
[Federal Register: September 17, 2008 (Volume 73, Number 181)]
[Notices]               
[Page 53911-53912]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se08-145]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58509; File No. SR-NASDAQ-2008-025]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 2 Thereto, 
To Establish a System for the Purchase of Equity Value Indicator 
Securities

 September 10, 2008.

I. Introduction

    On March 20, 2008, The NASDAQ Stock Market LLC, (``Nasdaq'' or 
``Exchange''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities Act of 
1934 (``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed 
rule change to establish an Equity Value Indicator (``EVI'') Cross. On 
July 23, 2008, the Nasdaq filed Amendment No. 1 to the proposed rule 
change. On July 30, 2008, Nasdaq withdrew Amendment No. 1 and filed 
Amendment No. 2 to the proposed rule change.\3\ On August 7, 2008, the 
proposed rule change, as modified by Amendment No. 2, was published for 
comment in the Federal Register.\4\ The Commission received no comments 
on the proposed rule change. This order approves the proposed rule 
change, as modified by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 replaced the original filing in its 
entirety.
    \4\ See Securities Exchange Act Release No. 58275 (July 31, 
2008), 73 FR 46129.
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II. Background

    Nasdaq has proposed to establish a system that will allow its 
members to purchase ``EVI Securities,'' which Nasdaq anticipates will 
entitle holders thereof to specified payments based on the exercise of 
stock options previously granted to employees of the issuer. This 
system--designated by Nasdaq the ``EVI Cross''--is designed to generate 
a market-based value of employee stock options for purposes of FASB 
Statement of Financial Accounting Standards No. 123(R). EVI Securities 
will represent a payment obligation of the issuer, but will not 
represent any direct ownership interest in the issuing company or in 
the associated employee stock options. The issuer will make available 
to the public the number of EVI Securities available in the EVI Cross, 
the limit price (if any), and the terms and features of its EVI 
Securities, such as how payments are calculated, maturity dates, and 
form of payment.
    Nasdaq is not proposing to list or provide a secondary market for 
EVI Securities. An issuer will be able to sell, and Nasdaq members will 
be able to buy, EVI Securities in a single auction. Nasdaq members 
would access the EVI Cross system through existing interfaces for order 
entry, although the EVI Cross system will be separate from the Nasdaq 
Market Center execution system. The EVI Cross system is modeled on the 
technology used for Nasdaq's existing crossing mechanisms such as its 
Opening and Closing Crosses, the Nasdaq Crossing Network, and its Halt 
Cross. Nasdaq anticipates that an issuer, if it chose to use the EVI 
Cross, would do so on the first trading day following the grant of 
employee stock options.
    To initiate an auction, a Nasdaq member authorized to act on behalf 
of the issuer of EVI Securities would enter an order specifying a 
quantity of EVI Securities to sell; a limit price is optional. After 4 
p.m. on the day of the auction, the sell order could not be modified 
but could be cancelled as late as 4:45 p.m. On the day of the auction, 
any Nasdaq member could submit a limit order to buy with a designated 
size. Beginning at 4 p.m. and periodically thereafter, Nasdaq would 
disseminate information about the anticipated execution price, which is 
the single highest price at which the maximum amount of interest could 
be paired. Based on this information, prospective buyers could submit 
new orders and potentially increase the anticipated execution price. 
Executions would occur at 5 p.m., unless the system extends the auction 
process because the anticipated execution price changes by a designated 
amount in the minute before the designated time of execution. If the 
remaining size of the sell order cannot fill all the buy orders at the 
execution price, allocations would be made based on time priority. All 
executions would be reported to the National Securities Clearing 
Corporation and disseminated via a data feed.
    Nasdaq would charge an issuer tiered fees depending on the total 
value of the EVI offering. The fee would be 2 percent of the first 
$10,000,000 of the total value of an EVI offering. If the value of the 
EVI offering is above $10,000,000, Nasdaq would charge an additional 
fee of 1.5 percent of the value of the EVI offering above $10,000,000. 
The total fees, however, would not exceed $1,500,000. Nasdaq would not 
assess a fee if the EVI Cross is not carried out. Nasdaq members would 
be required to establish a new port for connectivity to access the EVI 
Cross system. However, Nasdaq

[[Page 53912]]

would not assess a fee for that port, and Nasdaq has not proposed to 
assess any transaction fees for purchases of EVI Securities.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\5\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\6\ which requires, among 
other things, that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices; to promote just and 
equitable principles of trade; to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities; and, in general, to protect investors and the public 
interest; and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. The proposal offers a 
potentially useful service to issuers and does not appear to raise any 
issue under the Exchange Act.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposed trading rules are 
consistent with the Act and notes that they are based on those of 
Nasdaq's crossing platforms that have previously been approved by the 
Commission.\7\ The Commission finds that the proposed fees for the EVI 
Cross are consistent with Section 6(b)(4) of the Act,\8\ which requires 
that the rules of an exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities. The Commission notes that an 
issuer will not be charged a fee unless an auction is carried out, and 
that Nasdaq has not proposed any transaction fees on members that 
purchase EVI Securities in an auction.
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    \7\ See, e.g., Securities Exchange Act Release No. 50405 
(September 16, 2004), 69 FR 57118 (September 23, 2004) (SR-NASD-
2007-071) (approving Nasdaq's Opening Cross); Securities Exchange 
Act Release No. 49406 (March 11, 2004), 69 FR 12879 (March 18, 2004) 
(SR-NASD-2003-173) (approving Nasdaq's Closing Cross); Securities 
Exchange Act Release No. 53687 (April 20, 2006), 71 FR 24878 (April 
27, 2006) (SR-NASD-2006-015) (approving the Nasdaq Halt Cross); 
Securities Exchange Act Release No. 54101 (July 5, 2006), 71 FR 
39382 (July 12, 2006) (SR-NASD-2005-140) (approving the Nasdaq 
Crossing Network).
    \8\ 15 U.S.C. 78f(b)(4).
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    This order addresses only whether Nasdaq's rules and fees relating 
to the EVI Cross are consistent with the Act. The Commission is 
offering no opinion here as to whether prices of EVI Securities derived 
from auctions conducted pursuant to this proposal may be employed to 
value employee stock options consistent with FASB Statement of 
Financial Accounting Standards No. 123(R), or whether the offering of 
any particular EVI Securities is consistent with the federal securities 
laws.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASDAQ-2008-025), as modified 
by Amendment No. 2, be, and hereby is, approved.
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    \9\ 15 U.S.C. 78s(b)(2).
    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-21705 Filed 9-16-08; 8:45 am]

BILLING CODE 8010-01-P
