SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-52559; File No. 10-131)

October 4, 2005

The Nasdaq Stock Market Inc., Notice of Filing of Amendment Nos. 4 and 5 to its Application for Registration as a National Securities Exchange under Section 6 of the Securities Exchange Act of 1934

On August 15, 2005, The Nasdaq Stock Market Inc. ("Nasdaq") submitted to the Securities and Exchange Commission ("SEC" or "Commission") Amendment No. 4¹ to its application for registration as a national securities exchange ("Form 1") under Section 6² of the Securities Exchange Act of 1934 ("Exchange Act"). Nasdaq's Amendment No. 4 supersedes and replaces Nasdaq's original filing and intervening amendments. On September 23, 2005, Nasdaq filed Amendment No. 5 to its Form 1.³ The Commission is publishing this notice to solicit comments on Nasdaq's Form 1 as amended by Amendment Nos. 4 and 5.⁴

I. Background

Nasdaq originally submitted its Form 1 on March 15, 2001, which the Commission published for comment in the Federal Register on June 13, 2001.⁵ Nasdaq subsequently amended its Form 1 three times.⁶ In response to Nasdaq's Form 1 and its amendments, the Commission has received 82 comment letters.⁷

Nasdaq currently is exempt from the definition of an "exchange" under Rule 3a1-1 because it is operated by the National Association of Securities Dealers, Inc. ("NASD").⁸ In order for NASD to relinquish regulatory control of Nasdaq, Nasdaq must register as a national securities exchange.⁹ Accordingly, Nasdaq has filed a completely new Form 1, including all of the required exhibits, to register as a national securities exchange.

II. Nasdaq's Amended Exchange Registration

Nasdaq filed Amendment No. 4 to, among other things, address concerns raised by its original application.¹⁰ Specifically, Amendment No. 4 would limit the ambit of Nasdaq's proposed exchange to those transactions that occur in the Nasdaq Market Center, formerly known as SuperMontage, and Brut.¹¹ Nasdaq also has proposed that all transactions on the Nasdaq Market Center be executed in price/time priority.¹² Trades that are executed in the internal systems of NASD members would be reported under NASD rules to NASD's Alternative Display Facility ("ADF") or a proposed new NASD facility. This new facility would be jointly owned by Nasdaq and NASD but would be a facility of NASD and thus would be subject to NASD's exclusive regulatory control.¹³

Nasdaq proposes to require its members to comply with NASD's Order Audit Trail ("OATS") requirements. To do so, Nasdaq has carried over certain OATS rules into its own rulebook and has incorporated by reference other NASD OATS requirements.¹⁴ In addition, Nasdaq members would be required to append an identifier to all orders entered into Nasdaq for purposes of tracking the order in OATS.¹⁵ Because Nasdaq will require its members to report order information to OATS, Nasdaq will have access to certain OATS data for regulatory purposes. The Commission requests comment on the extent to which Nasdaq should be able to use OATS data for non-regulatory purposes. The Commission further requests comment on whether Nasdaq should have access to OATS data regarding: (1) all orders its members receive, including those orders that are routed to markets other than Nasdaq; and (2) reports of executions by its members that are reported to the new NASD trade reporting facility.¹⁶

To oversee the performance of its regulatory obligations, Nasdaq has proposed to create a fully-independent committee of the exchange's Board of Directors, the Regulatory Oversight Committee ("ROC").¹⁷ This committee will consist of three Public Directors that satisfy the definition "independent director" set forth in proposed Nasdaq Rule 4200. The ROC would, among other things, be responsible for monitoring the adequacy and effectiveness of Nasdaq's regulatory program. In addition, the ROC would oversee the Chief Regulatory Officer ("CRO") by periodically meeting with the CRO in executive session to consider regulatory issues. The ROC also would be informed about the compensation of the CRO, and his promotion or termination (including reasons). Finally, the regulatory budget would be presented to the ROC so that its members may monitor the adequacy of resources available for Nasdaq's regulatory program.

Nasdaq proposes that its CRO have general supervision of the regulation of the exchange, including overseeing the proposed exchange's surveillance, examination, and enforcement functions, and administering a regulatory services agreement.¹⁸ The CRO would be an executive vice president or senior vice president that reports to the Chief Executive Officer, and could also serve as Nasdaq's General Counsel.

