[Federal Register Volume 70, Number 85 (Wednesday, May 4, 2005)]
[Notices]
[Pages 23286-23288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2166]



[[Page 23286]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51626; File No. SR-NASD-2005-054]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Certain Amendments to the Restated Certificate of Incorporation and the 
By-Laws of The Nasdaq Stock Market, Inc.

April 28, 2005.
    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 April 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 
(``SEC'' or ``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 filed this proposed rule change to make certain amendments 
to the Nasdaq Restated Certificate of Incorporation (the 
``Certificate'') and the Nasdaq By-Laws (the ``By-Laws'') to phase out 
the current classified board structure and provide for the annual 
election of all members of the Nasdaq Board of Directors (the ``Nasdaq 
Board''). Under the General Corporation Law of the State of Delaware 
(``Delaware law''), the proposed amendments to the Certificate must be 
approved by Nasdaq's stockholders. Nasdaq has submitted the text of the 
proposed amendments to the Certificate to its stockholders for approval 
at the 2005 annual meeting of stockholders (the ``Annual Meeting''), 
which will be held on May 25, 2005. After Nasdaq's stockholders approve 
the proposed amendments to the Certificate, Nasdaq will immediately 
amend this rule filing to indicate such approval. In order to allow the 
amendment to take effect as approved by the stockholders, Nasdaq 
requests that, if the Commission finds that the proposed rule change is 
consistent with the Act, immediately after Nasdaq's stockholders 
approve of the proposed amendments to the Certificate, then the 
proposed rule change will be approved on May 25, 2005.\3\ Below is the 
text of the revised rule change. Proposed new language is in italics; 
proposed deletions are in [brackets].
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    \3\ Telephone conversation between John Yetter, Associate 
General Counsel, Nasdaq, and Mia Zur, Attorney, Division of Market 
Regulation (``Division''), Commission (April 28, 2005).
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RESTATED CERTIFICATE OF INCORPORATION OF THE NASDAQ STOCK MARKET, INC.

* * * * *

ARTICLE FIFTH

    A. No change.
    B. [The] Subject to the provisions of this paragraph B, the Board 
(other than those directors elected by the holders of any series of 
Preferred Stock provided for or fixed pursuant to the provisions of 
Article Fourth hereof, (the ``Preferred Stock Directors'')) shall be 
divided into three classes, as nearly equal in number as possible, 
designated Class I, Class II and Class III. [Class I directors shall 
initially serve until the first] Each director elected or appointed 
prior to the effectiveness of this Certificate of Amendment under the 
General Corporation Law of the State of Delaware shall serve for his or 
her full term, such that the term of each Class I director shall expire 
at the 2007 annual meeting of stockholders [following the effectiveness 
of this Restated Certificate of Incorporation; Class II directors shall 
initially serve until]; the term of each Class II director shall expire 
at the [second] 2005 annual meeting of stockholders [following the 
effectiveness of this Restated Certificate of Incorporation]; and the 
term of each Class III [directors shall initially serve until the 
third] director shall expire at the 2006 annual meeting of stockholders 
[following the effectiveness of this Restated Certificate of 
Incorporation. Commencing with the first annual meeting of stockholders 
following the effectiveness of this Restated Certificate of 
Incorporation, directors of each class the term of which shall then 
expire shall be elected to hold office for a three-year term and until 
the election and qualification of their respective successors in 
office]. In case of any increase or decrease, from time to time, in the 
number of directors (other than Preferred Stock Directors), the number 
of directors in each class shall be apportioned as nearly equal as 
possible. The term of each director elected at the 2005 annual meeting 
of stockholders and at each subsequent annual meeting of stockholders 
shall expire at the first annual meeting of stockholders following his 
or her election. Commencing with the 2007 annual meeting of 
stockholders, the foregoing classification of the Board shall cease, 
and the directors, other than the Preferred Stock Directors, shall be 
elected by the holders of the Voting Stock (as hereinafter defined) and 
shall hold office until the next annual meeting of stockholders and 
until their respective successors shall have been duly elected and 
qualified, subject, however, to prior death, resignation, retirement, 
disqualification or removal from office.
    C. Subject to the rights of the holders of any one or more series 
of Preferred Stock then outstanding, newly created directorships 
resulting from any increase in the authorized number of directors or 
any vacancies in the Board resulting from death, resignation, 
retirement, disqualification, removal from office or other cause shall 
only be filled by the Board. [Any director so chosen shall hold office 
until the next election of the class for which such directors shall 
have been chosen and until his successor shall be elected and 
qualified.] No decrease in the number of directors shall shorten the 
term of any incumbent director.
    D. Except for Preferred Stock Directors, any director, or the 
entire Board, may be removed from office at any time, but only [for 
cause and only] by the affirmative vote of at least 66\2/3\% of the 
total voting power of the outstanding shares of capital stock of Nasdaq 
entitled to vote generally in the election of directors (``Voting 
Stock''), voting together as a single class.
    E. No change.
* * * * *

BY-LAWS OF THE NASDAQ STOCK MARKET, INC.

