Document ID: SEC-2005-0141-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-10-24T04:00Z

[Federal Register: October 24, 2005 (Volume 70, Number 204)]
[Notices]               
[Page 61484-61489]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc05-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52574; File No. SR-NASD-2005-099]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Amendments to the Restated Certificate of 
Incorporation of the Nasdaq Stock Market, Inc.

October 7, 2005.
    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 August 19, 2005, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, the Nasdaq Stock Market, Inc. 
(``Nasdaq''), 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 by Nasdaq. On September 
30, 2005, Nasdaq submitted Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice, as amended, 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.
    \3\ Amendment No. 1 made minor edits to the originally filed 
proposed rule change and clarified the proposed definition of 
``Broker Affiliate'' set forth in Paragraph C.6. of Nasdaq's 
Restated Certificate of Incorporation to include a broker or dealer 
or an affiliate thereof. In Amendment No. 1, Nasdaq also reflected 
approval of the proposal by the Board of Directors of Nasdaq and by 
its stockholders.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend its Restated Certificate of Incorporation 
(``Certificate''). Below is the text of the proposed rule change, as 
amended. Proposed new language is italicized; proposed deletions are in 
[brackets].
* * * * *

RESTATED CERTIFICATE OF INCORPORATION OF THE NASDAQ STOCK MARKET, INC.

* * * * *

ARTICLE FOURTH

    A. No change.
    B. No change.
    C. 1. (a) Except as may otherwise be provided in this Restated 
Certificate of Incorporation (including any Preferred Stock 
Designation) or by applicable law, each holder of Common Stock, as 
such, shall be entitled to one vote for each share of Common Stock held 
of record by such holder on all matters on which stockholders generally 
are entitled to vote, and no holder of any series of Preferred Stock, 
as such, shall be entitled to any voting powers in respect thereof.
    (b) Except as may otherwise be provided in this Restated 
Certificate of Incorporation or by applicable law, the holders of the 
3.75% Series A Convertible Notes due 2012 (as may be amended, 
supplemented or otherwise modified from time to time, the ``Series A 
Notes'') and the 3.75% Series B Convertible Notes due 2012 (as may be 
amended, supplemented or otherwise modified from time to time, the 
``Series B Notes'' and, together with the Series A Notes, the 
``Notes'') [4.0% Convertible Subordinated Notes due 2006 (the 
``Notes'')] which may be issued from time to time by Nasdaq shall be 
entitled to vote on all matters submitted to a vote of the stockholders 
of Nasdaq, voting together with the holders of the Common Stock (and of 
any other shares of capital stock of Nasdaq entitled to vote at a 
meeting of stockholders) as one class. Each principal amount of Notes 
shall be entitled to a number of votes equal to the number of votes 
represented by the Common Stock of Nasdaq that could then be acquired 
upon conversion of such principal amount of Notes into Common Stock, 
subject to adjustments as provided in the Notes and the Indenture dated 
as of April 22, 2005 between Nasdaq and Law Debenture Trust Company of 
New York, as trustee, as such Indenture may be amended, supplemented or 
otherwise modified from time to time. Holders of the Notes shall be 
deemed to be stockholders of Nasdaq, and the Notes shall be deemed to 
be shares of stock, solely for the purpose of any provision of the 
General Corporation Law of the State of Delaware or this Restated 
Certificate of Incorporation that requires the vote of stockholders as 
a prerequisite to any corporate action.
    2. Notwithstanding any other provision of this Restated Certificate 
of Incorporation, but subject to subparagraph 6 of this paragraph C. of 
this Article Fourth, in no event shall (i) any record owner of any 
outstanding Common Stock or Preferred Stock which is beneficially 
owned, directly or indirectly, as of any record date for the 
determination of stockholders and/or holders of Notes entitled to vote 
on any matter, or (ii) any holder of any Notes which are beneficially 
owned, directly or indirectly, as of any record date for the 
determination of stockholders and/or holders of Notes entitled to vote 
on any matter, by a person (other than an Exempt Person) who 
beneficially owns shares of Common Stock, Preferred Stock and/or Notes 
[(''Excess Shares and/or Notes'')] in excess of five percent (5%) of 
the then-outstanding shares of stock generally entitled to vote as of 
the record date in respect of such matter (``Excess Shares and/or 
Notes''), be entitled or permitted to vote any Excess Shares and/or 
Notes on such matter. For all purposes hereof, any calculation of the 
number of shares of stock outstanding at any particular time, including 
for purposes of determining the particular percentage of such 
outstanding shares of stock of which any person is the beneficial 
owner, shall be made in accordance with the last sentence of Rule 13d-
3(d)(1)(i) of the General Rules and Regulations under the Securities 
Exchange Act of 1934, as amended (the ``Exchange Act''), as in effect 
on the date of filing this Restated Certificate of Incorporation.

