Document ID: SEC-2006-0496-0001
Agency: sec
Document Type: Notice
Title: Securities: Regulatory responsibilities allocation
Posted Date: 2006-04-17T04:00Z

[Federal Register: April 17, 2006 (Volume 71, Number 73)]
[Notices]               
[Page 19763-19769]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17ap06-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53628; File No. 4-517]

 
Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing of the Plan for Allocation of Regulatory 
Responsibilities Between The NASDAQ Stock Market LLC and the National 
Association of Securities Dealers, Inc.

April 10, 2006.
    Pursuant to Section 17(d) of the Securities Exchange of 1934 
(``Act'') \1\ and Rule 17d-2 thereunder,\2\ notice is hereby given that 
on April 6, 2006, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') and the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'')

[[Page 19764]]

a plan for the allocation of regulatory responsibilities.
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    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
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I. Introduction

    Section 19(g)(1) of the Act \3\, among other things, requires every 
national securities exchange and registered securities association 
(``SRO'') to examine for, and enforce compliance by, its members and 
persons associated with its members with the Act, the rules and 
regulations thereunder, and the SRO's own rules, unless the SRO is 
relieved of this responsibility pursuant to Section 17(d) or 19(g)(2) 
of the Act.\4\ Without this relief, the statutory obligation of each 
individual SRO could result in a pattern of multiple examinations of 
broker-dealers that maintain memberships in more than one SRO (``common 
members''). This regulatory duplication would add unnecessary expenses 
for common members and their SROs.
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    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2).
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    Section 17(d)(1) of the Act was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ With 
respect to a common member, Section 17(d)(1) authorizes the Commission, 
by rule or order, to relieve an SRO of the responsibility to receive 
regulatory reports, to examine for and enforce compliance with 
applicable statutes, rules and regulations, or to perform other 
specified regulatory functions.
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    \5\ Securities Acts Amendments of 1975, Report of the Senate 
Committee on Banking, Housing, and Urban Affairs to Accompany S. 
249, S. Rep. No. 94-75, 94th Cong., 1st Session. 32 (1975).
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    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 and Rule 17d-2 under the Act.\6\ Rule 17d-1, adopted on 
April 20, 1976,\7\ authorizes the Commission to name a single SRO as 
the designated examining authority (``DEA'') to examine common members 
for compliance with financial responsibility requirements imposed by 
the Act, or by Commission or SRO rules. When an SRO has been named as a 
common member's DEA, all other SROs to which the common member belongs 
are relieved of the responsibility to examine the firm for compliance 
with applicable financial responsibility rules.
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    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2.
    \7\ Securities Exchange Act Release No. 12352, 41 FR 18809 (May 
3, 1976).
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    On its face, Rule 17d-1 deals only with an SRO's obligation to 
enforce broker-dealers' compliance with the financial responsibility 
requirements. Rule 17d-1 does not relieve an SRO from its obligation to 
examine a common member for compliance with its own rules and 
provisions of the federal securities laws governing matters other than 
financial responsibility, including sales practices, and trading 
activities and practices.
    To address regulatory duplication in these other areas, on October 
28, 1976, the Commission adopted Rule 17d-2 under the Act.\8\ This rule 
permits SROs to propose joint plans allocating regulatory 
responsibilities with respect to common members. Under paragraph (c) of 
Rule 17d-2, the Commission may declare such a plan effective if, after 
providing for notice and comment, it determines that the plan is 
necessary or appropriate in the public interest and for the protection 
of investors, to foster cooperation and coordination among the SROs, to 
remove impediments to and foster the development of a national market 
system and a national clearance and settlement system, and in 
conformity with the factors set forth in Section 17(d) of the Act. 
Commission approval of a plan filed pursuant to Rule 17d-2 relieves an 
SRO of those regulatory responsibilities allocated by the plan to 
another SRO.
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    \8\ Securities Exchange Act Release No. 12935, 41 FR 49093 
(November 8, 1976).
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II. The Plan

    Nasdaq and NASD filed with the Commission a plan for allocating 
regulatory responsibilities pursuant to Rule 17d-2. The proposed plan 
is intended to reduce regulatory duplication for firms that are common 
members of Nasdaq and NASD. This proposed plan would transfer to the 
NASD certain regulatory responsibilities for each common member. 
Included in the plan is an attachment (``The Nasdaq Stock Market LLC 
Rules Certification for 17d-2 Agreement with NASD,'' referred to herein 
as the ``Nasdaq Certification'') that delineates the Nasdaq rules that 
would be subject to the plan. The Nasdaq Certification lists every 
Nasdaq rule that, under the plan, the NASD would bear responsibility 
for overseeing and enforcing with respect to common members.
    The text of the proposed 17d-2 plan is as follows:

