[Federal Register Volume 63, Number 165 (Wednesday, August 26, 1998)]
[Notices]
[Pages 45547-45551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22839]



[[Page 45547]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40339; File No. SR-NASD-98-56]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Amendment to Composition of NASD Board To Include Members of New Amex 
LLC and for Other Purposes

August 19, 1998.
    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 10, 1998, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the NASD. 
The proposal was subsequently amended on August 18, 1998.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 8s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter Amendment from T. Grant Callery, Senior Vice 
President and General Counsel, NASD, to Katherine A. England, 
Assistant Director, Division of Market Regulation, Commission, dated 
August 18, 1998 (``Amendment No. 1''). Several additional minor 
changes were provided by the NASD in a telephone conversation 
between Phil Rosen, NASD, and Mandy Cohen, Division of Market 
Regulation, Commission, on August 18, 1998.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NASD is proposing to amend the By-Laws of the National 
Association of Securities Dealers, Inc. (``NASD'' or ``Association'') 
to reserve one NASD Board of Governors (``Board'') position for a 
person representing a NASD member firm having not more than 150 
registered persons; reserve two Board positions for the Chief Executive 
Officer and one Floor Governor of New Amex LLC; and make other 
clarifying amendments, including the addition of certain definitions. 
Clarifying amendments and definitions are also proposed to be added to 
the By-Laws of NASD Regulation, Inc. (``NASD Regulation'') and The 
Nasdaq Stock Market, Inc. (``Nasdaq'').
    Below is the text of the proposed rule change. Proposed new 
language is underlined; proposed deletions are in brackets.

Proposed Changes to NASD By-Laws

ARTICLE I

Definitions

    (n) ``Industry Director'' means a Director of the NASD Regulation 
Board or Nasdaq Board (excluding the Presidents) who: (1) is or has 
served in the prior three years as an officer, director, or employee of 
a broker or dealer, excluding an outside director or a director not 
engaged in the day-to-day management of a broker or dealer; (2) is an 
officer, director (excluding an outside director), or employee of an 
entity that owns more than ten percent of the equity of a broker or 
dealer, and the broker or dealer accounts for more than five percent of 
the gross revenues received by the consolidated entity; (3) owns more 
than five percent of the equity securities of any broker or dealer, 
whose investments in brokers or dealers exceed ten percent of his or 
her net worth, or whose ownership interest otherwise permits him or her 
to be engaged in the day-to-day management of a broker or dealer; (4) 
provides professional services to brokers or dealers, and such services 
constitute 20 percent or more of the professional revenues received by 
the Director or 20 percent or more of the gross revenues received by 
the Director's firm or partnership; (5) provides professional services 
to a director, officer, or employee of a broker, dealer, or corporation 
that owns 50 percent or more of the voting stock of a broker or dealer, 
and such services relate to the director's, officer's, or employee's 
professional capacity and constitute 20 percent or more of the 
professional revenues received by the Director or 20 percent or more of 
the gross revenues received by the Director's firm or partnership; or 
(6) has a consulting or employment relationship with or provides 
professional services to the NASD, NASD Regulation, [or] Nasdaq, or New 
Annex (and any predecessor), or has had any relationship of provided 
any such services at any time within the prior three years;
    (o) ``Industry Governor'' or ``Industry committee member'' means a 
Governor (excluding the Chief Executive Officer and Chief Operating 
Officer of the NASD, [and] the Presidents of NASD Regulation and 
Nasdaq, and the Chief Executive Officer of New Amex) or committee 
member who: (1) is or has served in the prior three years as an 
officer, director, or employee of a broker or dealer, excluding an 
outside director or a director not engaged in the day-to-day management 
of a broker or dealer; (2) is an officer, director (excluding an 
outside director), or employee of an entity that owns more than ten 
percent of the equity of a broker or dealer, and the broker or dealer 
accounts for more than five percent of the gross revenues received by 
the consolidated entity; (3) owns more than five percent of the equity 
securities of any broker or dealer, whose investments in brokers or 
dealers exceed ten percent of his or her net worth, or whose ownership 
interest otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer; (4) provides professional services to 
brokers or dealers, and such services constitute 20 percent or more of 
the professional revenues received by the Governor or committee member 
or 20 percent or more of the gross revenues received by the Governor's 
or committee member's firm or partnership; (5) provides professional 
services to a director, officer, or employee of a broker, dealer, or 
corporation that owns 50 percent or more of the voting stock of a 
broker or dealer, and such services relate to the director's, 
officer's, or employee's professional capacity and constitute 20 
percent or more of the professional revenues received by the Governor 
or committee member or 20 percent or more of the gross revenues 
received by the Governor's or committee member's firm or partnership; 
[or] (6) is a Floor governor; or [(6) (7) has a consulting or 
employment relationship with or provides professional services to the 
NASD, NASD Regulation, [or] Nasdaq, or New Amex (and any predecessor), 
or has had any such relationship or provided any such services at any 
time within the prior three years;
    (cc) ``Non-Industry Director'' means a Director of the NASD 
Regulation Board or Nasdaq Board (excluding the Presidents of NASD 
Regulation and Nasdaq) who is: (1) a Public Director; (2) an officer or 
employee of an issuer of securities listed on Nasdaq or New Amex, or 
traded in the over-the-counter market; or (3) any other individual who 
would not be an Industry Director;
    (dd) ``Non-Industry Governor'' or ``Non-Industry committee member'' 
means a Governor (excluding the Chief Executive Officer and Chief 
Operating Officer of the NASD, [and] the Presidents of NASD Regulation 
and Nasdaq, any Floor Governor, and the Chief Executive Officer of New 
Amex) or committee member who is: (1) a Public Governor or committee 
member; (2) an officer or employee of an issuer of securities listed on 
Nasdaq or New Amex, or traded in the over-the-counter market; or (3) 
any other individual who would not be an Industry Governor or committee 
member;