[[Page 61485]]

    3. The following definitions shall apply to this paragraph C. of 
this Article Fourth:
    (a) ``Affiliate'' shall have the meaning ascribed to that term in 
Rule 12b-2 of the General Rules and Regulations under the Exchange Act, 
as in effect on the date of filing this Restated Certificate of 
Incorporation.
    (b) A person shall be deemed the ``beneficial owner'' of, shall be 
deemed to have ``beneficial ownership'' of and shall be deemed to 
``beneficially own'' any securities:
    (i) Which such person or any of such person's Affiliates is deemed 
to beneficially own, directly or indirectly, within the meaning of Rule 
l3d-3 of the General Rules and Regulations under the Exchange Act as in 
effect on the date of the filing of this Restated Certificate of 
Incorporation;
    (ii) Which such person or any of such person's Affiliates has (A) 
the right to acquire (whether such right is exercisable immediately or 
only after the passage of time) pursuant to any agreement, arrangement 
or understanding (other than customary agreements with and between 
underwriters and selling group members with respect to a bona fide 
public offering of securities), or upon the exercise of conversion 
rights, exchange rights, rights, warrants or options, or otherwise; 
provided, however, that a person shall not be deemed the beneficial 
owner of, or to beneficially own, securities tendered pursuant to a 
tender or exchange offer made by or on behalf of such person or any of 
such person's Affiliates until such tendered securities are accepted 
for purchase; or (B) the right to vote pursuant to any agreement, 
arrangement or understanding; provided, however, that a person shall 
not be deemed the beneficial owner of, or to beneficially own, any 
security by reason of such agreement, arrangement or understanding if 
the agreement, arrangement or understanding to vote such security (1) 
arises solely from a revocable proxy or consent given to such person in 
response to a public proxy or consent solicitation made pursuant to, 
and in accordance with, the applicable rules and regulations 
promulgated under the Exchange Act and (2) is not also then reportable 
on Schedule 13D under the Exchange Act (or any comparable or successor 
report); or
    (iii) Which are beneficially owned, directly or indirectly, by any 
other person and with respect to which such person or any of such 
person's Affiliates has any agreement, arrangement or understanding 
(other than customary agreements with and between underwriters and 
selling group members with respect to a bona fide public offering of 
securities) for the purpose of acquiring, holding, voting (except to 
the extent contemplated by the proviso to (b)(ii)(B) above) or 
disposing of such securities; provided, however, that (A) no person who 
is an officer, director or employee of an Exempt Person shall be 
deemed, solely by reason of such person's status or authority as such, 
to be the ``beneficial owner'' of, to have ``beneficial ownership'' of 
or to ``beneficially own'' any securities that are ``beneficially 
owned'' (as defined herein), including, without limitation, in a 
fiduciary capacity, by an Exempt Person or by any other such officer, 
director or employee of an Exempt Person, and (B) the Voting Trustee, 
as defined in the Voting Trust Agreement by and among Nasdaq, the 
National Association of Securities Dealers, Inc., a Delaware 
corporation (the ``NASD''), and The Bank of New York, a New York 
banking corporation, as such may be amended from time to time (the 
``Voting Trust Agreement''), shall not be deemed, solely by reason of 
such person's status or authority as such, to be the ``beneficial 
owner'' of, to have ``beneficial ownership'' of or to ``beneficially 
own'' any securities that are governed by and held in accordance with 
the Voting Trust Agreement.
    (c) A ``person'' shall mean any individual, firm, corporation, 
partnership, limited liability company or other entity.
    (d) ``Exempt Person'' shall mean Nasdaq or any Subsidiary of 
Nasdaq, in each case including, without limitation, in its fiduciary 
capacity, or any employee benefit plan of Nasdaq or of any Subsidiary 
of Nasdaq, or any entity or trustee holding stock for or pursuant to 
the terms of any such plan or for the purpose of funding any such plan 
or funding other employee benefits for employees of Nasdaq or of any 
Subsidiary of Nasdaq.
    (e) ``Subsidiary'' of any person shall mean any corporation or 
other entity of which securities or other ownership interests having 
ordinary voting power sufficient to elect a majority of the board of 
directors or other persons performing similar functions are 
beneficially owned, directly or indirectly, by such person, and any 
corporation or other entity that is otherwise controlled by such 
person.
    (f) The Board shall have the power to construe and apply the 
provisions of this paragraph C. of this Article Fourth and to make all 
determinations necessary or desirable to implement such provisions, 
including, but not limited to, matters with respect to (1) the number 
of shares of stock beneficially owned by any person, (2) the number of 
Notes beneficially owned by any person, (3) whether a person is an 
Affiliate of another, (4) whether a person has an agreement, 
arrangement or understanding with another as to the matters referred to 
in the definition of beneficial ownership, (5) the application of any 
other definition or operative provision hereof to the given facts, or 
(6) any other matter relating to the applicability or effect of this 
paragraph C. of this Article Fourth.
    4. The Board shall have the right to demand that any person who is 
reasonably believed to hold of record or beneficially own Excess Shares 
and/or Notes supply Nasdaq with complete information as to (a) the 
record owner(s) of all shares and/or Notes beneficially owned by such 
person who is reasonably believed to own Excess Shares and/or Notes, 
and (b) any other factual matter relating to the applicability or 
effect of this paragraph C. of this Article Fourth as may reasonably be 
requested of such person.
    5. Any constructions, applications, or determinations made by the 
Board, pursuant to this paragraph C. of this Article Fourth, in good 
faith and on the basis of such information and assistance as was then 
reasonably available for such purpose, shall be conclusive and binding 
upon Nasdaq, its stockholders and the holders of the Notes.
    6. Notwithstanding anything herein to the contrary, subparagraph 2 
of this paragraph C. of this Article Fourth shall not be applicable to 
any Excess Shares and/or Notes beneficially owned by (a) the NASD or 
its Affiliates until such time as the NASD beneficially owns five 
percent (5%) or less of the outstanding shares of stock and/or Notes 
entitled to vote on the election of a majority of directors at such 
time, (b) any other person as may be approved for such exemption by the 
Board prior to the time such person beneficially owns more than five 
percent (5%) of the outstanding shares of stock and/or Notes entitled 
to vote on the election of a majority of directors at such time or (c) 
Hellman & Friedman Capital Partners IV, L.P., H&F International 
Partners IV-A, L.P., H & F International Partners IV-B, L.P., [and] H&F 
Executive Fund, IV L.P.; Silver Lake Partners II TSA, L.P., Silver Lake 
Technology Investors II, L.L.C., Silver Lake Partners TSA, L.P., and 
Silver Lake Investors, L.P. or their respective affiliated investment 
funds that are: (i) Under common management and control, (ii) comprised 
of members or partners with the same ultimate ownership, and (iii) 
subject to