Agreement Between the National Association of Securities Dealers, Inc. 
and The Nasdaq Stock Market LLC Pursuant To Section 17(D) And Rule 17d-
2

    This agreement (Agreement) pursuant to Section 17(d) of the 
Securities Exchange Act of 1934 (Act) and Rule 17d-2 thereunder is by 
and between the National Association of Securities Dealers, Inc. 
(NASD), a Delaware corporation registered as a national securities 
association subject to regulation by the Securities and Exchange 
Commission (SEC) under the Act, whose principal offices are located at 
1735 K Street, N.W., Washington, D.C. 20006, and The NASDAQ Stock 
Market LLC (Nasdaq), a Delaware limited liability company registered as 
a national securities exchange subject to regulation by the SEC under 
the Act, whose principal offices are located at 1 Liberty Plaza, New 
York, NY (NASD and Nasdaq hereafter may be referred to together as the 
parties or individually as a party).
    In consideration of the mutual covenants contained hereafter, and 
in consideration of other valuable consideration, NASD and Nasdaq 
hereby agree as follows:
    1. Term. This Agreement shall be effective on the later of either: 
(i) the date that Nasdaq commences operations as a national securities 
exchange; or (ii) the date the SEC approves this Agreement under 
Section 17(d) (Effective Date).
    2. Entities. Nasdaq is a registered national securities exchange, 
as defined in Section 6 of the Act, and a self-regulatory organization, 
as defined in Section 3(a)(26) of the Act (SRO). NASD is a registered 
securities association, as defined in Section 15A of the Act and an 
SRO. Both parties are responsible for fulfilling certain regulatory 
obligations and performing certain regulatory functions under the Act.
    3. Members. The parties have brokers or dealers as their members, 
and some of the brokers or dealers are members of both such parties 
(hereinafter, members of both such parties and persons associated with 
such members are referred to collectively as Common Members). Each 
party has regulatory obligations under the Act and the rules of the 
party for Common Members. A broker or dealer shall be considered a 
member of one of the parties only upon the approval of the membership 
application of that broker or dealer. A broker or dealer with a pending 
membership application shall not be considered a Common Member.
    4. Structure. Under Rule 17d-2, the parties may agree, in a plan or 
agreement, to provide for coordinated, non-duplicative regulation and 
enforcement, and to serve other purposes of the Act: (1) to allocate 
certain regulatory responsibilities that both parties have to one of 
the parties; (2) to relieve a party of its regulatory responsibility 
and obligations for a certain function under the Act if the other party 
agrees to exercise such responsibility and undertake such obligation 
for the specified function on

[[Page 19765]]