[[Page 45548]]

    (jj) ``Floor Governor'' or ``New Amex Floor Governor'' means a 
Floor Governor of New Amex elected pursuant to Article II, Section. 01 
(a) of the New Amex By-Laws;
    (kk) ``Holdco'' means NASD Market Holding Company;
    (ll) ``New Amex'' means New Amex LLC;
    (mm) ``New Amex Board'' means the Board of Governors of New Amex;

ARTICLE VII. BOARD OF GOVERNORS

* * * * *

Composition and Qualifications of the Board

    Sec. 4.(a)  The Board shall consist of the Chief Executive Officer 
and the Chief Operating Officer of the NASD, the Presidents of NASD 
Regulation and Nasdaq, the Chair of the National Adjudicatory Council, 
the Chief Executive Officer of New Amex, one Floor Governor, and no 
fewer than 16 and no more than [22] 28 Governors elected by the members 
of the NASD. The Governors elected by the members of the NASD shall 
include a representative of an issuer of investment company shares or 
an affiliate of such an issuer, a representative of an insurance 
company, [and] a representative of a Nasdaq issuer, and a 
representative of an NASD member having not more than 150 registered 
persons. A majority of the Governors shall be Non-Industry Governors. 
If the Board consists of [21 to] 23 Governors, at least five shall be 
Public Governors. If the Board consists of 24 to 27 Governors, at least 
six shall be Public Governors. If the Board consists of 28 to 31 
Governors, at least seven shall be Public Governors. If the Board 
consists of 32 to 35 Governors, at least eight shall be Public 
Governors.
* * * * *

Term of Office of Governors

    Sec. 5.(a)  The Chief Executive Officer and the Chief Operating 
Officer of the NASD, [and] the Presidents of NASD Regulation and 
Nasdaq, and the Chief Executive Officer of New Amex shall serve as 
Governors until a successor is elected, or until death, resignation, or 
removal.
    (b) The Chair of the National Adjudicatory Council shall serve as a 
Governor for a term of one year, or until a successor is duly elected 
and qualified, or until death, resignation, disqualification, or 
removal. A Chair of the National Adjudicatory Council may not serve 
more than two consecutive one-year terms as a Governor, unless a Chair 
of the National Adjudicatory Council is appointed to fill a term of 
less than one year for such office. In such case, the Chair of the 
National Adjudicatory Council may serve [an] that initial term as a 
Governor and up to two consecutive one-year terms as a Governor 
following the expiration of [the] such initial term. After serving as a 
Chair of the National Adjudicatory Council, an individual may serve as 
a Governor elected by the members of the NASD.
    (c) The New Amex Floor Governor shall serve as a Governor for a 
term of two years, or until a successor is duly elected and qualified, 
or until death, resignation, disqualification, or removal. A New Amex 
Floor Governor may not serve more than three consecutive two-year terms 
as a Governor, unless such New Amex Floor Governor is appointed to fill 
a term of less than one year for such office. In such case, the New 
Amex Floor Governor may serve that initial term as a Governor and up to 
three consecutive two-year terms as a Governor following the expiration 
of the initial term.
    (d) The Governors elected by the members of the NASD shall be 
divided into three classes and hold office for a term of no more than 
three years, such term to be fixed by the Board at the time of the 
nomination or certification of such Governor, or until a successor is 
duly elected and qualified, or until death, resignation, 
disqualification, or removal. A Governor elected by the members of the 
NASD may not serve more than two consecutive terms. If a Governor is 
elected by the Board to fill a term of less than one year, the Governor 
may serve up to two consecutive terms following the expiration of the 
Governor's initial term. The term of office of Governors of the first 
class shall expire at the January 1999 Board meeting, of the second 
class one year thereafter, and of third class two years thereafter. At 
each annual election, commencing January 1999, Governors shall be 
elected for a term of three years to replace those whose terms expire.