The Commission requests comment on whether Nasdaq's proposed regulatory structure, including the ROC and CRO, is consistent with Section 6(b)(1) of the Exchange Act,¹⁹ which requires an exchange to be so organized and have the capacity to carry out the purposes of the Exchange Act and comply, and enforce compliance by its members and persons associated with its members, with the Exchange Act, the rules thereunder, and the exchange's rules. Specifically, does Nasdaq's proposed structure insulate its regulatory function from its market and other commercial operations so that it may carry out its regulatory obligations under the Exchange Act?

The Form 1 provides detailed information about Nasdaq and how it proposes to satisfy the requirements of the Exchange Act. The Commission shall grant such registration if it finds that the requirements of the Exchange Act and the rules and regulations thereunder with respect to Nasdaq are satisfied.²⁰ In addition to the issues discussed above, there are a number of implications to Nasdaq's separation from NASD and its application to register and operate as an exchange. For example, while Section 10(a) of the Exchange Act²¹ does not apply to the trading of Nasdaq stocks, if the Commission approves Nasdaq's registration as an exchange, Section 10(a) will apply to such trading, absent an exemption. In addition, if Nasdaq becomes an exchange, its members would be subject to Section 11 of the Exchange Act.²² Moreover, Nasdaq must demonstrate that it can satisfy its obligations under Section 11A of the Exchange Act.²³

Nasdaq's application to register as a national securities exchange also has implications for NASD, which, as a national securities association, will continue to be required to collect bids, offers, quotation sizes and transaction reports from those entities that wish to trade listed securities, including Nasdaq securities, otherwise than on a national securities exchange.²⁴ Under Section 15A of the Exchange Act, NASD must have a quotation reporting facility for non-Nasdaq exchange-listed securities.²⁵

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Nasdaq's Amendment Nos. 4 and 5 to its Form 1 are 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/other.shtml); or
   
• Send an e-mail to rule-comments@sec.gov. Please include File Number 10-131 on the subject line.
   

• Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE, Washington, DC 20549-9303.
   

All submissions should refer to File Number 10-131. 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/other.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to Nasdaq's Form 1 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. 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. The Commission requests that commenters focus on issues raised in Nasdaq's Form 1, File No. 10-131, when submitting comments on this notice. All submissions should refer to File Number 10-131 and should be submitted on or before [insert date 30 days from publication in the Federal Register].

By the Commission.

Endnotes

---

¹ See Letter to Robert L.D. Colby, Deputy Director, Division of Market Regulation ("Division"), SEC, from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, dated August 15, 2005 ("Amendment No. 4").

² 15 U.S.C. 78(f).

³ See Letter to Robert L.D. Colby, Deputy Director, Division, SEC, from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, dated September 23, 2005 ("Amendment No. 5"). In Amendment No. 5, Nasdaq corrected typographical errors that were submitted in Amendment No. 4.

⁴ Complete copies of Nasdaq's Amendment Nos. 4 and 5 to its Form 1 are available in the Commission's Public Reference Room, File No. 10-131. Portions of Nasdaq's Form 1 as amended by Amendment Nos. 4 and 5, including Nasdaq's rules, are available on the Commission's Internet Web site (http://www.sec.gov).

⁵ See Exchange Act Release No. 44396 (June 7, 2001), 66 FR 31952 ("Original Notice"). The Commission extended the comment period for Nasdaq's Original Notice for 30 days. See Exchange Act Release No. 44625 (July 31, 2001), 66 FR 41056 (August 6, 2001).

⁶ See Letters from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, to Annette Nazareth, Director, Division, SEC, dated November 13, 2001 ("Amendment No. 1"); Jonathan G. Katz, Secretary, SEC, dated December 5, 2001 ("Amendment No. 2"); and Annette Nazareth, Director, Division, SEC, dated January 8, 2002 ("Amendment No. 3").

⁷ The comment letters are available in the Commission's Public Reference Room and some of these comment letters are available on the Commission's Internet Web site (http://www.sec.gov).

