[Federal Register Volume 67, Number 61 (Friday, March 29, 2002)]
[Notices]
[Pages 15268-15269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7610]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45638; File No. SR-NASD-2002-36]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to Certificates of Designation for 
Preferred Stock of the Nasdaq Stock Market, Inc.

March 25, 2002.
    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 March 8, 2002, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its subsidiary, the Nasdaq Stock 
Market, Inc. (``Nasdaq'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by Nasdaq. 
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 Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is filing Certificates of Designations, Preferences and 
Rights (``Certificates of Designation'') of Series A Cumulative 
Preferred Stock (``Series A Preferred'') and Series B Preferred Stock 
(``Series B Preferred,'' collectively ``Series A and B Preferred'') 
authorized to be issued to the NASD. The Series A and B Preferred will 
be issued as part of a transaction designed to reduce the NASD's 
economic interest in Nasdaq to the greatest extent practicable while 
maintaining the NASD's voting control until Nasdaq begins operating as 
a national securities exchange. Under Section 151(g) of the General 
Corporation Law of the State of Delaware (``Delaware Law''), such 
Certificates of Designation are deemed to be an amendment to Nasdaq's 
Restated Certificate of Incorporation. Pursuant to Rule 19b-4(f)(3),\3\ 
Nasdaq has designated this filing as one concerned solely with the 
administration of the self-regulatory organization because the 
authorization and issuance of the Series A and B Preferred result in no 
substantive change in the NASD's control of Nasdaq until exchange 
registration, and as such, the filing is immediately effective. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \3\ 17 CFR 240.19b-4(f)(3).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq 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
    Nasdaq is filing the Certificates of Designations described below. 
Under Article Fourth, Paragraph B of Nasdaq's Restated Certificate of 
Incorporation, the Nasdaq Board may authorize the issuance of preferred 
stock and fix its designation, powers, preferences and

[[Page 15269]]

rights, as well as any qualifications, limitations, and restrictions on 
it. Under Delaware Law, such Certificates of Designation are deemed to 
be an amendment to Nasdaq's Restated Certificate of Incorporation, and 
as such, Nasdaq is filing the Certificates of Designation with the 
Commission.
    The issuance of the Series A and B Preferred is part of a 
transaction between the NASD and Nasdaq to reduce the NASD's ownership 
interest in Nasdaq while maintaining the NASD's control over Nasdaq 
until exchange registration. The Series A Preferred will pay a dividend 
and is non-voting unless Nasdaq fails to pay a timely dividend. In such 
case, Nasdaq must increase the size of its Board to add two directors 
elected by the holders of the Series A Preferred. Such directors would 
be required to resign upon the payment of the dividend or the 
redemption of the Series A Preferred. The NASD may not transfer the 
Series A Preferred without the prior written consent of Nasdaq for a 
period of one year from its issuance.
    Nasdaq is currently discussing with the Commission staff how Nasdaq 
intends to meet its obligation for fair representation of members on 
its Board under Section 6(b)(3) of the Act \4\ if Nasdaq obtains 
approval of its exchange registration application. As a result of these 
discussions, Nasdaq may submit to the Commission amendments to its By-
Laws with respect to its Board composition. The potential By-Law 
amendments under discussion could require the election of additional 
Board members if the Series A Preferred holder's right to elect Board 
members is triggered to ensure that the fair representation obligation 
is met at all times.
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    \4\ 15 U.S.C. 78f(b)(3).
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    The Series B Preferred is a single share designed to ensure that 
the NASD maintains voting control over Nasdaq until exchange 
registration. The Series B Preferred is not transferable and must be 
redeemed when Nasdaq begins operating as a national securities 
exchange. The Series B will vote, together as one class with Nasdaq's 
common stock, on all matters submitted to a vote of holders of common 
stock. The Series B Preferred will have variable voting rights such 
that the number of votes entitled to be cast by the holder of the 
Series B Preferred shall equal that number of votes that, together with 
votes otherwise entitled to be cast by the holder of the Series B 
Preferred at such meeting, whether by virtue of share ownership, 
proxies, voting trust arrangements or otherwise, entitle the holder to 
exercise one vote more than one-half of all votes entitled to be cast. 
These voting rights will terminate automatically upon Nasdaq commencing 
operation as a national securities exchange.
    The Series A and B Preferred have no effect on the voting trust 
that governs the warrants to purchase Nasdaq common stock that were 
sold by the NASD in two private placements that closed in June 2000 and 
January 2001.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of Sections 15A(b)(2) and (6) of the 
Act,\5\ which require, among other things, that the Association be so 
organized and have the capacity to be able to carry out the purposes of 
the Act and to comply with and enforce compliance with the provisions 
of the Act, and that the Association's rules are designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principals of trade, and, in general, to protect investors 
and the public interest. Nasdaq believes that the issuance of this 
preferred stock will result in no substantive change in its current 
relationship to the NASD; as under the current ownership structure, the 
NASD will continue to control Nasdaq until exchange registration.
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    \5\ 15 U.S.C. 78o-3(b)(2) and (6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    Nasdaq neither solicited nor received written comments with respect 
to the proposed rule change.

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

    The foregoing proposed rule change is concerned solely with the 
administration of the self-regulatory organization and, therefore, has 
become effective pursuant to Section 19(b)(3)(A) of the Act \6\ and 
subparagraph (f)(3) of Rule 19b-4 \7\ thereunder. At any time within 60 
days of the filing of such 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(3).
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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, NW., Washington, DC 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 will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-2002-36 and 
should be submitted by April 19, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7610 Filed 3-28-02; 8:45 am]
BILLING CODE 8010-01-P