Disqualification

    Sec. 6.  Notwithstanding Section 5, the term of office of a 
Governor shall terminate immediately upon a determination by the Board, 
by a majority vote of remaining Governors, that: (a) the Governor no 
longer satisfies the classification [(Industry, Non-Industry, or Public 
Governor)] for which the Governor was elected; and (b) the Governor's 
continued service as such would violate the compositional requirements 
of the Board set forth in Section 4. If the term of office of a 
Governor terminates under this Section, and the remaining term of 
office of such Governor at the time of termination is not more than six 
months, during the period of vacancy the Board shall not be deemed to 
be in violation of Section 4 by virtue of such vacancy.
* * * * *

ARTICLE IX--COMMITTEES

* * * * *

Executive Committee

* * * * *
    Sec. 4(b)  The Executive Committee shall consist of no fewer than 
[five] six and no more than nine Governors. The Executive Committee 
shall include the Chief Executive Officer of the NASD, at least one 
Director of NASD Regulation, at least one Director of Nasdaq, at least 
one Governor of New Amex, and at least two Governors who are not 
members of either the NASD Regulation Board, the [or] Nasdaq Board, or 
the New Amex Board. The number of Directors of the NASD Regulation 
Board and the number of Directors of the Nasdaq Board serving on the 
Executive Committee shall be equal at all times. The Executive 
Committee shall have a percentage of Non-Industry committee members at 
least as great as the percentage of Non-Industry Governors on the whole 
Board and a percentage of Public committee members at least as great as 
the percentage of Public Governors on the whole Board.
* * * * *

ARTICLE XV--LIMITATION OF POWERS

* * * * *

Conflicts of Interest

* * * * *
    Sec. 4.(b)  No contract or transaction between the NASD and one or 
more of its Governors or officers, or between the NASD and any other 
corporation, partnership, association, or other organization in which 
one or more of its Governors or officers are directors or officers, or 
have a financial interest, shall be void or voidable solely for this 
reason if: (i) the material facts pertaining to such Governor's or 
officer's relationship or interest and the contract or transaction are 
disclosed or are known to the Board or the committee, and the Board or 
committee in good faith authorizes the contract or transaction by the 
affirmative vote of a majority of the disinterested Governors; or (ii) 
the material facts are disclosed or become known to the Board or 
committee after the contract or transaction is entered into, and the 
Board or committee in good faith ratifies

[[Page 45549]]

the contract or transaction by the affirmative vote of a majority of 
the disinterested Governors. Only disinterested Governors may be 
counted in determining the presence of a quorum at the portion of a 
meeting of the Board or of a committee that authorizes the contract or 
transaction. This subsection shall not apply to any contract or 
transaction the NASD and: NASD Regulation, Holdco, Nasdaq, or New Amex.
* * * * *