⁸ Pursuant to Rule 3a1-1, an organization, association, or group of persons shall be exempt from the definition of "exchange" if it is operated by a national securities association. Unless another exemption from the definition of "exchange" applies, such organization, association, or group of persons that otherwise meets the definition of an "exchange" must register as such with the Commission. 17 CFR 240.3a1-1.

⁹ For a complete description of NASD's current ownership in Nasdaq See Exhibit K to the Form 1.

¹⁰ In December 2004, Nasdaq filed with the Commission a proposed rule change to amend the rules that govern how executions occur in the Nasdaq Market Center to eliminate the rules that permit executions to occur outside of price/time priority. See Exchange Act Release No. 50845 (December 13, 2004), 69 FR 76022 (December 20, 2004) ("December Proposal"). Specifically, Nasdaq proposed to eliminate the execution algorithm that requires orders to be internalized in the Nasdaq Market Center, the Directed Order process, and the use of preferenced orders. The Commission published this proposal and Nasdaq has asked the Commission to consider approval of this proposal in connection with its application to register as a national securities exchange. Subsequent to the December Proposal, Nasdaq filed another proposed rule change to eliminate immediately the Directed Order Process, which the Commission approved on July 28, 2005. See Exchange Act Release No. 52148, 70 FR 44711 (August 3, 2005). These changes to the rules that govern the execution of orders in the Nasdaq Market Center are reflected in Amendment No. 4. In addition, the Over-the-Counter Bulletin Board is no longer part of Nasdaq's exchange application and will remain with NASD. See NASD Proposal, infra note 13.

¹¹ Nasdaq acquired Brut in September 2004 and the rules governing the execution of transactions on Brut were approved by the Commission in March 2005. See Exchange Act Release No. 51326 (March 7, 2005), 70 FR 12521 (March 14, 2005). Nasdaq has included the rules governing transactions executed in the Brut system as part of Amendment No. 4 to its Form 1. The Commission notes that Nasdaq has entered into an agreement to purchase Instinet, which will result in Nasdaq's ownership of Inet. This transaction has not closed and thus, Nasdaq has not submitted the rules governing the operation of Inet with this latest amendment.

¹² See December Proposal, supra note 10.

¹³ See Exchange Act Release No. 52049 (July 15, 2005), 70 FR 42398 (July 22, 2005) ("NASD Proposal").

¹⁴ See proposed Nasdaq Rule 6950 Series.

¹⁵ See proposed Nasdaq Rule 6954(c). NASD has proposed a corresponding change to its OATS rules. See NASD Proposal, supra note 13.

¹⁶ See NASD Proposal, supra note 13.

¹⁷ See proposed Article III, Section 5(e) of the Nasdaq Exchange By-Laws.

¹⁸ See proposed Article IV, Section 7 of the Nasdaq Exchange By-Laws.

¹⁹ 15 U.S.C. 78f(b)(1).

²⁰ 15 U.S.C. 78s(a).

²¹ 15 U.S.C. 78j(a).

²² 15 U.S.C. 78k.

²³ 15 U.S.C. 78k-1.

²⁴ 17 CFR 242.602(a)(1)(ii), Rule 242.601.

²⁵ 15 U.S.C. 78o-3.

Form 1 Application and Exhibits

Cover Letter, Amendment No. 4

Cover Letter, Amendment No. 5

Nasdaq Application for Registration

Form 1 – The Application

Exhibit A: A copy of the constitution, articles of incorporation or association with all subsequent amendments, and of existing by-laws or corresponding rules or instruments, whatever the name, of the applicant.

Attached please find the requested information under the following tabs:

Exhibit B: A copy of all written rulings, settled practices having the effect of rules, and interpretations of the Governing Board or other committee of the applicant in respect of any provisions of the constitution, by-laws, rules, or trading practices of the applicant which are not included in Exhibit A.

All requested items have been incorporated into Exhibit A.