* * * * *

ARTICLE IV

BOARD OF DIRECTORS

    Sec. 4.1-Sec. 4.3 No change.

Election

    Sec. 4.4 Except as otherwise provided by law, these By-Laws, or the 
Delegation Plan, after the first meeting of Nasdaq at which Directors 
are elected, [a class of] Directors of Nasdaq shall be elected each 
year at the annual meeting of the stockholders, or at a special meeting 
called for such purpose in lieu of the annual meeting. If the annual 
election of Directors is not held on the date designated therefore, the 
Directors shall cause such election to be held as soon thereafter as 
convenient.
    Sec. 4.5 No change.

[[Page 23287]]

Removal

    Sec. 4.6 Any or all of the Directors may be removed from office at 
any time[, but only for cause,] by the affirmative vote of at least 
66\2/3\ percent of the total voting power of the outstanding shares of 
capital stock of Nasdaq entitled to vote generally in the election of 
directors, voting together as a single class.
    Sec. 4.7-Sec. 4.16 No change.
* * * * *

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 seeks to phase out its current classified board structure 
and provide for the annual election of the entire Nasdaq Board. The 
Certificate provides in Article Fifth, paragraph B that the Nasdaq 
Board be divided into three classes, with one class elected at each 
annual meeting and members of each class serving three-year terms. The 
Certificate and Nasdaq's By-Laws provide, in accordance with Delaware 
law applicable to classified boards of directors, that directors may be 
removed only for cause. This system for electing directors was 
established in June 2000 while Nasdaq was still a wholly-owned 
subsidiary of NASD in anticipation of NASD's sale of a portion of its 
interest in Nasdaq in 2000 and 2001 that led to Nasdaq becoming a 
publicly traded corporation.
    Nasdaq believes that the determination of whether a classified 
board of directors serves the interests of stockholders of a 
corporation requires an examination of all relevant factors by the 
directors and stockholders of the corporation. In light of Nasdaq's 
particular situation, including its unique role as regulator and 
operator of a securities market, Nasdaq believes that the annual 
election of directors may better serve its investors by enhancing 
accountability through more frequent elections. Nasdaq also believes 
that the size and diversified experience of the Nasdaq Board are likely 
to assist Nasdaq in retaining seasoned directors despite more frequent 
election. While a classified board generally may discourage takeover 
attempts because the extended terms of directors can delay a change in 
control of the board of directors, Nasdaq does not believe that there 
is a clear consensus on whether this is a positive or negative result 
for stockholders.
    In order to ensure a smooth transition to the system of annual 
election of the entire Nasdaq Board, the proposed rule change would not 
shorten the terms of directors elected prior to the Annual Meeting. As 
a result, the terms of Class 2 directors, who are up for election at 
the Annual Meeting, would be for one year and would expire at the 2006 
annual meeting if the amendment is approved by stockholders and the 
Commission. Class 1 and Class 3 directors would continue to serve until 
their current terms expire in 2007 and 2006, respectively, and annual 
election would apply to these directors thereafter. Directors elected 
by the Nasdaq Board to fill vacancies that may arise will serve for the 
remainder of the term of the class to which the director was elected. 
Beginning in 2007, the classification of the Nasdaq Board would end and 
all directors would be subject to annual election.
    The proposed amendments to the Certificate also would delete the 
existing requirement which provides, in accordance with the provisions 
of Delaware law applicable to classified boards of directors, that 
directors may be removed only for cause. Under Delaware law, directors 
of companies that do not have classified boards may be removed by 
stockholders with or without cause. The Nasdaq Board has approved 
conforming amendments to the By-Laws that would be effective only in 
the event the proposed amendment is approved by the stockholders at the 
Annual Meeting and by the Commission. The conforming amendments are 
also included as proposed rule changes in this filing.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the Act, including section 15A(b)(2) and (6) of the Act,\4\ which 
require, among other things, that Nasdaq 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 
Nasdaq's rules are 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. Nasdaq 
believes that the changes proposed to the Certificate and By-Laws will 
serve the public interest by enhancing the accountability of board 
members through more frequent elections. Nasdaq also believes that 
enhancing the accountability of its board members will also help Nasdaq 
fulfill its obligations arising under the Act.
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    \4\ 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

    Written comments were neither solicited nor received.

III. 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 NASD 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.

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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2005-054 on the subject line.

Paper comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary,

[[Page 23288]]

Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2005-054. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the Nasdaq. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-054 and should be submitted on or before May 
25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2166 Filed 5-3-05; 8:45 am]
BILLING CODE 8010-01-P