

[Federal Register: July 10, 2006 (Volume 71, Number 131)]
[Notices]               
[Page 38910-38911]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy06-88]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54085; File No. 10-131]

 
Order Modifying a Condition to Operation as a National Securities 
Exchange of the Nasdaq Stock Market LLC

June 30, 2006.

I. Introduction

    On January 13, 2006, the Securities and Exchange Commission 
(``Commission'') granted registration of the Nasdaq Stock Market LLC 
(``Nasdaq Exchange'') as a national securities exchange.\1\ At the same 
time, the Commission conditioned the Nasdaq Exchange's operation as an 
exchange on the satisfaction of six specific requirements. The 
Commission is modifying in this Order the condition requiring the NASD 
to represent to the Commission that it no longer needs to control the 
Nasdaq Stock Market, Inc. (``Nasdaq''), the Nasdaq Exchange's parent 
company, through the Preferred D share because the NASD can fulfill 
through other means its obligations with respect to non-Nasdaq exchange 
listed securities under Section 15A(b)(11) of the Securities Exchange 
Act of 1934 (``Exchange Act''),\2\ Rules 602 and 603 of Regulation 
NMS,\3\ and the national market system plans in which it participates 
(the ``Control Share Condition''). This condition reflected the Nasdaq 
Exchange's intent to begin trading at the same time Nasdaq UTP Plan 
Securities and CTA Plan Securities.\4\
---------------------------------------------------------------------------

    \1\ See Exchange Act Release No. 53128, 71 FR 3550 (January 23, 
2006) (``Nasdaq Exchange Order'').
    \2\ 15 U.S.C. 78o-3(b)(11).
    \3\ 17 CFR 242.602 and 603.
    \4\ Transactions are reported pursuant to two national market 
system plans: Nasdaq-listed securities are reported to the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation and Dissemination of Quotation and Transaction 
Information for Nasdaq-Listed Securities Traded on Exchanges on an 
Unlisted Trading Privileges Basis (``Nasdaq UTP Plan Securities''); 
securities listed on other national securities exchanges are 
reported to the Consolidated Transaction Association Plan (``CTA 
Plan Securities''). Approximately 40 securities are dually-listed on 
Nasdaq and the New York Stock Exchange LLC. Transactions in these 
securities are reported to the CTA Plan and thus are CTA Plan 
Securities.
---------------------------------------------------------------------------

    The Nasdaq Exchange would now prefer to commence trading Nasdaq UTP 
Plan Securities and CTA Plan Securities in two separate phases. 
Accordingly, by letter dated March 31, 2006, the Nasdaq Exchange 
requested that the Commission modify the Control Share Condition to 
allow it to begin operating as an exchange with regard to Nasdaq UTP 
Plan Securities before the Control Share Condition is satisfied.\5\ As 
discussed further below, the Commission is granting the Nasdaq 
Exchange's request. Until the Control Share Condition is satisfied, 
however, the NASD must retain control of Nasdaq through the Preferred D 
share, and Nasdaq must continue to perform obligations under the NASD's 
Plan of Allocation and Delegation of Functions by NASD to Subsidiaries 
(``Delegation

[[Page 38911]]

Plan'') with respect to CTA Plan Securities. Satisfaction of the 
condition would continue to be a prerequisite to the Nasdaq Exchange 
trading CTA Plan Securities.
---------------------------------------------------------------------------

    \5\ See letter to Nancy M. Morris, Secretary, Commission, from 
Edward S. Knight, Executive Vice President and General Counsel, 
Nasdaq, dated March 31, 2006.
---------------------------------------------------------------------------

II. Discussion

    As discussed in the Nasdaq Exchange Order,\6\ the NASD plans to 
remain a member of the Intermarket Trading System (``ITS Plan'') for 
the purpose of providing access to over-the-counter (``OTC'') quotes in 
CTA Plan Securities communicated by its members through NASD facilities 
and to provide its members access to exchanges' quotes in such 
securities. The Control Share Condition is necessary because the NASD 
and its members currently comply with their obligations under the ITS 
Plan through the NASD's Nasdaq Market Center facility.
---------------------------------------------------------------------------

    \6\ See Nasdaq Exchange Order, supra note 1.
---------------------------------------------------------------------------

    In addition, with respect to CTA Plan Securities, NASD facilities 
owned by Nasdaq currently are the NASD's only means available to 
fulfill its obligations under Exchange Act Rules 602 and 603,\7\ the 
CTA Plan, CQ Plan, and Section 15A(b)(11) of the Exchange Act.\8\ 
Therefore, the NASD must have the means to satisfy these obligations 
prior to relinquishing control of Nasdaq.
---------------------------------------------------------------------------