Exhibit C: For each subsidiary or affiliate of the applicant, and for any entity with whom the applicant has a contractual or other agreement relating to the operation of an electronic trading system to be used to effect transactions on the exchange (“System”), provide the following information:

1. Name and address of organization.
    
2. Form of organization (e.g., association, corporation, partnership, etc.).
    
3. Name of state and statute citation under which organized. Date of incorporation in present form.
    
4. Brief description of nature and extent of affiliation.
    
5. Brief description of business or functions. Description should include responsibilities with respect to operation of the System and/or execution, reporting, clearance, or settlement of transactions in connection with operation of the System.
    
6. A copy of the constitution.
    
7. A copy of the articles of incorporation or association including all amendments.
    
8. A copy of existing by-laws or corresponding rules or instruments.
    
9. The name and title of the present officers, governors, members of all standing committees, or persons performing similar functions.
    
10. An indication of whether such business or organization ceased to be associated with the applicant during the previous year, and a brief statement of the reasons for termination of the association.
     

Attached, please find the requested information for the following entities that will be affiliates of The NASDAQ Stock Market LLC following its registration as a national securities exchange:

Nasdaq Form 1 amended Exhibit C

Attached please find the requested information for the following entities that are currently affiliates of The NASDAQ Stock Market, Inc., but that may not be affiliates of The NASDAQ Stock Market LLC following its registration as a national securities exchange:

Attached please find the requested information for the following entities with whom The NASDAQ Stock Market LLC or its affiliates will have a contractual or other agreement relating to the operation of the Nasdaq Market Center or The Brut ECN:

Exhibit D: For each subsidiary or affiliate of the exchange, provide unconsolidated financial statements for the latest fiscal year. Such financial statements shall consist, at a minimum, of a balance sheet and an income statement with such footnotes and other disclosures as are necessary to avoid rendering the financial statements misleading. If any afffiate or subsidiary is required by another Commission rule to submit annual financial statements, a statement to that effect, with a citation to the other Commission rule, may be provided in lieu of the financial statements required here.

Attached please find the requested information for the following entities that will be affiliates of The NASDAQ Stock Market LLC following its registration as a national securities exchange:

Nasdaq Execution Services, LLC and Independent Research Network, LLC did not have assets, liabilities, or income during fiscal year 2004, and therefore financial statements are not available for those entity. The Trade Reporting Facility LLC has not yet been formed and therefore financial statements are not available for that entity.

Attached please find the requested information for the following entities that are currently affiliates of The Nasdaq Stock Market, Inc., but that may not be affiliates of The NASDAQ Stock Market LLC following its registration as a national securities exchange:

Securities Dealers Agency, LLC and National Clearing Corporation did not have assets, liabilities, or income during fiscal year 2004, and therefore financial statements are not available for these entities.

Footnotes

¹ During the fiscal year ended December 3 1,2004, the name of this entity was Nasdaq Financial Products Services, Inc., as reflected in its financial statements.

² The Common Stock of The Nasdaq Stock Market, Inc. is registered under Section 12 of the Securities Exchange Act of 1934 (as amended, the "Act"), and accordingly, The Nasdaq Stock Market, Inc. also files consolidated financial statements with the Commission pursuant to Section 13 of the Act.

³ Information for Toll Associates, LLC ("Toll") is presented on a consolidated basis reflecting its subsidiaries during fiscal year 2004, Brut, Inc., Brut, LLC, and Brut Europe Limited. Brut Europe Limited was liquidated prior to the date of the filing of this amended Form 1. Toll's unconsolidated fmcial activity during fiscal year 2004 was not material.

⁴ Both unconsolidated and consolidated financial statement for National Association of Securities Dealers, Inc. are provided.

Exhibit E: Describe the manner of operation of the System. This description should include the following:

1. The means of access to the System.
    
2. Procedures governing entry and display of quotations and orders in the System.
    
3. Procedures governing the execution, reporting, clearance and settlement of transactions in connection with the System.
    
4. Proposed fees.
    
5. Procedures for ensuring compliance with System usage guidelines.
    
6. The hours of operation of the System, and the date on which applicant intends to commence operation of the System.
    
7. Attach a copy of the users' manual.
    
8. If applicant proposes to hold funds or securities on a regular basis, describe the controls that will be implemented to ensure safety of those funds or securities.
    