Proposed Revisions to NASD Regulation, Inc. By-Laws

ARTICLE I

Definitions

* * * * *
    (q) ``Industry Director'' or ``Industry member'' means a Director 
(excluding the President) or a National Adjudicatory Council or 
committee member who (1) is or has served in the prior three years as 
an officer, director, or employee of a broker or dealer, excluding an 
outside director or a director not engaged in the day-to-day management 
of a broker or dealer; (2) is an officer, director (excluding an 
outside director), or employee of an entity that owns more than ten 
percent of the equity of a broker or dealer, and the broker or dealer 
accounts for more than five percent of the gross revenues received by 
the consolidated entity; (3) owns more than five percent of the equity 
securities of any broker or dealer, whose investments in brokers or 
dealers exceed ten percent of his or her net worth, or whose ownership 
interest otherwise permits him or her to be engaged in the day-to-day 
management of a broker or dealer; (4) provides professional services to 
brokers or dealers, and such services constitute 20 percent or more of 
the professional revenues received by the Director or member or 20 
percent or more of the gross revenues received by the Director's or 
member's firm or partnership; (5) provides professional services to a 
director, officer, or employee of a broker, dealer, or corporation that 
owns 50 percent or more of the voting stock of a broker or dealer, and 
such services relate to the director's, officer's, or employee's 
professional capacity and constitute 20 percent or more of the 
professional revenues received by the Director or member or 20 percent 
or more of the gross revenues received by the Director's or member's 
firm or partnership; or (6) has a consulting or employment relationship 
with or provides professional services to the NASD, NASD Regulation, 
[or] Nasdaq, or New Amex (and any predecessor), or has had any such 
relationship or provided any such services at any time within the prior 
three years;
* * * * *
    (x) ``Non-Industry Director'' or ``Non-Industry member'' means a 
Director (excluding the President) or a National Adjudicatory Council 
or committee member who is (1) a Public Director or Public member; (2) 
an officer or employee of an issuer of securities listed on Nasdaq or 
New Amex, or traded in the over-the-counter market; or (3) any other 
individual who would not be an Industry Director or Industry member;
* * * * *
    (cc) ``Floor Governor'' or ``New Amex Floor Governor'' means a 
Floor Governor of New Amex elected pursuant to Article II, Section 
.01(a) of the New Amex By-Laws;
    (dd) ``Holdco'' means NASD Market Holding Company;
    (ee) ``New Amex'' means New Amex LLC;
    (ff) ``New Amex Board'' means the Board of Governors of New Amex;
* * * * *

ARTICLE IV. BOARD OF DIRECTORS

* * * * *

Disqualification

    Sec. 4.7  The term of office of a Director shall terminate 
immediately upon a determination by the Board, by a majority vote of 
the remaining Directors, that: (a) the Director no longer satisfies the 
classification [(Industry, Non-Industry, or Public Director)] for which 
the Director was elected; and (b) the Director's continued service as 
such would violate the compositional requirements of the Board set 
forth in Section 4.3. If the term of office of a Director terminates 
under this Section, and the remaining term of office of such Director 
at the time of termination is not more than six months, during the 
period of vacancy the Board shall not be deemed to be in violation of 
Section 4.3 by virtue of such vacancy.
* * * * *

Conflicts of Interest; Contracts and Transactions Involving 
Directors

* * * * *
    Sec. 4.14(b)  No contract or transaction between NASD Regulation 
and one or more of its Directors or officers, or between NASD 
Regulation and any other corporation, partnership, association, or 
other organization in which one or more of its Directors or officers 
are directors or officers, or have a financial interest, shall be void 
or voidable solely for this reason if: (i) the material facts 
pertaining to such Director's or officer's relationship or interest and 
the contract or transaction are disclosed or are known to the Board or 
the committee, and the Board or committee in good faith authorizes the 
contract or transaction by the affirmative vote of a majority of the 
disinterested Directors; (ii) the material facts are disclosed or 
become known to the Board or committee after the contract or 
transaction is entered into, and the Board or committee in good faith 
ratifies the contract or transaction by the affirmative vote of a 
majority of the disinterested Directors; or (iii) the material facts 
pertaining to the Director's or officer's relationship or interest and 
the contract or transaction are disclosed or are known to the 
stockholder entitled to vote thereon, and the contract or transaction 
is specifically approved in good faith by vote of the stockholder. Only 
disinterested Directors may be counted in determining the presence of a 
quorum at the portion of a meeting of the Board or of a committee that 
authorizes the contract or transaction. This subsection shall not apply 
to a contract or transaction between NASD Regulation and the NASD, [or] 
Nasdaq, Holdco, or New Amex.

Proposed Revisions to The Nasdaq Stock Market, Inc. By-Laws

ARTICLE I.