[[Page 61486]]

terms and conditions that are substantially identical in all material 
respects, if the Board has approved an exemption for any other person 
pursuant to section 6(b) of this paragraph C. of this Article Fourth 
(other than an exemption granted in connection with the establishment 
of a strategic alliance with another exchange or similar market) 
provided that in no event shall the exemption contained in Section 6(c) 
cause a registered broker or dealer or an Affiliate thereof (a ``Broker 
Affiliate,'' provided that, a Broker Affiliate shall not include an 
entity that either owns ten percent or less of the equity of a broker 
or dealer, or for which the broker or dealer accounts for one percent 
or less of the gross revenues received by the consolidated entity) to 
receive an exemption for a greater percentage of voting securities than 
has been granted to another Broker Affiliate by the Board. The Board, 
however, may not approve an exemption under section 6(b): (i) For a 
Broker Affiliate [registered broker or dealer or an Affiliate thereof 
(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 Exchange Act. The Board 
may approve an exemption for any other stockholder or holder of Notes 
if the Board determines that granting such exemption would (A) not 
reasonably be expected to diminish the quality of, or public confidence 
in, The Nasdaq Stock Market or the other operations of Nasdaq, on the 
ability to prevent fraudulent and manipulative acts and practices and 
on investors and the public, and (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.
    7. In the event any provision (or portion thereof) of this 
paragraph C. of this Article Fourth shall be found to be invalid, 
prohibited or unenforceable for any reason, the remaining provisions 
(or portions thereof) of this paragraph C. of this Article Fourth shall 
remain in full force and effect, and shall be construed as if such 
invalid, prohibited or unenforceable provision (or portion hereof) had 
been stricken herefrom or otherwise rendered inapplicable, it being the 
intent of Nasdaq, its stockholders and the holders of the Notes that 
each such remaining provision (or portion thereof) of this paragraph C. 
of this Article Fourth remains, to the fullest extent permitted by law, 
applicable and enforceable as to all stockholders and all holders of 
Notes, including stockholders and holders of Notes that beneficially 
own Excess Shares and/or Notes, notwithstanding any such finding.
* * * * *