behalf of the other party; and (3) to provide for the allocation of 
expenses reasonably incurred by the party agreeing to exercise the 
responsibility and undertake the obligation for the specified function 
in the plan or agreement.
    Pursuant hereto, Nasdaq is responsible for identifying the rules of 
Nasdaq that are identical or substantially similar to NASD rules. After 
review and confirmation by NASD, Nasdaq shall in a certification, as 
attached hereto and made a part of this Agreement (Nasdaq 
Certification), certify the rules of Nasdaq that are identical or 
substantially similar to NASD rules (Common Rules) and, therefore, are 
the subject of this Agreement. Each year following the commencement of 
operation of this Agreement, or more frequently if required by changes 
in either the rules of Nasdaq or NASD, Nasdaq shall submit an updated 
list of Common Rules to NASD for review which shall add Nasdaq rules 
not included in the current Nasdaq Certification that are identical or 
substantially similar to NASD rules; delete Nasdaq rules included in 
the Nasdaq Certification that are no longer identical or substantially 
similar to NASD rules; and confirm that the remaining rules on the 
Nasdaq Certification continue to be Nasdaq rules that are identical or 
substantially similar to NASD rules. Within 30 days of receipt of such 
updated list, NASD will confirm in writing whether the rules listed in 
any updated list are Common Rules as defined in this Agreement. NASD 
shall not assume regulatory responsibility for, and Nasdaq will retain 
full responsibility for (unless allocated pursuant to Rule 17d-2 
otherwise than under this Agreement), surveillance and enforcement with 
respect to trading activities or practices involving solely Nasdaq's 
own marketplace. Also subject to this Agreement are SEC rules 
applicable to Common Members. NASD shall assume regulatory 
responsibility for such SEC rules with respect to Common members to the 
same extent that the NASD assumes regulatory responsibility with 
respect to NASD members.
    5. Services. NASD agrees to provide the following services 
(Services) as related to Common Members:
    (a) Membership Activities. (1) NASD will receive and process in the 
Central Registration Depository (CRD) applications, reports, 
information, filings, fingerprint cards, and notices generally relating 
to: (a) an associated person status, and (b) registration as a 
principal of any type, a representative of any type, or any other type 
of employee required to register or required to pass a qualification 
examination.
    (2) NASD will receive and process in the CRD documentation of 
notice of the passage of the appropriate qualification examination for 
such principal, registered representative, or other employee required 
to qualify by examination and, subsequently, forward such information 
to Nasdaq.
    (3) Upon request, NASD will advise Nasdaq of any changes in the 
status of members (including officer and partner changes), and 
registered personnel as reflected in CRD.
    (4) NASD shall collect and forward monthly to Nasdaq, any 
applicable fees for the account of Nasdaq. NASD agrees to provide 
Nasdaq with an accounting of such fees in January of each year. Nasdaq 
will reimburse NASD for reasonable expenses incurred for performing 
these accounting functions.
    (5) Common Members will be required to send to NASD all letters, 
termination notices or other material relating to their associated 
persons.
    (6) When, as a result of processing letters, termination notices, 
or other material relating to their associated persons, NASD becomes 
aware of a statutory disqualification with respect to a Common Member, 
NASD shall determine, pursuant to Section 15A(g) or Section 6(c) of the 
Act, the acceptability or continued acceptability of the person to whom 
such statutory disqualification applies, but will not make a 
determination regarding Nasdaq membership or participation, or 
association of a person with Nasdaq member. NASD shall advise Nasdaq in 
writing of its actions in this regard. Nasdaq shall, within 30 days of 
receiving such information from NASD, determine whether to permit a 
statutorily disqualified Common Member to become or to remain a Nasdaq 
member or a participant, or a person associated with a member. Nasdaq 
will advise NASD of its decision. Nasdaq will reimburse NASD for 
reasonable expenses incurred for notifying Nasdaq of the NASD's 
decision regarding a statutory disqualification under Section 15A(g) or 
Section 6(c) of the Act.
    (b) Branch Office Activities. NASD will receive and process 
notices, filings, or registrations received regarding a Common Member's 
branch offices, including notices, filings, or registrations to 
designate offices of supervisory jurisdiction, and agrees to provide 
notice to Nasdaq of such filings. Nasdaq will reimburse NASD for 
reasonable expenses incurred for providing Nasdaq notification.
    (c) Examinations. For the portion of those routine, cycle, cause, 
and special examinations that NASD will perform for Common Members 
under this Agreement, NASD will, upon request, provide copies of the 
relevant portion of such examination reports to Nasdaq. Nasdaq will 
reimburse NASD for reasonable expenses incurred for providing 
examination reports to Nasdaq. This undertaking is limited to examining 
Common Members for compliance with:
    (1) The federal securities laws and the rules and regulations 
thereunder, except that it does not include examining any Common Member 
for compliance with financial responsibility rules on behalf of Nasdaq 
(unless the SEC has designated NASD as the DEA for the Common Member 
under Rule 17d-1);
    (2) Other applicable federal laws, rules and regulations; and
    (3) The rules of Nasdaq that are identical or substantially similar 
to NASD rules because they have been certified by Nasdaq as such.
    (d) Violations.
    (1) If NASD discovers an apparent violation of a federal statute or 
regulation or Nasdaq rule listed above in paragraph 5(c) for which NASD 
agrees to examine a Common Member for compliance, NASD shall 
investigate the apparent violation, notify Nasdaq of the results of the 
investigation and provide a copy of any written report, determine if 
additional regulatory action is required, take any disciplinary or 
other regulatory action required, and provide notice to Nasdaq at the 
termination of the matter by enforcement or other action. If a 
disciplinary proceeding is conducted by NASD, NASD will apply the NASD 
Code of Procedure (the Rule 9000 Series) and other applicable NASD 
procedural rules. Nasdaq will reimburse NASD for reasonable expenses 
incurred for providing any information, notices, or reports 
contemplated under this provision.
    (2) If NASD discovers an apparent violation of a Nasdaq Rule not 
within the examination responsibility of NASD as described above in 
paragraph 5(c), NASD shall notify Nasdaq and refer the matter to Nasdaq 
for further examination, investigation, or enforcement or regulatory 
action, as determined by Nasdaq.
    (e) Enforcement. For Common Members, NASD will enforce compliance 
with:
    (1) The federal securities laws and the rules and regulations 
thereunder, except that it does not include examining any Common Member 
for compliance with financial responsibility rules on behalf of Nasdaq 
(unless the SEC has

