[Federal Register Volume 65, Number 151 (Friday, August 4, 2000)]
[Notices]
[Pages 48037-48039]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19738]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43082; File No. SR-NASD-00-43]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Amending Section 4.2 of the NASD Regulation, 
Inc. Bylaws Relating to the Size of the NASD Regulation, Inc. Board

July 27, 2000.
    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 July 21, 2000, 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 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statements of the Terms of 
Substance of the Proposed Rule Change

    The purpose of the proposed rule change is to change Section 4.2 of 
the NASD Regulation, Inc. (``NASD Regulation'') By-laws relating to the 
size of the NASD Regulation Board to conform to a recently approved 
parallel change to the Nasdaq Stock Market, Inc. (``Nasdaq'') By-laws. 
Proposed new language is italicized; proposed deletions are bracketed.

ARTICLE IV

BOARD OF DIRECTORS

* * * * *

Number of Directors

    Sec. 4.2 The Board shall consist of no fewer than five and no 
more than ten Directors, the exact number to be determined by 
resolution adopted by the stockholder of

[[Page 48038]]

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 Section 4.4.

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 Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to make a conforming and 
technical amendment to the NASD Regulation By-Laws relating to the size 
of the NASD Regulation Board. On June 26, 2000, the Commission approved 
amendments to the Nasdaq By-Laws to facilitate the Restructuring Plan 
(``Restructuring'') approved by NASD members on April 14, 2000.\3\The 
Restructuring involves broadening the ownership of Nasdaq through a 
two-phase private placement of common stock and warrants to NASD 
members, Nasdaq issuers, institutional investors, and strategic 
partners. Among other things, the amendments to the Nasdaq By-Laws 
deleted a requirement that the number of directors on the Nasdaq Board 
be equal to the number of directors on the NASD Regulation Board, and 
added a new requirement authorizing the non-NASD shareholders of Nasdaq 
to nominate at least four directors of to the Nasdaq Board.\4\
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    \3\ Securities Exchange Act Release No. 42983 (June 26, 2000 65 
FR 41116 (July 3, 2000).
    \4\ Id.
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    The linkage between the sizes of the NASD Regulation and Nasdaq 
Boards was first proposed by the NASD and approved by the Commission in 
1997.\5\The Board size linkage was part of a broader set of amendments 
designed to create an interlocking Board structure for the NASD, 
Nasdaq, and NASD Regulation, and provide for more streamlined corporate 
governance. At that time, Nasdaq and NASD Regulation were both 100 
percent owned by the NASD. The linkage in the Board sizes were not 
required by the Undertakings entered into by the NASD and the 
Commission on August 8, 1996.\6\
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    \5\ Securities Exchange Act Release No. 39326 (November 14, 
1997), 62 FR 62385 (November 21, 1997).
    \6\ Securities Exchange Act Release No. 37538 (August 8 , 1996), 
62 SEC Docket 1346, Order Instituting Public Proceedings Pursuant to 
Section 19(h)(1) of the Securities Exchange Act of 10934, Making 
Findings and Imposing Remedial Sanctions, In the Matter of National 
Association of Securities Dealers, Inc., Administrative Proceeding 
File No. 3-9056.
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    The purpose of the proposed rule change is to conform a provision 
of the NASD Regulation By-Laws to a recently approved parallel 
provision in the Nasdaq By-Laws, which deleted a requirement that the 
NASD Regulation Board have the same number of directors as the Nasdaq 
Board. With the Restructuring underway, the equivalence in Board size 
no longer serves a corporate governance purpose. Furthermore, no 
purpose would be served by requiring NASD Regulation to increase the 
size of its Board when the Nasdaq Board adds four new non-NASD 
directors in the near future. Therefore, the NASD proposes to delete 
the Board size equivalence requirement from the NASD Regulation By-
Laws, thereby making the Nasdaq and NASD Regulation By-Laws consistent 
on this issue, and completely delinking the Nasdaq and NASD Regulation 
Board sizes.
2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\7\ which requires, 
among other things, that the Association's rules must 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. The proposed rule change simply makes the NASD 
Regulation and Nasdaq By-Laws consistent by not requiring the Boards of 
each corporation to have the same number of directors.
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    \7\ 15 U.S.C. 78o-3(b)(96).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE 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.

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 written comments on the 
proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \8\ and subparagraph (f)(2) of Rule 19b-4 
thereunder \9\ as a stated policy, practice or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of the Exchange.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(i).
    \9\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing; including whether the proposed rule 
change is consistent with the Act. 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-
0609. 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 at the 
Commission's Public Reference Room. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-00-43 and should 
be submitted by August 25, 2000.


[[Page 48039]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-19738 Filed 8-3-00; 8:45 am]
BILLING CODE 8010-01-M