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, as 
amended, 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 states that the purpose of the proposed rule change is to 
amend the Certificate to afford the holders of 3.75% Series A 
Convertible Notes due October 2012 (``Series A Notes'') and the 3.75% 
Series B Convertible Notes due 2012 (``Series B Notes'' and, 
collectively with the Series A Notes, the ``Notes'') the right to vote 
with Nasdaq stockholders. The Series A Notes and the Series B Notes 
were issued in connection with Nasdaq's entry into a definitive 
agreement and plan of merger (``Merger Agreement'') with Instinet Group 
Incorporated (``Instinet''), under which Nasdaq will acquire all 
outstanding shares of Instinet for an aggregate purchase price of 
approximately $1.878 billion in cash and Instinet will merge into a 
wholly owned subsidiary of Nasdaq (``Merger''). The purchase price is 
comprised of approximately $934.5 million from Nasdaq, approximately 
$207.5 million from Iceland Acquisition Corp., an affiliate of Silver 
Lake Partners II, L.P. (``SLP''), a private equity fund, pursuant to 
the sale of Instinet's institutional brokerage business, and the 
balance from Instinet's available cash, including approximately $174 
million from the sale of Instinet's Lynch, Jones & Ryan, Inc. 
subsidiary (``LJR''). As a result of the Merger, Instinet would become 
a wholly owned subsidiary of Nasdaq. Nasdaq states that completion of 
the Merger is subject to Instinet's sale of LJR and customary closing 
conditions, including regulatory approvals, including approval of the 
Merger by the Commission and approval under the Hart-Scott-Rodino 
Antitrust Improvements Act of 1976 (``HSR Act''). Nasdaq expects the 
Merger to be completed during the fourth quarter of 2005 or the first 
quarter of 2006.
    Nasdaq concurrently entered into a definitive agreement 
(``Transaction Agreement'') to sell Instinet's institutional brokerage 
business to Iceland Acquisition Corp., an affiliate of SLP, immediately 
upon the closing of the Merger for a purchase price of $207.5 million, 
subject to certain adjustments. The proposed sale is subject to terms 
and conditions set forth in the Transaction Agreement. According to 
Nasdaq, these include, among other things, the closing of the Merger 
and closing conditions that are similar to the closing conditions 
contained in the Merger Agreement, including approval under the HSR Act 
and the obtaining of other required regulatory approvals with respect 
to the sale of the institutional brokerage business to Iceland 
Acquisition Corp.
    According to Nasdaq, on April 22, 2005, it entered into a 
Securities Purchase Agreement (``Securities Purchase Agreement'') with 
Norway Acquisition SPV, LLC (``Norway SPV'') providing for the sale by 
Nasdaq to Norway SPV of $205 million aggregate principal amount of the 
Series A Notes and warrants (``Series A Warrants'') to purchase 
2,209,052 shares of Nasdaq's common stock (``Common Stock'') at $14.50 
per share. In addition, the Series A Notes will be convertible into 
Common Stock, subject to certain adjustments and conditions, at a 
purchase price of $14.50 per share, which would equal 14,137,931 
shares. The Series A Notes and the Series A Warrants purchased by 
Norway SPV are indirectly owned by Hellman & Friedman Capital Partners 
IV, L.P., H&F International Partners IV-A, L.P., H&F International 
Partners IV-B, L.P., and H&F Executive Fund IV, L.P. (collectively, the 
``H&F Entities'') and Silver Lake Partners II TSA, L.P., Silver Lake 
Technology Investors II, L.L.C., Silver Lake Partners TSA, L.P., and 
Silver Lake Investors, L.P. (collectively, the ``SLP Entities'') and 
Integral Capital Partners VI, L.P. and VAB Investors, LLC, 
(collectively with the SLP Entities, the ``SLP Investors''). Nasdaq 
will

