
out its responsibilities under the Act.
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    \3\ The reference to ``clearing systems'' is new language that 
reflects the acquisition of BSECC and SCCP.
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    Section 12.1(b) will provide that all books and records of each 
Self-Regulatory Subsidiary reflecting confidential information 
pertaining to the self-regulatory function of a Self-Regulatory 
Subsidiary (including but not limited to disciplinary matters, trading 
data, trading practices and audit information) which comes into the 
possession of NASDAQ OMX, and the information contained in those books 
and records, shall be retained in confidence by NASDAQ OMX and NASDAQ 
OMX's directors, officers, employees and agents, and shall not be used 
for any non-regulatory purposes. The section will continue to provide 
that the limit on disclosure is not to be construed to limit the 
Commission's access to books and records, and that NASDAQ OMX's books 
and records relating to each Self-Regulatory Subsidiary shall be 
maintained in the United States.
    Section 12.1(c) will provide that to the extent they are related to 
the activities of a Self-Regulatory Subsidiary, NASDAQ OMX's books, 
records, premises, officers, directors, agents, and employees shall be 
deemed to be the books, records, premises, officers, directors, agents, 
and employees of that Self-Regulatory Subsidiary for the purposes of, 
and subject to oversight pursuant to, the Act.
    Section 12.2 will provide that NASDAQ OMX's officers, directors, 
employees, and agents will be deemed to agree to cooperate with the 
Commission and each Self-Regulatory Subsidiary in respect of the 
Commission's oversight responsibilities regarding the Self-Regulatory 
Subsidiaries and their self-regulatory functions and responsibilities.
    Section 12.3 will provide that NASDAQ OMX and its officers, 
directors, employees and agents will be deemed to irrevocably submit to 
the jurisdiction of the United States federal courts, the Commission, 
and each Self-Regulatory Subsidiary for the purposes of any suit, 
action or proceeding pursuant to the United States federal securities 
laws, and the rules and regulations thereunder, arising out of, or 
relating to, the activities of any Self-Regulatory Subsidiary, and will 
be deemed to waive any defenses based on lack of personal jurisdiction, 
subject matter jurisdiction, or inconvenient

[[Page 26184]]

venue. NASDAQ OMX and its officers, directors, employees and agents 
also agree to maintain an agent in the United States for the service of 
process of a claim arising out of, or relating to, the activities of 
each Self-Regulatory Subsidiary.
    Section 12.4 will provide that NASDAQ OMX will take such action as 
is necessary to insure that its officers, directors, employees, and 
agents consent in writing to the applicability of Sections 12.1, 12.2, 
and 12.3 with respect to activities related to each Self-Regulatory 
Subsidiary.
    Section 12.5 will provide that for as long as NASDAQ OMX owns any 
Self-Regulatory Subsidiary, a resolution of the Board to approve an 
exemption for any person under Article Fourth, Section C.6(b) of the 
Certificate shall not be permitted to become effective until the 
resolution has been filed with and approved by the Commission under 
Section 19 of the Act.\4\ The referenced provision of the Certificate 
provides that no NASDAQ OMX stockholder holding voting securities in 
excess of 5% of the total outstanding voting securities may cast the 
excess votes, but that the NASDAQ OMX Board may approve an exemption 
from this restriction in certain very limited circumstances. Section 
12.5 will also be amended to include provisions that describe limits on 
the Board's authority to approve an exemption. Specifically, amended 
Section 12.5 will provide that the Board may not approve an exemption 
under Article Fourth, Section C.6(b) of the Certificate: (i) For a 
registered broker or dealer or an ``Affiliate'' thereof (as defined in 
the Certificate) (provided that, for these purposes, an Affiliate shall 
not be deemed to include an entity that either owns ten percent or less 
of the equity of a broker or dealer, or the broker or dealer accounts 
for one percent or less of the gross revenues received by the 
consolidated entity); or (ii) an individual or entity that is subject 
to a statutory disqualification under Section 3(a)(39) of the Act. The 
Board may approve such an exemption only if the Board determines that 
granting such exemption would (A) Not reasonably be expected to 
diminish the quality of, or public confidence in, NASDAQ OMX or the 
Self-Regulatory Subsidiaries or the other operations of the NASDAQ OMX 
and its subsidiaries, on the ability to prevent fraudulent and 
manipulative acts and practices and on investors and the public, (B) 
promote just and equitable principles of trade, foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to and facilitating transactions in 
securities or assist in the removal of impediments to or perfection of 
the mechanisms for a free and open market and a national market system, 
and (C) would promote the prompt and accurate clearance and settlement 
of securities transactions (and to the extent applicable, derivative 
agreements, contracts and transactions), would assure the safeguarding 
of securities and funds in the custody or control of the Self-
Regulatory Subsidiaries that are clearing agencies or securities and 
funds for which they are responsible, would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, and would remove impediments to and perfect 
the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions.
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    \4\ In addition to adding the reference to Self-Regulatory 
Subsidiaries, the amendment to this provision corrects typographical 
errors.
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    Finally, NASDAQ OMX proposes adopting new Section 12.7 to its By-
Laws, which reflects language currently in the Certificate and makes it 
more generally applicable to all Self-Regulatory Subsidiaries. 
Specifically, the provision provides that in light of the unique nature 
of NASDAQ OMX and its subsidiaries, including the status of the Self-
Regulatory Subsidiaries as SROs, the NASDAQ OMX Board of Directors, 
when evaluating any issue (including, but not limited to certain 
enumerated change of control transactions) will take into account all 
factors that the Board of Directors deems relevant, including, but not 
limited to (i) The potential impact thereof on the integrity, 
continuity and stability of NASDAQ OMX, the Self-Regulatory 
Subsidiaries, and the other operations of the NASDAQ OMX and its 
subsidiaries, on the ability to prevent fraudulent and manipulative 
acts and practices and on investors and the public, (ii) whether the 
considered action would promote just and equitable principles of trade, 
foster cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to and 
facilitating transactions in securities or assist in the removal of 
impediments to or perfection of the mechanisms for a free and open 
market and a national market system, and (iii) whether the considered 
action would promote the prompt and accurate clearance and settlement 
of securities transactions (and to the extent applicable, derivative 
agreements, contracts and transactions), would assure the safeguarding 
of securities and funds in the custody or control of the Self-
Regulatory Subsidiaries that are clearing agencies or securities and 
funds for which they are responsible, would foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions, and would remove impediments to and perfect 
the mechanism of a national system for the prompt and accurate 
clearance and settlement of securities transactions.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\5\ in general, and with 
Sections 6(b)(1) and (b)(5) of the Act,\6\ in particular, in that the 
proposal enables the Exchange and the other Self-Regulatory 
Subsidiaries to be so organized as to have the capacity to be able to 
carry out the purposes of the Act and to comply with and enforce 
compliance by its members and persons associated with its members with 
provisions of the Act, the rules and regulations thereunder, and the 
Exchange's rules, and is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(1) and (5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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, as amended.

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

[[Page 26185]]

longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the Exchange 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

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2008-035 on the subject line.

Paper Comments

     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-2008-035. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the 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 available publicly. All 
submissions should refer to File Number SR-NASDAQ-2008-035 and should 
be submitted on or before May 29, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
Florence E. Harmon,
Deputy Secretary.
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    \7\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-10212 Filed 5-7-08; 8:45 am]

BILLING CODE 8010-01-P