    \7\ 17 CFR 242.602 and 603.
    \8\ 15 U.S.C. 78o-3(b)(11).
---------------------------------------------------------------------------

    The Nasdaq Exchange represented that the technology solutions to 
allow the NASD to fulfill its obligations with respect to CTA Plan 
Securities through means that would not involve a delegation of 
regulatory authority to Nasdaq are not completed.\9\ In addition, the 
Nasdaq Exchange represented that many of its prospective members have 
indicated that a phased-in approach to the Nasdaq Exchange's operation 
would be preferable. Specifically, according to the Nasdaq Exchange, 
these firms believe that a single-day transition would entail 
unnecessary costs and administrative burdens and pose transition risks 
that could be mitigated through a phased approach.
---------------------------------------------------------------------------

    \9\ The Commission notes that the NASD operates the Alternative 
Display Facility (``ADF''), which currently collects quotes and 
trades for Nasdaq UTP Plan Securities, but not for CTA Plan 
Securities.
---------------------------------------------------------------------------

    The Commission believes that a phased-in implementation of the 
operation of the Nasdaq Exchange is consistent with the Exchange Act 
and may allow for a more smooth transition. Accordingly, the Commission 
believes that it is necessary or appropriate in the public interest, 
consistent with the protection of investors and consistent with the 
requirements of Exchange Act, and the rules and regulations thereunder 
applicable to Nasdaq Exchange to modify the Control Share Condition to 
the Nasdaq Exchange Order as follows:
    First, the requirement that the NASD represent that ``control of 
Nasdaq through the Preferred D share is no longer necessary because the 
NASD can fulfill through other means its obligations with respect to 
[CTA Plan Securities] under Section 15A(b)(11) of the Exchange Act,\10\ 
Rules 602 and 603 of Regulation NMS,\11\ and the national market system 
plans in which the NASD participates'' is modified so as to be a 
condition only with respect to the Nasdaq Exchange commencing to trade 
CTA Plan Securities. This will allow the Nasdaq Exchange to begin 
operations as a national securities exchange solely for Nasdaq UTP Plan 
securities before the Control Share Condition is satisfied.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3(b)(11).
    \11\ 17 CFR 242.602 and 603.
---------------------------------------------------------------------------

    Second, the Control Share Condition is modified to permit the 
Nasdaq Exchange to commence trading Nasdaq UTP Plan Securities once 
Nasdaq is no longer delegated regulatory authority under the Delegation 
Plan with respect to such securities. The modification of the Control 
Share Condition described above means that the Nasdaq Exchange would 
commence trading in Nasdaq UTP Plan Securities while the NASD controls 
Nasdaq. The Commission believes, however, that it would be 
inappropriate for the Nasdaq Exchange to commence trading in Nasdaq UTP 
Plan Securities while its parent company continued to be delegated 
regulatory authority by the NASD with respect to the same activities. 
Accordingly, the Commission would have to approve an amendment to the 
NASD's Delegation Plan to reflect that Nasdaq would no longer be 
delegated regulatory authority with regard to Nasdaq UTP Securities 
prior to the Nasdaq Exchange commencing to trade Nasdaq UTP Plan 
Securities.

III. Modification of Conditions to Operation

    The Commission notes that all of the other conditions set forth in 
the Nasdaq Exchange Order remain and must be satisfied before the 
Nasdaq Exchange can begin operations as an exchange.
    The Commission hereby replaces the Control Share Condition to 
operation of the Nasdaq Exchange as a national securities exchange as 
follows:
B. The NASD's Ability To Fulfill Its Statutory and Regulatory 
Obligations
    (1) With respect to the Nasdaq Exchange commencing to trade 
securities reported pursuant to the Nasdaq UTP Plan, the NASD's 
Delegation Plan is amended to eliminate Nasdaq's exercise of regulatory 
authority with respect to such securities.
    (2) With respect only to the Nasdaq Exchange commencing to trade 
securities reported pursuant to the CTA Plan, the NASD must represent 
to the Commission that control of Nasdaq through the Preferred D share 
is no longer necessary because the NASD can fulfill through other means 
its obligations with respect to securities reported to the CTA Plan 
under Section 15A(b)(11) of the Exchange Act, Rules 602 and 603 of 
Regulation NMS, and the national market system plans in which the NASD 
participates.

IV. Conclusion

    It is ordered that the Control Share Condition to operation for the 
Nasdaq Exchange is modified as described herein.

    By the Commission.
J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-10712 Filed 7-7-06; 8:45 am]

BILLING CODE 8010-01-P
