[Federal Register Volume 64, Number 29 (Friday, February 12, 1999)]
[Notices]
[Pages 7223-7224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3512]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41026; File No. SR-NASD-99-10]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to an Amendment to the 
Composition of Boards of NASD Regulation, Inc. and the Nasdaq Stock 
Market, Inc.

February 8, 1999.
    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 February 3, 1999, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared by the NASD. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval to the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 NASD Regulation, 
Inc. (``NASD Regulation'') and The Nasdaq Stock Market, Inc. 
(``Nasdaq'') to increase the possible size of the Board of Directors of 
those corporations. Below is the text of the proposed rule change. 
Proposed new language is italicized; proposed deletion are in brackets.
Proposed Revisions to the NASD Regulation, Inc. By-Laws
ARTICLE IV
Number of Directors
    Sec. 4.2  The Board shall consist of no fewer than five and no more 
than [eight] ten Directors, the exact number to be determined by 
resolution adopted by the Stockholder of NASD Regulation from time to 
time. Notwithstanding the preceding sentence, the number of Directors 
shall equal the number of Directors on the Nasdaq Board. Any new 
Director position created as a result of an increase in the size of the 
Board shall be filled pursuant to [as part of the annual election 
conducted under] Section 4.4.
Qualifications
    Sec. 4.3 (a)  Directors need not be stockholders of NASD 
Regulation. Only Governors of the NASD Board shall be eligible for 
election to the Board. The number of Non-Industry Directors shall equal 
or exceed the number of Industry Directors plus the President. The 
Board shall include the President and the National Adjudicatory Council 
Chair, representatives of an issuer of investment company shares or an 
affiliate of such an issuer, and an insurance company or an affiliated 
NASD member. If t[T]he Board consist of five to seven Directors, it 
shall include at least one Public Director.[, unless the Board consists 
of eight Directors. In such case] If the Board consists of eight 
Directors, at least two Directors shall be Public Directors and if the 
Board consists of ten Directors at least three shall be Public 
Directors. The Chief Executive Officer of the NASD shall be an ex-
officio non-voting member of the Board.
    (b) No change.
Proposed Revisions to The Nasdaq Stock Market, Inc. By-Laws
ARTICLE IV
Definitions
Number of Directors
    Sec. 4.2  The Board shall consist of no fewer than five and no more 
than [eight] ten Directors, the exact number to be determined by 
resolution adopted by the stockholder of Nasdaq from time to time. 
Notwithstanding the preceding sentence, the number of Directors shall 
equal the number of Directors on the NASD Regulation Board. Any new 
Director position created as a result of an increase in the size of the 
Board shall be filled pursuant to [as part of the annual election 
conducted under] Section 4.4.

Qualifications

    Sec. 4.3  Directors need not be stockholders of Nasdaq. Only 
Governors of the NASD Board shall be eligible for election to the 
Board. The President of Nasdaq shall be a Director. The number of Non-
Industry Directors, including at least one Public Director and at least 
one issuer representative, shall equal or exceed the number of Industry 
Directors plus the President[.]. unless the Board consists of ten 
Directors. In such case at least two Directors shall be issuer 
representatives. The Chief Executive Officer of NASD shall be an ex-
officio non-voting member of the Board.

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 III 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

    The purpose of the proposed rule change is to provide the NASD with 
more flexibility in determining the size of the boards of directors of 
its subsidiaries, NASD Regulation and Nasdaq, while maintaining the 
balance between non-industry and industry members contained in the 
current By-Laws of those subsidiaries. The proposed rule change will 
allow the NASD and its subsidiaries to accommodate additional 
constituencies and the larger number of NASD Board members that 
resulted from the recent reconfiguration of the NASD Board to 
accommodate the structure resulting from the NASD's recent merger with 
the American Stock Exchange. In addition to increasing the permissible 
size of the subsidiary boards, the proposed rule change will provide 
for additional public representation on the NASD Regulation Board and 
additional issuer representation on the Nasdaq Board should the size of 
the boards be increased to ten.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the

[[Page 7224]]

provisions of Section 15A(b)(4) \3\ of the Act, which requires, among 
other things, that the Association's rules 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 in that it provides the NASD with 
the discretion to increase the size of its subsidiary boards to allow 
representation of additional constituencies while preserving the 
fundamental compositional requirements of those boards.
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    \3\ 15 U.S.C. 78o(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD represents that the proposed rule change will not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The NASD has neither solicited nor received comments on the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 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. Sec. 552, will be available for inspection and copying at 
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 No. SR-NASD-99-10 and should 
be submitted by March 5, 1999.

IV. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The Commission finds that the proposed rule change relating to 
amending the composition of the NASD Regulation and Nasdaq boards is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association. 
Specifically, the Commission believes the proposal is consistent with 
the Section 15A(b)(4) \4\ requirements that the Association's rules be 
designed to assure a fair representation of its members in the 
administration of its affairs.\5\ In particular, the Commission notes 
that the NASD has not altered the balanced composition of each 
subsidiary board.
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    \4\ 15 U.S.C. 78o(b)(4).
    \5\ In approving this rule change, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    The Commission finds good cause for approving the rule change prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. The Commission believes that accelerated approval 
will facilitate the formation of the NASD subsidiary boards in a manner 
that will better represent the constituencies' presence on the NASD 
parent board.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-NASD-99-10) is 
hereby approved on an accelerated basis.

    \6\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 15 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3512 Filed 2-11-99; 8:45 am]
BILLING CODE 8010-01-M