[[Page 19766]]

designated NASD as the DEA for the Common Member under Rule 17d-1);
    (2) Other applicable federal laws, rules and regulations; and
    (3) The rules of Nasdaq that are identical or substantially similar 
to NASD Rules because they have been certified by Nasdaq as such.
    6. Information Sharing. The parties agree to provide each other 
with the following information:
    (a) General. A party shall promptly furnish to the other party any 
information that the party determines indicates possible financial, 
operational, or other problems of any Common Member, including, but not 
limited to, early warning indications of potential problems resulting 
from unusual accumulations or concentrations of securities positions or 
market fluctuations.
    (b) Reports. Upon reasonable request, a party will make available 
promptly to a requesting party any financial, operational, or related 
report filed with the party by a Common Member, files, information on 
customer complaints, termination notices, copies of an examination 
report, investigative material, or other documents involving compliance 
with the federal securities laws and regulations and the rules of the 
parties by the Common Member, or other documents in the possession of 
the party receiving the request relating to the Common Member as 
necessary to assist the other party in fulfilling the self-regulatory 
responsibilities, obligations, and functions allocated under this 
Agreement. The parties agree that a party will make available promptly 
to the requesting party witnesses as necessary to assist the other 
party in fulfilling the self-regulatory responsibilities allocated 
under this Agreement. The non-requesting party will pay all reasonable 
travel and other expenses incurred by its employees to the extent that 
the requesting party requires such employees to serve as a witness, and 
provide information or other assistance pursuant to this Agreement.
    (c) Customer Complaints. If a party receives a copy of a customer 
complaint relating to a Common Member's activity or conduct that is not 
the regulatory responsibility of the receiving party, the receiving 
party will forward to the other party copies of such customer 
complaints.
    (d) Upon reasonable request of a party, the other party shall use 
reasonable efforts to furnish the requesting party information on 
informal or formal disciplinary actions involving a Common Member. The 
requesting party will reimburse the other party for reasonable expenses 
incurred for providing such information.
    (e) Information-Miscellaneous. Where not otherwise provided, in 
consideration for NASD assuming any of the above referenced regulatory 
responsibilities and obligations of Nasdaq with respect to Common 
Members and thereafter providing information to Nasdaq in any form that 
is necessary or desirable to Nasdaq in order for Nasdaq to fulfill its 
regulatory obligations under the Act or in order for Nasdaq to remain 
informed of the actions of its members and associated persons, Nasdaq 
will reimburse NASD for all reasonable expenses incurred for providing 
such information.
    7. Special or Cause Examinations. Nothing in this Agreement shall 
restrict or in any way encumber the right of a party to conduct special 
or cause examinations of Common Members as either party, in its sole 
discretion, shall deem appropriate or necessary.
    8. Fees. NASD will provide Nasdaq with one hundred eighty (180) 
days advance written notice in the event that NASD decides to charge 
Nasdaq for any expenses incurred or services performed under this 
Agreement not otherwise set forth above. Nasdaq will have thirty (30) 
days from the date of such notification to inform NASD that Nasdaq will 
seek to terminate the Agreement pursuant to Section 17 thereof or enter 
into an agreement pursuant to applicable rules of the SEC with another 
SRO with respect to the performance of such responsibilities.
    9. Indemnification. Neither party, including respective directors, 
governors, officers, employees and agents, will be liable to the other 
party and its directors, governors, officers, employees and agents for 
any liability, loss or damage resulting from any delays, inaccuracies, 
errors or omissions with respect to its performing or failing to 
perform regulatory responsibilities, obligations, or functions, except 
as otherwise provided for under the Act or in instances of gross 
negligence, willful misconduct or reckless disregard, or breach of 
confidentiality. Both parties understand and agree with each other that 
the regulatory responsibilities are being performed on a good faith and 
best effort basis and no warranties, express or implied, are made by 
either party to the other party with respect to any of the 
responsibilities to be performed by either of these parties hereunder.
    10. Arbitration. Any claim, dispute, controversy or other matter in 
question with regard to the Agreement that cannot be resolved by 
negotiation between the parties shall be submitted to arbitration in 
accordance with the rules and regulations of the American Arbitration 
Association; provided, however, that (a) submission of any such claim, 
dispute, controversy or other matter in question to the American 
Arbitration Association shall not be required if the parties agree upon 
another arbitration forum, (b) the foregoing shall not preclude either 
party from pursuing all available administrative, judicial or other 
remedies for infringement of a registered patent, trademark, service 
mark or copyright, (c) the parties shall not submit claims for punitive 
damages, and do hereby waive any right to the same, and (d) the 
arbitrators shall not be authorized to award punitive damages.
    11. SEC Approval.
    (a) The parties agree to file promptly this Agreement with the SEC 
for its review and approval.
    (b) If approved by the SEC, Nasdaq will notify Common Members of 
the general terms of the Agreement and its impact on members. The 
notice will be sent on behalf of both parties and, prior to being sent, 
NASD will review and approve the notice.
    13. Definitions. Unless otherwise defined in this Agreement, or 
unless the context otherwise requires, the terms used in this Agreement 
shall have the same meaning as they have under the Act and the rules 
and regulations thereunder.
    14. Subsequent Parties; Limited Relationship. This Agreement shall 
inure to the benefit of and shall be binding upon the parties hereto 
and their respective legal representatives, successors, and assigns. 
Nothing in this Agreement, expressed or implied, is intended or shall 
(a) confer on any person other than the parties hereto, or their 
respective legal representatives, successors, and assigns, any rights, 
remedies, obligations or liabilities under or by reason of this 
Agreement, (b) constitute the parties hereto partners or participants 
in a joint venture, or (c) appoint one party the agent of the other.
    15. Assignment. Neither party may assign the Agreement without the 
prior written consent of the other party, which consent shall not be 
unreasonably withheld, conditioned or delayed; provided, however, that 
either party may assign the Agreement to a corporation controlling, 
controlled by or under common control with the assigning party without 
the prior written consent of the other party.
    16. Severability. Any term or provision of this Agreement that is 
invalid or unenforceable in any jurisdiction shall, as to such