Definitions

* * * * *
    (j) ``Industry Director'' or ``Industry member'' means a Director 
(excluding the President) or Nasdaq Listing and Hearing Review Council 
or committee member who (1) is or has served in the prior three years 
as an officer, director, or employee of a broker or dealer, excluding 
an outside director or a director not engaged in the day-to-day 
management of a broker or dealer; (2) is an officer, director 
(excluding an outside director) or employee of an entity that owns more 
than ten percent of the equity of a broker or dealer, and the broker or 
dealer accounts for more than five percent of the gross revenues 
received by the consolidated entity; (3) owns more than five percent of 
the equity securities of any broker or dealer, whose investments in 
brokers or dealers exceed ten percent of his or her net worth, or whose 
ownership interest otherwise permits him or her to be engaged in the 
day-to-day management of a broker or dealer; (4) provides professional 
services to brokers or dealers, and such services constitute 20 percent 
or more of the professional revenues received by the Director or

[[Page 45550]]

member or 20 percent or more of the gross revenues received by the 
Director's or member's firm or partnership; (5) provides professional 
services to a director, officer, or employee of a broker, dealer, or 
corporation that owns 50 percent or more of the voting stock of a 
broker or dealer, and such services relate to the director's officer's 
or employee's professional capacity and constitute 20 percent or more 
of the professional revenues received by the Director or member or 20 
percent or more of the gross revenues received by the Director's or 
member's firm or partnership; or (6) has a consulting or employment 
relationship with or provides professional services to the NASD, NASD 
Regulation, [or] Nasdaq, or New Amex (and any predecessor), or has had 
any such relationship or provided any such services at any time within 
the prior three years;
* * * * *
    (q) ``Non-Industry Director'' or ``Non-Industry member'' means a 
Director (excluding the President) or Nasdaq Listing and Hearing Review 
Council or committee member who is (1) a Public Director or Public 
member; (2) an officer or employee of an issuer of securities listed on 
Nasdaq or New Amex, or traded in the over-the-counter market; or (3) 
any other individual who would not be an Industry Director or Industry 
member;
* * * * *
    (u) ``Floor Governor'' or ``New Amex Floor Governor'' means a Floor 
Governor of New Amex elected pursuant to Article II, Section .01(a) of 
the New Amex By-Laws;
    (v) ``Holdco'' means NASD Market Holding Company;
    (w) ``New Amex'' means New Amex LLC;
    (x) ``New Amex Board'' means the Board of Governors of New Amex;
* * * * *

ARTICLE IV. BOARD OF DIRECTORS

* * * * *

Disqualification

    Sec. 4.7  The term of office of a Director shall terminate 
immediately upon a determination by the Board, by a majority vote of 
the remaining Directors, that: (a) The Director no longer satisfies the 
classification [(Industry, Non-Industry, or Public Director)] for which 
the Director was elected; and (b) the Director's continued service as 
such would violate the compositional requirements of the Board set 
forth in Section 4.3. If the term of office of a Director terminates 
under this Section, and the remaining term of office of such Director 
at the time of termination is not more than six months, during the 
period of vacancy the Board shall not be deemed to be in violation of 
Section 4.3 by virtue of such vacancy.
* * * * *

Conflicts of Interest; Contracts and Transactions Involving 
Directors

* * * * *
    Sec. 4.14(B)  No contract or transaction between Nasdaq and one or 
more of its Directors or officers, or between Nasdaq and any other 
corporation, partnership, association, or other organization in which 
one or more of its Directors or officers are directors or officers, or 
have a financial interest, shall be void or voidable solely for this 
reason if: (i) the material facts pertaining to such Director's or 
officers relationship or interest and the contract or transaction are 
disclosed or are known to the Board or the committee, and the Board or 
Committee in good faith authorizes the contract or transaction by the 
affirmative vote of a majority of the disinterested Directors; (ii) the 
material facts are disclosed or become known to the Board or committee 
after the contract or transaction is entered into, the Board or 
committee in good faith ratifies the contract or transaction by the 
affirmative vote of a majority of the disinterested Directors; or (iii) 
the material facts pertaining to the Director's or officer's 
relationship or interest and the contract or transaction are disclosed 
or are known to the stockholder entitled to vote thereon, and the 
contract or transaction is specifically approved in good faith by vote 
of the stockholder. Only disinterested Directors may be counted in 
determining the presence of a quorum at the portion of a meeting of the 
Board or of a committee that authorizes the contract or transaction. 
This subsection shall not apply to a contract or transaction between 
Nasdaq and the NASD, [or] NASD Regulation, Holdco, or New Amex.
* * * * *