Exhibit F: A complete set of all forms pertaining to:

1. Application for membership, participation, or subscription to the entity.
    
2. Application for approval as a person associated with a member, participant, or subscriber of the entity.
    
3. Any other similar materials.
    

Exhibit G: A complete set of all forms of financial statements, reports, or questionnaires required of members, participants, subscribers, or any other users relating to financial responsibility or minimum capital requirements for such members, participants, or any other users. Provide a table of contents listing the forms included in this Exhibit G.

Other than those forms and financial statements required to be submitted with an application for Nasdaq membership (see Exhibit F), Nasdaq will not require its members to submit specific forms of financial statements, reports, or questionnaires relating to financial responsibility or minimum capital requirements. Pursuant to the regulatory services agreement between Nasdaq and NASD Regulation and SEC Rule 17d-1, it is expected that NASD Regulation will examine Nasdaq members for compliance with financial responsibility and minimum capital requirements. Pursuant to SEC Rule 17a-5, Nasdaq members will file SEC Form X-17A-5, which NASD Regulation will use in its enforcement of financial responsibility and minimum capital rules.

Exhibit H: A complete set of documents comprising the applicant's listing applications, including any agreements required to be executed in connection with listing and a schedule of listing fees. If the applicant does not list securities, provide a brief description of the criteria used to determine what securities may be traded on the exchange. Provide a table of contents listing the forms included in this Exhibit H.

Attached please find the requested information.

Exhibit I: For the latest fiscal year of the applicant, audited financial statements which are prepared in accordance with, or in the case of a foreign applicant, reconciled with, United States generally accepted accounting principles, and are covered by a report prepared by an independent public accountant. If an applicant has no consolidated subsidiaries, it shall file audited finnancial statements under Exhibit I alone and need not file a separate unaudited financial statement for the applicant under Exhibit D.

The NASDAQ Stock Market LLC has not yet been organized, and therefore does not have financial statements. In connection with the formation of The NASDAQ Stock Market LLC, The Nasdaq Stock Market, Inc. will transfer all or substantially all of its assets and liabilities to The NASDAQ Stock Market LLC. Accordingly, attached please find the consolidated financial statement for The Nasdaq Stock Market, Inc. prepared by Ernst & Young for the fiscal year ended December 31, 2004, as included in the Annual Report on Form l0-K filed by The Nasdaq Stock Market, Inc.

The Nasdaq Stock Market, Inc. — Consolidated Financial Statement

Exhibit J: A list of the officers, governors, members of all standing committees, or persons performing similar functions, who presently hold or have held their offices or positions during the previous year, indicating the following for each:

1. Name.
    
2. Title.
    
3. Dates of commencement and termination of term of office or position.
    
4. Type of business in which each is primarily engaged (e.g., floor broker, specialist, odd lot dealer, etc.).
    

Attached please find the requested information for The Nasdaq Stock Market, Inc.

With regard to The NASDAQ Stock Market LLC, it is expected that the persons described in the attachment will hold comparable positions with respect to The NASDAQ Stock Market LLC. Specifically, it is expected that:

1. Persons currently serving as directors of The Nasdaq Stock Market, Inc. will also serve as directors of The NASDAQ Stock Market, LLC, and persons currently serving as Industry Directors of The Nasdaq Stock Market, Inc. will be designated as the initial Member Representative Directors of The NASDAQ Stock Market LLC.
    
2. The composition of the Executive Committee, the Finance Committee, the Management Compensation Committee, and the Audit Committee of The NASDAQ Stock Market LLC will be similar to the composition of the comparable committees of The Nasdaq Stock Market, Inc. The proposed Regulatory Oversight Committee of The NASDAQ Stock Market LLC will be populated with members of the Audit Committee of The Nasdaq Stock Market, Inc.
    
3. The current Nasdaq Listing and Hearing Review Council will become the Nasdaq Listing and Hearing Review Council for The NASDAQ Stock Market LLC, with such adjustments in composition as may be needed to provide for the inclusion of Member Representative members. A new Nasdaq Review Council will be appointed in accordance with the proposed By-Laws of The NASDAQ Stock Market LLC.
    
4. The Nominating Committee of The Nasdaq Stock Market, Inc. will also serve as the Nominating Committee of The NASDAQ Stock Market LLC, and a new Member Nominating Committee will be established.
    