[[Page 19767]]

jurisdiction, be ineffective to the extent of such invalidity or 
unenforceability without rendering invalid or unenforceable the 
remaining terms and provisions of this Agreement or affecting the 
validity or enforceability of any of the terms or provisions of this 
Agreement in any other jurisdiction.
    17. Termination.
    (a) Termination for Cause. Either party may terminate the Agreement 
due to breach by the other party. The party aggrieved by the breach 
shall give written notice to the other party that the Agreement shall 
be terminated not earlier than sixty (60) calendar days from receipt of 
the notice, and such notice shall state with specificity the grounds 
for termination. If the breach is curable, the party in breach will 
have the right to cure such breach prior to the date stated for 
termination, and, should the breach be cured and written notice of such 
cure served on the aggrieved party prior to the date stated for 
termination, such notice shall vacate the notice to terminate.
    (b) Termination for Convenience. Either party may terminate the 
Agreement for any other reason by giving written notice to the other 
party that the Agreement will terminate not less than one hundred 
eighty (180 days) from receipt of the notice. The notice will specify 
the basis for termination. Nasdaq will pay NASD the amount due for 
expenses incurred for generating reports and notices as of the 
effective date of termination.
    18. General. The parties agree to perform all acts and execute all 
supplementary instruments or documents that may be reasonably necessary 
or desirable to carry out the provisions of this Agreement.
    19. Liaison and Notices. All questions regarding the implementation 
of this Agreement shall be directed to the persons identified in 
subsections (a) and (b), as applicable, below. All notices and other 
communications required or permitted to be given under this Agreement 
shall be in writing and shall be deemed to have been duly given upon 
(i) actual receipt by the notified party or (ii) constructive receipt 
(as of the date marked on the return receipt) if sent by certified or 
registered mail, return receipt requested, to the following addresses:
    (a) If to NASD: National Association of Securities Dealers, Inc. 
1735 K Street, NW., Washington, DC 20006. Attn: NASD Regulation Office 
of General Counsel.
    With, if a notice of breach or default, a required copy to: 
National Association of Securities Dealers, Inc., 1735 K Street, NW., 
Washington, DC 20006, Attn: Office of General Counsel--Contracts Group.
    (b) If to Nasdaq: The NASDAQ Stock Market LLC, 9600 Blackwell 
Avenue, Rockville, MD 20850, Attn: The Nasdaq Stock Market LLC, Office 
of General Counsel.
    With, if a notice of breach or default, a required copy to: The 
Nasdaq Stock Market LLC, Office of General Counsel.
    20. Regulatory Responsibility. Pursuant to Section 17(d)(1)(A) of 
the Act, and Rule 17d-2 thereunder, NASD and Nasdaq jointly request the 
SEC, upon its approval of this Agreement, to relieve Nasdaq of any and 
all responsibilities with respect to the matters allocated to NASD 
pursuant to this Agreement for purposes of Sections 17(d) and 19(g) of 
the Act; provided, however, that Nasdaq will continue to have exclusive 
responsibility for ensuring the continued validity of the Nasdaq 
certifications made under Section 4 herein.
    21. Governing Law. This Agreement shall be deemed to have been made 
in the State of New York, and shall be construed and enforced in 
accordance with the law of the State of New York, without reference to 
principles of conflicts of laws thereof. Each of the parties hereby 
consents to submit to the jurisdiction of the courts by or for the 
State of New York in connection with any action or proceeding relating 
to this Agreement.
    22. Survival of Provisions. Provisions intended by their terms or 
context to survive and continue notwithstanding delivery of the 
Services by NASD, the payment of the price by Nasdaq, and any 
expiration of this Agreement shall survive and continue, including but 
not limited to, the items referred to in Sections 9 and 10.

