Document ID: SEC-2005-0360-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-12-12T05:00Z

[Federal Register: December 12, 2005 (Volume 70, Number 237)]
[Notices]               
[Page 73500-73501]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de05-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52897; File No. SR-NASD-2005-099]

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

 December 6, 2005.
    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''), pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to amendments to the Restated Certificate 
of Incorporation of The Nasdaq Stock Market, Inc. (``Certificate''). On 
September 30, 2005, Nasdaq submitted Amendment No. 1 to the proposed 
rule change.\3\ Nasdaq has proposed to amend its Certificate to afford 
the holders of its 3.75% Series A Convertible Notes due October 2012 
(``Series A Notes'') and its 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 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.\4\
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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 the Certificate 
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.
    \4\ The Commission notes that Nasdaq has filed a proposed rule 
change to establish rules governing the operation of the INET 
system. See Securities Exchange Act Release No. 52723 (November 2, 
2005), 70 FR 67513 (November 7, 2005).
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on October 24, 2005.\5\ The Commission received no 
comments on the proposal.
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    \5\ See Securities Exchange Act Release No. 52574 (October 7, 
2005), 70 FR 61484 (``Notice'').

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[[Page 73501]]

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a registered securities 
association.\6\ In particular, the Commission believes that the 
proposed rule change, as amended, is consistent with sections 15A(b)(2) 
and (6) of the Act,\7\ which require, among other things, that a 
national securities association 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 
be designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest.
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    \6\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78o-3(b)(2) and (6).
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    The Commission notes that the proposed rule change, as amended, 
provides holders of the Notes the same rights and subjects them to the 
same restrictions under Paragraphs C.1. and C.2. of the Certificate 
that currently apply to holders of Nasdaq's 4.0% Convertible 
Subordinated Notes due 2006, which are being retired. Specifically, the 
holders will be entitled to vote on all matters submitted to a vote of 
the stockholders of Nasdaq. The holders' ability to vote is limited in 
Paragraph C.2. of the Certificate, which provides that holders of the 
Notes and common stock cannot vote any shares that they own excess of 
five percent of the then-outstanding shares of stock generally entitled 
to vote as of the record date in respect of such matter. Paragraph 
C.6.(b) of the Certificate, however, gives Nasdaq's Board of Directors 
(``Board'') the authority to exempt certain persons from the five 
percent voting restriction. If the Board grants such an exemption to 
any person, then the holders would be permitted to receive a similar 
exemption from the voting restriction.\8\ The Board, however, is not 
permitted to grant exemptions from the five percent voting restriction 
to any registered broker or dealer or an affiliate thereof (``Broker 
Affiliate'').\9\ The Commission believes that it would be inconsistent 
with Nasdaq's Certificate for the Board to grant an exemption from the 
five percent voting restriction to any person if, as a consequence, a 
Broker Affiliate received a similar exemption.\10\
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    \8\ The Commission notes that, currently, one of the holders is 
a Broker Affiliate. Nasdaq represented in the Notice that if the 
Board were to consider granting a waiver to any person, it would 
have to consider that such action would trigger an exemption for the 
holders that would be deemed inconsistent with the provision in 
Paragraph C.6. See Notice, supra note 5, at note 9.
    \9\ Nasdaq has stated that the definition of ``Broker 
Affiliate'' set forth in Paragraph C.6. includes a broker or a 
dealer or an affiliate thereof. See Notice, supra note 5, at note 
11.
    \10\ Nasdaq states that, if in the future the Board exempts any 
Broker Affiliate from the five percent voting restriction, the 
holders of the Notes 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. As noted, Paragraph 
C.6. prohibits the Board from granting any exemption from the five 
percent voting restriction to a Broker Affiliate. Accordingly, the 
Board is not permitted to grant such an exemption under its current 
authority and any change to this authority would have to be filed 
with, and approved by, the Commission pursuant to Section 19(b) of 
the Act.
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    The Commission finds that, since this proposal extends the same 
rights and obligations under the Nasdaq Certificate to certain new 
holders of the Notes, the proposal is consistent with the Act. In 
addition, the Commission believes that the five percent voting 
restriction should limit the ability of any entity, particularly a 
registered broker or dealer, from controlling Nasdaq.\11\
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    \11\ See Securities Exchange Act Release No. 42983 (June 26, 
2000), 65 FR 41116 (July 3, 2000) (SR-NASD-00-27).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-NASD-2005-099), as 
amended, be, and hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-7195 Filed 12-9-05; 8:45 am]

BILLING CODE 8010-01-P