5. The current Nasdaq Quality of Markets Committee ("QMC") will become the QMC of The NASDAQ Stock Market LLC, and it is probable that persons currently serving as Industry members of the current QMC will be nominated by the Member Nominating Committee, and appointed by the Board of Directors of The NASDAQ Stock Market LLC, as the initial Member Representative members of the QMC of The NASDAQ Stock Market LLC.
    
6. The current Nasdaq Market Operations Review Committee ("MORC") will become the MORC of The NASDAQ Stock Market LLC, and it is probable that persons currently serving as Industry members of the current MORC will be nominated by the Member Nominating Committee, and appointed by the Board of Directors of The NASDAQ Stock Market LLC, as the initial Member Representative members of the MORC of The NASDAQ Stock Market LLC.
    
7. Pursuant to the Regulatory Services Agreement (the "Regulatory Contract") between The Nasdaq Stock Market, Inc. and NASD Regulation, Inc. ("NASDR") (which will be assigned to The NASDAQ Stock Market LLC), it is anticipated that NASDR will make its Arbitration and Mediation Committee available to The NASDAQ Stock Market LLC for purposes of performing the functions of such committee specified in the Nasdaq Rules.
    
8. Pursuant to the Regulatory Contract, it is anticipated that NASDR will make its Market Regulation Committee available to The NASDAQ Stock Market LLC for purposes of performing the functions of such committee specified in the Nasdaq Rules.
    

Exhibit K: This Exhibit is applicable only to exchanges that have one or more owners, shareholders, or partners that are not also members of the exchange. If the exchange is a corporation, please provide a list of each shareholder that directly owns 5% or more of a class of a voting security of the applicant. If the exchange is a partnership, please provide a list of all general partners and those limited and special partners that have the right to receive upon dissolution, or have contributed, 5% or more of the partnership's capital. For each of the persons listed in the Exhibit K, please provide the following:

1. Full legal name;
    
2. Title or Status;
    
3. Date title or status was acquired;
    
4. Approximate ownership interest; and
    
5. Whether the person has control, a term that is defined in the instructions to this Form.
    

The sole member of The NASDAQ Stock Market LLC will be The Nasdaq Stock Market, Inc. ("NDAQ") Accordingly, the requested information is provided with respect to the following entities that are direct beneficial owners of 5% or more a class of the voting securities of The Nasdaq Stock Market, Inc. ("NDAQ") as of August 5, 2005. All information with respect to percentage of ownership of the common stock of NDAQ is provided on a fully diluted basis and includes shares of restricted stock issued under NDAQ's Equity Incentive Plan that vote on matters presented to holders of common stock:

Exhibit L: Describe the exchange's criteria for membership in the exchange. Describe conditions under which members may be subject to suspension or termination with regard to access to the exchange. Describe any procedures that will be involved in the suspension or termination of a member.

Under the proposed rules for The NASDAQ Stock Market LLC ("Nasdaq"), a broker-dealer must be a member of at least one other self-regulatory organization (i.e. either the NASD or another registered national securities exchange). The criteria for membership in Nasdaq will be substantially the same as the criteria currently applicable to a broker-dealer that applies for membership in the NASD, since Nasdaq' proposed membership rules mirror most of the rules in the NASD's Rule 1000 Series. See Proposed Nasdaq Rule 1013. Nasdaq believes that all, or substantially all, Nasdaq members will also be members of the NASD.¹

Registration requirements and qualification examinations will be required for associated persons in registration categories recognized under Nasdaq rules. The categories for Registered Representatives and Principals will be the same as those currently required by the NASD in accordance with the activities conducted by the individual.²

Proposed Nasdaq Rule 1013(a)(6) will allow all approved and active NASD member firms to become Nasdaq members upon Nasdaq's approval as a national securities exchange, and to allow their associated persons who are required to register with Nasdaq to become so registered. The members' admission to Nasdaq will be contingent upon executing and submitting applicable initial membership material, as included in Exhibit G to this Form 1. Nasdaq expects to begin distributing this membership material to prospective members at the time of publication of the Form 1 for comment by the Commission.