The Nasdaq Stock Market LLC Rules Certification for 17D-2 Agreement 
With NASD

    The Nasdaq Stock Market LLC hereby certifies that the requirements 
contained in the Nasdaq Stock Market rules listed below are identical 
to, or substantially similar to, NASD rules.

0100. GENERAL PROVISIONS
    0110. Adoptions and Application of Rules
    0113. Interpretation
    0115. Applicability
    0120. Definitions
    0121. Definitions in By-Laws
1000. MEMBERSHIP, REGISTRATION AND QUALIFICATION REQUIREMENTS
    1002. Qualifications of Nasdaq Members and Associated Persons
    IM-1002-1. Filing of Misleading Information as to Membership or 
Registration
    IM-1002-2. Status of Sole Proprietors and Registered 
Representatives Serving in the Armed Forces
    IM-1002-3. Failure to Register Personnel
    IM-1002-4. Branch Offices and Offices of Supervisory Jurisdiction
    1010. Membership Proceedings Definitions
    1011. Definitions
    1012. General Provisions
    1013. New Member Application and Interview
    1014. Department Decision
    1017. Application for Approval of Change in Ownership, Control, or 
Business Operations
    1020. Registration of Principals
    1021. Registration Requirements
    1022. Categories of Principal Registration
    IM-1022-2. Limited Principal--General Securities Sales Supervisor
    1030. Registration of Representatives
    1031. Registration Requirements
    1032. Categories of Representative Registration
    1040. Registration of Assistant Representatives--Order Processing
    1041. Registration Requirements
    1042. Restrictions
    1050. Research Analysts
    1060. Persons Exempt from Registration
    1070. Qualification Examinations and Waiver of Requirements
    1080. Confidentiality of Examinations
    1090. Foreign Members
    1100. Foreign Associates
    1120. Continuing Education Requirements
    1130. Reliance on Current Membership List
    1140. Electronic Filing Rules
    1150. Executive Representative
2000. BUSINESS CONDUCT
    2100. GENERAL STANDARDS
    2110. Standards of Commercial Honor and Principles of Trade
    IM-2110-2. Trading Ahead of Customer Limit Orders
    IM-2110-3. Front Running Policy
    IM-2110-4. Trading Ahead of Research Reports
    IM-2110-5. Anti-Intimidation/Coordination
    IM-2110-6. Confirmation of Callable Common Stock
    IM-2110-7. Interfering With the Transfer of Customer Accounts in 
the Context of Employment Disputes
    2111. Trading Ahead of Customer Market Orders
    2120. Use of Manipulative, Deceptive or Other Fraudulent Devices
2200. COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC

[[Page 19768]]