[[Page 61487]]

receive proceeds of $205.0 million from the sale of the Series A Notes 
and Series A Warrants, less fees and other expenses.
    On April 22, 2005, Nasdaq also entered into a Note Amendment 
Agreement (``Note Amendment Agreement'') with the H&F Entities 
providing for the exchange by Nasdaq of its $240 million aggregate 
principal amount of 4.0% Convertible Subordinated Notes due 2006 (``Old 
Notes'') for $240 million aggregate principal amount of the Series B 
Notes and warrants (``Series B Warrants'') to purchase 2,753,448 shares 
of Common Stock at $14.50 per share. The Series B Notes will be 
convertible into Common Stock, subject to certain adjustments and 
closing conditions, at a purchase price of $14.50 per share, which 
would equal 16,551,724 shares. The Old Notes had been convertible at 
any time during a five-year period into 12,000,000 shares of Nasdaq 
common stock at a conversion price of $20 per share.
    On April 22, 2005, Nasdaq also entered into an Indenture 
(``Indenture'') with Law Debenture Trust Company of New York, as 
trustee, governing the terms of the Notes. Nasdaq states that the Notes 
are senior unsecured obligations of Nasdaq, rank pari passu in right of 
payment with all existing and any future senior unsecured indebtedness 
of Nasdaq, and are senior in right of payment to any future 
subordinated indebtedness of Nasdaq. Under the terms of the Indenture, 
subject to certain exceptions, Nasdaq will be required to redeem the 
Series A Notes and Series A Warrants if (i) the Merger Agreement is 
terminated or (ii) the Merger has not closed by April 22, 2006, but in 
no event earlier than October 24, 2005. The aggregate redemption price 
for the Series A Notes and Series A Warrants will be $205.0 million 
plus any accrued interest on the Series A Notes. Upon the mandatory 
redemption of the Series A Notes, (i) the Indenture and the Series B 
Notes will automatically be deemed to be amended to restate, with 
limited exceptions, the terms of the Old Notes and (ii) the Series B 
Warrants will be terminated.

Article Fourth

    Paragraph C.1. Nasdaq proposes to amend this paragraph of the 
Certificate to provide that holders of the Notes would enjoy the same 
rights that are currently granted to holders of the Old Notes, which 
are being retired. Specifically, Nasdaq states that holders of the 
Notes would be entitled to vote on all matters submitted to a vote of 
the stockholders of Nasdaq, voting together with the holders of the 
Common Stock (and of any other shares of capital stock of Nasdaq 
entitled to vote at a meeting of stockholders) as one class. Each 
holder of the Notes would be entitled to a number of votes equal to the 
number of shares of common stock such holder would obtain upon 
conversion of the principal amount of the Notes held by such person, 
subject to adjustments as provided in the Notes and the Indenture, 
dated as of April 22, 2005, between Nasdaq and Law Debenture Trust 
Company of New York, as trustee, as such Indenture may be amended, 
supplemented, or otherwise modified from time to time.\4\ The amendment 
would also provide that holders of the Notes shall be deemed to be 
stockholders and the Notes shall be deemed to be shares of stock solely 
for the purposes of provisions of the Delaware General Corporation Law 
and the Certificate that require the vote of stockholders as a 
prerequisite to corporate action.
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    \4\ The conversion rate of the Notes may be adjusted, for 
example, in the event of a distribution of Nasdaq common stock as a 
dividend, and in the event of a stock split, reverse split or share 
combination. See Indenture Agreement, Paragraph 15.05, attached as 
Exhibit 4.3 to Nasdaq's Form 8-K dated April 28, 2005.
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    Paragraph C.2. By virtue of the amendments to Paragraph C.1. set 
forth above, the current provision of the Certificate that imposes 
restrictions on stockholders voting shares and/or Old Notes in excess 
of 5% of outstanding stock and Old Notes would impose the same 
restrictions on holders of shares and the Series A Notes and Series B 
Notes. Any person who beneficially owns shares of common stock and/or 
Notes in excess of 5% of the then-outstanding shares of common stock 
(``Excess Shares and/or Notes'') would not be permitted to vote such 
Excess Shares and/or Notes. As is true under the current Certificate, 
the calculation of the number of shares of common stock outstanding at 
any particular time would be made in accordance with the last sentence 
of SEC Rule 13d-3(d)(1)(i).\5\ As a result, shares of common stock that 
may be acquired by a holder of the Notes through conversion would be 
deemed to be outstanding for purposes of calculating the voting power 
owned by such holder.
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    \5\ 17 CFR 240.13d-3(d)(1)(i).
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    Paragraph C.6. Currently, this paragraph provides that the 5% 
voting limitation does not apply to (1) the NASD or its affiliates 
until such time as the NASD beneficially owns 5% or less of Nasdaq's 
outstanding common stock, or (2) any other person that the Nasdaq Board 
of Directors may exempt prior to the time that such person beneficially 
owns more than 5% of the outstanding shares of common stock. The 
paragraph also provides that the H&F Entities will be exempted from the 
5% voting limitation if the Nasdaq Board of Directors approves an 
exemption from the 5% voting limitation for any other person (other 
than an exemption granted in connection with the establishment of a 
strategic alliance with another exchange or similar market). This 
exemption would not apply to any other person to whom the H&F Entities 
might transfer Notes and/or common stock with the exception of 
affiliated investment funds under common management and control.\6\ The 
paragraph also provides that the Board may not approve an exemption 
from the 5% limit for a registered broker or dealer or an affiliate 
thereof \7\ or a person that is subject to a statutory disqualification 
under section 3(a)(39) of the Act.\8\ In addition, before granting an 
exemption, the Nasdaq Board must make certain findings with respect to

