Document ID: SEC-2008-1338-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2008-10-01T04:00Z

[Federal Register: October 1, 2008 (Volume 73, Number 191)]
[Notices]               
[Page 57188-57190]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc08-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58638; File No. SR-NASDAQ-2008-076]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Nasdaq's PORTAL Market

September 24, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 19, 2008, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I, II, and III below, 
which Items have been prepared by Nasdaq. Nasdaq has designated the 
proposed rule change as constituting a non-controversial rule change 
under Rule 19b-4(f)(6) under the Act,\3\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The NASDAQ Stock Market LLC (``Nasdaq'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to: (1) Cease operation, as a self-regulatory organization, of 
Nasdaq's electronic platform for the quoting and trading of restricted 
equity securities designated for inclusion in The PORTAL[supreg] Market 
(``PORTAL'' or the ``PORTAL Market''); and (2) file, pursuant to Nasdaq 
Rule 2140, for Nasdaq to (a) acquire a minority ownership interest in a 
Delaware limited liability company to be known as The PORTAL Alliance 
LLC (the ``Alliance'') that would, in turn, own and operate an open 
electronic platform for the posting of indicative quotations and 
negotiation of transactions in equity securities designated as PORTAL 
securities and (b) enter into an agreement to operate the platform on 
behalf of the Alliance. Other members of the Alliance would include 
certain Nasdaq members or their affiliates. The text of the proposed 
amendment to the Nasdaq PORTAL Rules is below. Proposed new language is 
underlined, proposed deletions are in brackets.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.\4\
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    \4\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at http://wallstreet.cch.com/nasdaq.
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* * * * *

6501 Definitions

    For purposes of the PORTAL[supreg] Rules, unless the context 
requires otherwise:

    (a)-(e) No Change.
    (f) The term ``PORTAL security'' or ``PORTAL securities'' shall 
mean a security that is currently designated [and authorized for 
inclusion in the] as a PORTAL security [Market] by Nasdaq pursuant 
to the Rule 6500 Series.
    (g) The term ``PORTAL Market'' or ``System'' shall mean the 
system for the quotation, negotiation, execution and automated trade 
reporting of PORTAL Debt[s] Securities that is owned and operated by 
The NASDAQ Stock Market LLC.
    (h)-(x) No Change.
* * * * *

6504 Reporting Transactions in PORTAL Securities

    Transactions in PORTAL Debt[s] Securities shall be reported by the 
System in accordance with applicable self-regulatory organization 
rules.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    On July 31, 2007, the SEC approved amendments to the PORTAL Rules 
that reestablished a trading system for the purpose of quoting and 
trading securities eligible for resale by qualified institutional 
buyers under SEC Rule 144A.\5\ This approval represented a new phase in 
the operation of the Nasdaq PORTAL Market, which was originally 
approved by the SEC in 1990 simultaneously with the SEC's approval of 
Rule 144A.\6\
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    \5\ Securities Exchange Act Release No. 56172 (July 31, 2007), 
72 FR 44196 (SR-NASDAQ-2006-065). At the time of approval, Nasdaq 
indicated that it would first operate a system for trading PORTAL 
equity, and thereafter would enable the system to trade PORTAL debt 
securities. While the PORTAL equity functionality has been available 
since August 15, 2007, Nasdaq has yet to implement trading 
functionality for PORTAL debt securities. Subsequently, on February 
21, 2008, the SEC approved amendments to the qualification 
requirements for equity securities to be designated for inclusion in 
PORTAL in cases where the security does not receive book-entry 
settlement services at The Depository Trust Corporation (``DTC'') as 
had previously been required by PORTAL Rule 6502(b)(1)(C), but is 
nonetheless subject to an alternative regular-way non-DTC settlement 
procedure. Securities Exchange Act Release No. 57368 (February 21, 
2008), 73 FR 10852 (SR-NASDAQ-2008-011).
    \6\ Rule 144A was adopted by the SEC in 1990 in Securities Act 
Release No. 6862 (April 23, 1990), 55 FR 17933 (S7-23-88). PORTAL 
was approved by the SEC in Securities Exchange Act Release No. 27956 
(April 27, 1990), 55 FR 18781 (SR-NASD-88-23). For an explanation of 
the history of the development of the PORTAL Market, see Securities 
Exchange Act Release No. 55669 (April 25, 2007), 72 FR 23874 (SR-
NASDAQ-2006-065).
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    During the period following the reestablishment of the Nasdaq 
PORTAL Market, Nasdaq has reexamined the operational and ownership 
structure of PORTAL with a view to adopting changes that reflect the 
preferences of market participants and enhance the operation of the 
system, which, in turn, Nasdaq believes will achieve the goals of 
enhanced transparency and efficiency in the trading of restricted 
securities that are at the heart of Nasdaq's PORTAL initiatives.
    As a result, Nasdaq is proposing to: (1) Terminate the current 
Nasdaq PORTAL Market for equity securities, while continuing to review 
and designate both restricted debt and equity securities as PORTAL-
eligible securities in its SRO capacity; and (2) Enter into agreements 
with certain of its members or their affiliates (the ``Firms'') to 
create, and take a minority interest in, the Alliance, a Delaware 
limited