    2210. Communications with the Public
    IM-2210-1. Guidelines to Ensure That Communications With the Public 
Are Not Misleading
    IM-2210-4. Limitations on Use of Nasdaq's Name
    2211. Institutional Sales Material and Correspondence
    2212. Telemarketing
    2240. Disclosure of Control Relationship with Issuer
    2250. Disclosure of Participation or Interest in Primary or 
Secondary Distribution
    2260. Forwarding of Proxy and Other Materials
    IM-2260. Suggested Rates of Reimbursement
    2270. Disclosure of Financial Condition to Customers
2300. TRANSACTIONS WITH CUSTOMERS
    2310. Recommendations to Customers (Suitability)
    IM-2310-2. Fair Dealing with Customers
    IM-2310-3. Suitability Obligations to Institutional Customers
    2320. Best Execution and Interpositioning
    2330. Customers' Securities or Funds
    IM-2330. Segregation of Customers' Securities
    2340. Customer Account Statements
    2341. Margin Disclosure Statement
    2360. Approval Procedures for Day Trading Accounts
    2361. Day-Trading Risk Disclosure Statement
    2370. Borrowing From or Lending to Customers
2400. COMMISSIONS, MARK-UPS AND CHARGES
    2430. Charges for Services Performed
    2460. Payments for Market Making
2500. SPECIAL ACCOUNTS
    2510. Discretionary Accounts
    2520. Margin Requirements
2800. SPECIAL PRODUCTS
    2810. Direct Participation Programs
    2830. Investment Company Securities
    2840. Trading in Index Warrants, Currency Index Warrants, and 
Currency Warrants
    2841. General
    2842. Definitions
    2850. Position Limits
    2851. Exercise Limits
    2852. Reporting Requirements
    2853. Liquidation of Index Warrant Positions
    2854. Trading Halts or Suspensions
2900. RESPONSIBILITIES TO OTHER BROKERS OR DEALERS
    2910. Disclosure of Financial Condition to Other Members
3000. RESPONSIBILITIES RELATING TO ASSOCIATED PERSONS, EMPLOYEES, AND 
OTHERS' EMPLOYEES
    3010. Supervision
    IM-3010. Guidance on Heightened Supervision Requirements
    3011. Anti-Money Laundering Compliance Program
    3012. Supervisory Control System
    3013. Annual Certification of Compliance and Supervisory Processes
    IM-3013. Annual Compliance and Supervision Certification
    3020. Fidelity Bonds
    3030. Outside Business Activities of an Associated Person
    3040. Private Securities Transactions of an Associated Person
    3050. Transactions for or by Associated Persons
    3060. Influencing or Rewarding Employees of Others
    3070. Reporting Requirements
    3080. Disclosure to Associated Persons When Signing Form U-4
    3090. Transactions Involving Nasdaq Employees
3100. BOOKS AND RECORDS, AND FINANCIAL CONDITION
    3110. Books and Records
    IM-3110. Customer Account Information
    3120. Use of Information Obtained in Fiduciary Capacity
    3121. Custodian of the Record
    3130. Regulation of Activities of Members Experiencing Financial 
and/or Operational Difficulties
    IM-3130. Restrictions on Member's Activity
    3140. Approval of Change in Exempt Status Under SEC Rule 15c3-3
    3150. Reporting Requirements for Clearing Firms
    IM-3150. Exemptive Relief
3200. SETTLEMENTS
    3220. Adjustment of Open Orders
    3230. Clearing Agreements
3300. TRADING
    3310. Publication of Transactions and Quotations
    IM-3310. Manipulative and Deceptive Quotations
    3320. Offers at Stated Prices
    3330. Payment Designed to Influence Market Prices, Other than Paid 
Advertising
    3370. Prompt Receipt and Delivery of Securities
3500. EMERGENCY PREPAREDNESS
    3510. Business Continuity Plans
    3520. Emergency Contact Information
6000. OTHER SYSTEMS AND PROGRAMS
6400. TRANSACTIONS IN SECURITIES TRADED PURSUANT TO UNLISTED TRADING 
PRIVILEGES
    6430. Suspension of Trading
    6440. Trading Practices
6500. PORTAL[supreg]
    6530. Requirements Applicable to Nasdaq Members
    6531. Limitations on Transactions in PORTAL Securities
    6532. Reporting Debt and Equity Transactions in PORTAL Securities
6950. ORDER AUDIT TRAIL SYSTEM
    6951. Definitions
    6952. Applicability
    6953. Synchronization of Member Business Clocks
    6954. Recording of Order Information
    6955. Order Data Transmission Requirements
    6956. Violation of Order Audit Trail System Rules
    6957. Effective Date
8000. INVESTIGATIONS AND SANCTIONS
    8100. GENERAL PROVISIONS
    8110. Availability of Manual to Customers
    8120. Definitions
10000. CODE OF ARBITRATION PROCEDURE 10100. Jurisdiction
    IM-10100. Failure to Act Under Provisions of Code of Arbitration 
Procedure
    10101. Matters Eligible for Submission
    10102. Non-Waiver of Nasdaq Objects and Purposes
11000. UNIFORM PRACTICE CODE
    11100. Scope of Uniform Practice Code
    11110. Nasdaq Regulation
    IM-11110. Refusal to Abide by Rulings of Nasdaq Regulation
    11120. Definitions
    11130. When, As and If Issued/Distributed Contracts
    IM-11130. Standard Form of ``When, As and If Issued'' or ``When, As 
and If Distributed'' Contract
    11140. Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or 
``Ex-Warrants''
    11150. Transactions ``Ex-Interest'' in Bonds Which Are Dealt in 
``Flat''
    11160. ``Ex'' Liquidating Payments
    11170. Transactions in ``Part-Redeemed'' Bonds
    11190. Reconfirmation and Pricing Service Participants
11200. COMPARISONS OR CONFIRMATIONS AND ``DON'T KNOW NOTICES''
    11210. Sent By Each Party
    IM-11210. Uniform Comparison Form 11220. Description of Securities
11300. DELIVERY OF SECURITIES
    11310. Book-Entry Settlement
    11320. Dates of Delivery
    11330. Payment
    11340. Stamp Taxes
    11350. Part Delivery
    11360. Units of Delivery
    IM-11360. Uniform Delivery Ticket