[[Page 61488]]

the effect of an exemption on enumerated aspects of Nasdaq's regulatory 
obligations.
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    \6\ Nasdaq states that the Amended and Restated Limited 
Partnership or Limited Liability Company Agreement (each, an 
``Agreement'') of each H&F Entity and each SLP Entity provides for 
the establishment of ``Alternative Investment Structures'' or 
``Alternative Investment Vehicles'' for legal, tax, regulatory or 
other reasons deemed by the General Partner or Manager, as 
applicable, to be in the best interests of the partnership or 
company, as applicable. According to Nasdaq, under the Agreements, 
such alternative structures are required to be substantially 
identical in all material respects to the funds themselves (i.e., 
common management and control, common ultimate membership, and 
substantially identical terms and conditions). Nasdaq states that, 
in other words, the alternative investment structures or vehicles 
would have limited partners or members of the same ultimate 
ownership, including those that are registered broker/dealers, and 
the partners/members would have the same ultimate interest in 
portfolio investments in registered broker/dealers. Nasdaq states 
that, as such, a transfer of Notes or Common Stock between an H&F 
Entity or an SLP Entity and an alternative investment structure or 
vehicle would have no meaningful effect in the event the Nasdaq 
Board grants a waiver under Article Fourth, paragraph C.6.
    \7\ Nasdaq states that a small number of the limited partners of 
the H&F Entities are registered broker/dealers or affiliates of 
registered broker/dealers (``H&F Broker/Dealer investors''). The 
Certificate provides that Nasdaq may not exempt a registered broker/
dealer or an affiliate thereof from the 5% voting limitation. The 
Certificate defines ``affiliate'' with reference to SEC Rule 12b-2, 
17 CFR 240.12b-2, which in turn defines an ``affiliate'' of a 
specified person as ``a person that directly, or indirectly through 
one or more intermediaries, controls, or is controlled by, or is 
under common control with, the person specified.'' Nasdaq states 
that the interests of the H&F Broker/Dealer Investors in the H&F 
Entities are minimal. Moreover, according to Nasdaq, the limited 
partnership agreements that govern the H&F Entities provide that the 
limited partners shall take no part in the control or management of 
the business or affairs of the limited partnership, nor shall they 
have any authority to act for or on behalf of the limited 
partnership, nor shall they have any authority to act for or on 
behalf of the limited partnership.
    \8\ 15 U.S.C. 78c(a)(39).
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    The proposed rule amendment would add conforming references to the 
SLP Entities and would provide that the SLP Entities, along with the 
H&F Entities, would be exempted from the 5% voting limitation if the 
Nasdaq Board approves an exemption from the 5% voting limitation for 
any other person (other than an exemption granted in connection with 
the establishment of a strategic alliance with another exchange or 
similar market).\9\ Nasdaq states that this exemption would not apply 
to any other person to whom the SLP Entities might transfer Notes and/
or common stock, with the exception of affiliated investment funds 
under common management and control.\10\ Nasdaq states that, in the 
event that the Board determines to grant an exemption from the 5% 
voting restriction under subparagraph (b) of paragraph 6, such 
exemption shall not trigger an exemption under subparagraph (c) for the 
benefit of a broker/dealer. Finally, Nasdaq states that the proposed 
amendment is designed to ensure that, if in the future the Board raises 
the voting restriction above 5% for any Broker Affiliate, the H&F 
Entities and the SLP Entities would automatically receive the same 
percentage voting rights or the highest percentage voting rights to 
which their Notes and shares held entitled them at the time.\11\