[[Page 57189]]

liability company principally formed to operate a private open-access 
over-the-counter platform to facilitate transactions in, and, through 
expected links with third-party transfer tracking systems, monitor 
ownership of and compliance with transfer restrictions applicable to 
PORTAL eligible equity and certain other securities eligible for resale 
under Rule 144A, initially to be known as The PORTAL Alliance Platform 
(the ``Alliance Platform'').\7\ Under the proposed structure, Nasdaq 
will cease to operate the Nasdaq PORTAL Market for equity securities in 
its capacity as a self-regulatory organization and instead operate the 
Alliance Platform in a private vendor capacity pursuant to corporate 
and commercial agreements among and between Nasdaq and the Alliance.\8\ 
Nasdaq has also agreed to phase out use of trademarks using the term 
PORTAL over the course of two years to prevent any confusion between 
the new Alliance Platform and the terminated Nasdaq PORTAL Market for 
equity securities. In return for its financial and intellectual 
property contributions, Nasdaq will receive a 10% ownership interest in 
the Alliance in addition to a non-voting preferred interest.\9\ Under 
the terms of its agreement with the Alliance to operate the Alliance 
Platform, Nasdaq will be reimbursed for the costs of operating and 
maintaining the Alliance Platform. The business operations and 
decisions of the Alliance Platform will ultimately be the 
responsibility of the Alliance's Board of Managers. Beyond its capacity 
as but one of what is expected to be initially 12 minority holders with 
a voting board seat and acting at the direction of the Alliance as 
operator of the Alliance Platform, Nasdaq will not direct, control, or 
otherwise manage the business of the Alliance. In addition, Nasdaq 
commits not to provide pricing or other concessions related to its 
exchange facilities to Nasdaq members based on their usage of the 
Alliance Platform.
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    \7\ The Nasdaq member firms expected to enter into agreements 
with Nasdaq either directly or through affiliated or successor 
entities are: Banc of America Securities LLC; Citigroup Global 
Markets Inc.; Credit Suisse Securities (USA) LLC; Deutsche Bank 
Securities Inc.; Goldman, Sachs & Co.; J.P. Morgan Securities Inc.; 
Lehman Brothers Inc.; Merrill Lynch, Pierce, Fenner & Smith 
Incorporated; Morgan Stanley & Co. Incorporated; UBS Securities LLC; 
and Wachovia Capital Markets, LLC.
    \8\ Nasdaq has provided copies of these agreements to Commission 
Staff.
    \9\ Nasdaq's financial contribution to the Alliance will be an 
amount equal to that received by Nasdaq for designating PORTAL 
equity securities.
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    Access to the Alliance Platform will be open to any qualified 
registered broker-dealer or institution, and will be entirely 
voluntary. Thus, any qualified party, including broker-dealers that are 
not parties to the Alliance limited liability company agreement, may 
enter indicative quotations, negotiate trades through and receive 
transaction information from the Alliance Platform. Operationally, the 
Alliance Platform expects to have the current Nasdaq PORTAL Market 
quoting and trading functionality as it relates to PORTAL equity 
securities link with existing transfer tracking systems that monitor 
and enforce caps on recordholder numbers and other transfer 
restrictions for equity securities. The Alliance Platform will forward 
required trade reports for transactions in PORTAL securities negotiated 
on or otherwise reported to the Alliance Platform to the Financial 
Industry Regulatory Authority (``FINRA'') for regulatory purposes, as 
well as forward settlement-related transaction information to the 
relevant recipient(s) for settlement purposes.\10\
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    \10\ Currently, DTC allows Rule 144A securities that are not 
investment grade rated debt to be eligible for deposit, book-entry 
delivery, and other depository services only if the Rule 144A 
securities are designated for inclusion in a system of a self-
regulatory organization (``SRO'') approved by the Commission ``for 
the reporting of quotation and trade information of Rule 144A 
transactions (`SRO Rule 144A System').'' See Securities Exchange Act 
Release No. 33327 (Dec. 13, 1993); 58 FR 67878. We note in this 
regard that the Alliance Platform will not be a system of a SRO 
approved by the Commission ``for the reporting of quotation and 
trade information of Rule 144A transactions'' within the meaning of 
this rule.
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    Nasdaq believes the above structure will encourage the posting of 
indicative quotation information in equity securities eligible for 
resale under Rule 144A(i) within a framework that makes such 
information generally available to qualified market participants and 
(ii) through a system that allows the qualified market participants to 
take action based on such information. In Nasdaq's view, this result is 
far superior to the current situation where Nasdaq's sole ownership of 
a 144A trading system as a facility of the exchange has resulted in no 
material improvement in the transparency and efficiency in the trading 
of 144A equity. This proposal creates an opportunity for a more 
transparent and technologically efficient trading and trade reporting 
environment for 144A equity to develop.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\11\ in general, and with 
Sections 6(b)(5) of the Act,\12\ in particular, in that the proposal 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. In 
particular, Nasdaq believes that the proposal will encourage more 
competitive, efficient and transparent trading in restricted 
securities. By providing an operational and ownership structure that 
encourages an increased display of trading interest, Nasdaq expects the 
proposal to benefit all market participants that seek to invest in, or 
trade, such securities.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
does not become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that Nasdaq satisfied the five-day 
pre-filing notice requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is

[[Page 57190]]

necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, 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-NASDAQ-2008-076 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2008-076. 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 Room on official business days 
between the hours of 10 a.m. and 3 p.m.. Copies of such filing also 
will be available for inspection and copying at the principal offices 
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-NASDAQ-2008-076 and 
should be submitted on or before October 22, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22968 Filed 9-30-08; 8:45 am]

BILLING CODE 8010-01-P