[[Page 19769]]

Form
    11361. Units of Delivery--Stocks
    11362. Units of Delivery--Bonds
    11363. Units of Delivery--Unit Investment Trust Securities
    11364. Units of Delivery--Certificates of Deposit for Bonds
    IM-11364. Trading Securities As ``Units'' or Bonds ``With Stock''
11400. DELIVERY OF SECURITIES WITH DRAFT ATTACHED
    11410. Acceptance of Draft
11500. DELIVERY OF SECURITIES WITH RESTRICTIONS
    11510. Delivery of Temporary Certificates
    11520. Delivery of Mutilated Securities
    11530. Delivery of Securities Called for Redemption or Which Are 
Deemed Worthless
    11540. Delivery Under Government Regulations
    11550. Assignments and Powers of Substitution; Delivery of 
Registered Securities
    IM-11550. Uniform Transfer Instructions Form
    11560. Certificate of Company Whose Transfer Books Are Closed
    IM-11560. Sample Ownership Transfer Indemnification Stamp
    11570. Certificates in Various Names
    11571. Certificate in Name of Corporation
    IM-11571. Sample Certificate and Authorizing Resolution/Certificate 
of Incumbency
    11572. Certificate in Name of Firm
    11573. Certificate in Name of Dissolved Firm Succeeded by New Firm
    11574. Certificate in Name of Deceased Person, Trustee, etc.
    IM-11574. Sample Limited Partnership Change of Trustee Form
11600. DELIVERY OF BONDS AND OTHER EVIDENCES OF INDEBTEDNESS
    11610. Liability for Expenses
    11620. Computation of Interest
    11630. Due-Bills and Due-Bill Checks
    IM-11630. Sample Due-Bill Forms
    11640. Claims for Dividends, Rights, Interest, etc.
    11650. Transfer Fees
11700. RECLAMATIONS AND REJECTIONS
    11710. General Provisions
    IM-11710. Uniform Reclamation Form
    11720. Irregular Delivery--Transfer Refused--Lost or Stolen 
Securities
    IM-11720. Obligations of Members Who Discover Securities in Their 
Possession to Which They Are Not Entitled
    11730. Called Securities
    11740. Marking to the Market
800. CLOSE-OUT PROCEDURES
    11810. Buying-In
    IM-11810. Sample Buy-In Forms
    11820. Selling-Out
    11840. Rights and Warrants
    IM-11840. Sample Letter of Indemnity
    11860. Acceptance and Settlement of COD Orders
    11870. Customer Account Transfer Contracts
    IM-11870. Sample Transfer Instruction Forms
    11880. Settlement of Syndicate Accounts

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

    Pursuant to Section 17(d)(1) of the Act \9\ and Rule 17d-2 
thereunder,\10\ after May 8, 2006, the Commission may, by written 
notice, declare the plan submitted by Nasdaq and NASD, File No. 4-517, 
effective if the Commission finds that the plan is necessary or 
appropriate in the public interest and for the protection of investors, 
to foster cooperation and coordination among self-regulatory 
organizations, or to remove impediments to and foster the development 
of the national market system and a national system for the clearance 
and settlement of securities transactions and in conformity with the 
factors set forth in Section 17(d) of the Act.
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    \9\ 15 U.S.C. 78q(d)(1).
    \10\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    In order to assist the Commission in determining whether to approve 
this plan and to relieve Nasdaq of those responsibilities designated to 
NASD, interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml.
), or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number 4-517 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 4-517. 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/other.shtml). 

Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed plan that are filed with the 
Commission, and all written communications relating to the proposed 
plan 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 the plan 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 4-517 
and should be submitted on or before May 8, 2006. 

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-5693 Filed 4-14-06; 8:45 am]

BILLING CODE 8010-01-P