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

    In its filing with the Commission, the NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NASD 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
    The proposed rule change has two purposes. First, the proposal 
reserves a seat on the NASD Board of Governors for a person 
representing a member firm having not more than 150 registered persons. 
In 1997, the NASD implemented a comprehensive revision of the 
Association's corporate structure. Those revisions were intended to 
streamline the decision making process; to improve communication among 
Board members and the staff; and to enable the Association to act 
quickly and decisively when appropriate. While the restructuring has 
been effective in meeting these goals, the Association has determined 
that there is a need to ensure the small member firm community (i.e., 
firms with 150 or fewer registered persons) a more effective voice in 
matters affecting their business and their customers, and has therefore 
determined to reserve a position on the Board of Governors for a person 
representing a firm with not more than 150 registered persons.
    Second, the addition to the NASD Board of the Chief Executive 
Officer and one Floor Governor of New Amex LLC (the successor operating 
organization to the American Stock Exchange) is required by the 
Transaction Agreement dated as of May 8, 1998 (``Transaction 
Agreement''), that will bring the Amex into the NASD family of 
companies. That agreement was approved by the Regular Members and 
Options Principal Members of the American Stock Exchange on June 25, 
1998, and is also the subject of a proposed rule change to be submitted 
by the American Stock Exchange.
(a) Summary of Amendments

By-Laws of the NASD

Article I. Definitions

    New definitions of ``Floor Governor,'' ``Holdco,'' ``New Amex,'' 
and ``New Amex Board'' have been added, and the terms ``Non-Industry 
Governor,'' ``Non-Industry Director,'' ``Non-Industry committee 
member,'' ``Industry Governor,'' ``Industry Director'' and ``Industry 
committee member'' have been amended, to incorporate the inclusion of 
New Amex LLC within the family of companies.

[[Page 45551]]

Article VII. Board of Governors

    Section 4: Composition and Qualifications of the Board. This 
section has been amended to provide that the NASD Board include the 
Chief Executive Officer and one Floor Governor of New Amex LLC and a 
representative of an NASD member firm having not more than 150 
registered persons. In addition, to ensure some flexibility and 
maintenance of a majority Non-Industry Board, the maximum size of the 
Board has been increased to 35 Governors.
    Section 5: Term of Office of Governors. This section has been 
amended to provide term lengths for service by the New Amex Chief 
Executive Officer and Floor Governor on the Board, consistent with the 
Transaction Agreement and the Constitution of New Amex LLC.

Article IX. Committees

    Section 4: Executive Committee. This section has been amended to 
include a Governor of New Amex LLC on the Executive Committee.

Article XV. Limitation of Powers

    Section 4: Conflicts of Interest. This section has been amended to 
reflect the inclusion of New Amex LLC within the family of companies.

By-Laws of NASD Regulation and of the Nasdaq Stock Market

Article I. Definitions

    New definitions of ``Floor Governor,'' ``Holdco,'' ``New Amex,'' 
and ``New Amex Board'' have been added, and the terms ``Non-Industry 
Director,'' ``Non-Industry member,'' ``Industry Director'' and 
``Industry member'' have been amended, to incorporate the inclusion of 
New Amex LLC within the NASD family of companies.

Article IV. Board of Directors

    Section 4.14: Conflicts of Interest; Contracts and Transaction 
Involving Directors. This section has been amended to reflect the 
inclusion of New Amex LLC within the family of companies.

Amendment No. 1

    Amendment No. 1 made certain minor corrections in the text of the 
NASD, NASD Regulation and Nasdaq by-laws and agreed to an extension of 
the time period for Commission action until September 30, 1998, the 
scheduled closing date of the NASD/Amex transaction.
(b) Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(4) of the Act, which requires, among other 
things, that the Association's rules must be designed to assure a fair 
representation of its members in the administration of its affairs. The 
NASD believes that the proposed rule change enhances the Association's 
ability to assure fair representation on the NASD Board of its members, 
while incorporating the constituency represented by New Amex LLC. In 
particular, the reservation of a Board seat for a representative of a 
small firm assures the ongoing participation in the governance of the 
NASD by this important segment of NASD membership, just as the creation 
of Board seats for the New Amex representatives assures the 
representation to the Amex seatholders that was integral to their 
approval of the Transaction Agreement.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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. With respect to 
that portion of the proposed rule change required by the Transaction 
Agreement, the implementation of the proposed rule change is part of an 
effort to promote intermarket competition, insofar as it is a condition 
precedent to the closing of the transaction pursuant to which a 
substantial investment will be made in the New Amex equity market. In 
addition, the transaction will result in the provision of substantial 
additional resources to enhance New Amex's options market, and to help 
it to develop system and facilities to compete more effectively with 
other U.S. and foreign options markets.

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.

IV. 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 the self-regulatory organization consents, the Commission will:
    A. by order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-98-56 and 
should be submitted by September 16, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
---------------------------------------------------------------------------

    \4\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22839 Filed 8-25-98; 8:45 am]
BILLING CODE 8010-01-M