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    \9\ Nasdaq states that, under the terms of the Transaction 
Agreement, SLP will acquire the institutional brokerage business 
(``VAB'') of Instinet, a registered broker/dealer. According to 
Nasdaq, during the time that SLP continue to own the VAB, the SLP 
Entities would be deemed to be affiliates of the VAB. Nasdaq states 
that, in the unlikely event that the Nasdaq Board were considering 
granting a waiver under Article Fourth, C.6.b, of the Certificate, 
the Board would be required to consider that such action would 
trigger an exemption under Article Fourth, C.6.c to the benefit of 
SLP that would be deemed inconsistent with the provision of the 
Certificate barring an affiliate of a registered broker or dealer 
from voting Excess Shares and/or Notes. Nasdaq notes that, in 
connection with its application for registration as a national 
securities exchange, Nasdaq filed (i) an amendment to the By-Laws 
stating that a resolution of the Nasdaq Board to approve an 
exemption for any person from the five percent voting limitation 
shall not be permitted to become effective until such resolution has 
been filed with and approved by the Commission under section 19 of 
the Act, and (ii) a rule to provide that no member of the Nasdaq 
exchange or person associated with such a member may beneficially 
own more than 20% of the outstanding shares of Nasdaq's common stock 
or Notes. See Securities Exchange Act Release No. 52559 (October 4, 
2005).
    In addition, Nasdaq states that a small number of the limited 
partners of the SLP Entities are registered broker/dealers or 
affiliates of registered broker/dealers (``SLP Broker/Dealer 
Investors''). According to Nasdaq, the interests of the SLP Broker/
Dealer Investors in the SLP Entities are minimal. Moreover, Nasdaq 
states that the limited partnership agreements that govern the SLP 
Entities provide that the limited partners shall take no part in the 
control or management of the business or affairs of the limited 
partnership, nor shall they have any authority to act for or on 
behalf of the limited partnership
    \10\ See supra note 6.
    \11\ Nasdaq states that the definition of ``Broker Affiliate'' 
set forth in paragraph C.6. includes a broker or a dealer or an 
affiliate thereof.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of sections 15A(b)(2) and (6) of the 
Act,\12\ which require, among other things, that the it be so organized 
and have the capacity to be able to carry out the purposes of the Act 
and to comply and enforce compliance with the provisions of the Act, 
and that its rules are 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 the Certificate are consistent 
with maintaining the 5% voting limitation that is currently contained 
in the Certificate, which Nasdaq believes serves the public interest by 
ensuring that certain individuals and entities cannot gain undue 
influence over the operations of Nasdaq. Nasdaq states that, in its 
order previously approving the Certificate, the Commission found that 
this 5% voting limitation and other limitations affecting the control 
of Nasdaq fulfill the obligations arising under Sections 15A(b)(2) and 
(6).\13\
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    \12\ 15 U.S.C. 78o-3(b)(2) and (6).
    \13\ See Securities Exchange Act Release No. 34-42983 (June 26, 
2000), 65 FR 41116 (July 3, 2000) (SR-NASD-00-27).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which Nasdaq consents, the Commission will:
    (A) By order approve such proposed rule change, as amended; or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     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-NASD-2005-099 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-099. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of Nasdaq. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-099 and

[[Page 61489]]

should be submitted on or before November 14, 2005.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E5-5843 Filed 10-21-05; 8:45 am]

BILLING CODE 8010-01-P