Under Nasdaq's Regulatory Services Agreement (the "Regulatory Contract") with NASD Regulation, Inc. ("NASDR"), NASDR will receive, review and process the membership material in accordance with Nasdaq rules. Upon the date when Nasdaq commences operations as an exchange, all accepted and approved membership agreements for members and all registrations of their associated persons will become effective. The NASD's Central Depository System will be updated to reflect this new status for members in NASDAQ. Depending on the date on which Nasdaq begins operations as an exchange, however, the registered associated persons may be technically designated in the CRD system at a time shortly after exchange registration.³

Members of another SRO and new broker-dealers may apply for membership in accordance with the full membership requirements specified in the Nasdaq rules. Firms that apply to become both NASD and Nasdaq members simultaneously may file one full membership application with the NASD. However, Nasdaq will not act on the application until the firm has become an NASD member. Members of an SRO other than the NASD must submit a complete membership application form.

NASDR will receive and process membership applications under appropriate Nasdaq membership rules, which are substantially similar to NASD membership rules. NASDR will review the membership application, conduct the membership interview, and prepare a recommendation will be submitted to the Nasdaq Membership Department for a final Nasdaq membership decision. In reviewing all prospective Nasdaq members, NASDR will apply the standards for admission detailed in the Nasdaq rules. These standards encompass, among other things, the adequacy of the applicant's financial viability with respect to its intended business operations and the suitability of its supervisory system.

The NASDR recommendation will be reviewed by Nasdaq and a final decision will rendered pursuant the applicable Nasdaq rules. All Nasdaq members will be required to sign a membership agreement indicating their acceptance of the terms upon which their membership is based.

Appeals of denials of membership will be heard by the Nasdaq Review Council. Decisions made by the council will be final but may be called for review by the Nasdaq Board. This procedure is consistent with the current procedures by which the NASD Board may call for review membership decisions.

NASDR will also review applications made by Nasdaq members for a change in operations or to remove a business restriction under Nasdaq Rule 1017. NASDR will assess the propriety of such requests in accordance with Nasdaq rules and provide a findings report to Nasdaq. Nasdaq will make the final decision concerning these requests and, in these instances, new membership agreements may be required.

Nasdaq members' access to the facilities of the exchange may be suspended or terminated on the basis of a statutory disqualification, failure to pay dues, fees, or other charges, failure to provide information required under the Nasdaq Rules, failure to comply with an arbitration award or other settlement, failure to comply with cease and desist orders, and other violations of Nasdaq Rules. NASDR will also conduct disciplinary proceedings involving Nasdaq members, including suspensions and terminations, which will be conducted in accordance with the 8000 and 9000 Series of the Nasdaq Rules. Nasdaq will also have the additional authority under Rule 9558 of its Code of Procedure rules to summarily terminate or suspend members that have been barred or suspended by another SRO or are in or approaching great financial or operational difficulty.

NASDR will administer most aspects of the disciplinary and special proceedings set forth in the Nasdaq Rule 9200 through 9700 Series, with the exception of proceedings conducted under the aegis of the Nasdaq Review Council (the "NRC"), a committee selected by the Nasdaq Board. NASDR's Market Regulation Department will have independent authority to request the issuance of a formal complaint against a Nasdaq member or associated person that is violating or has violated any rule, regulation, or statutory provision. NASDR's Office of Disciplinary Affairs will independently review and rule on all requests for issuance of complaints.

NASDR's Office of Hearing Officers ("OHO") will administer the initial hearing of all complaints according to Nasdaq-approved procedures. NASDR's Market Regulation or Enforcement Departments will have sole discretion to prosecute cases, according to Nasdaq procedures. Nasdaq members will be represented on all initial hearing panels, but no Nasdaq staff will be involved in any stage of the initial hearings. A decision issued by OHO will be a final action of Nasdaq unless it is appealed to the NRC or called for review by the Nasdaq Board.

The NRC will review all appeals of disciplinary decisions as well as initiating independent calls for its review. The Nasdaq Board may also order the review of an NRC decision. Nasdaq's Chief Regulatory Officer and his staff will be responsible for administering the NRC and Board reviews.

NASDR Member Regulation will monitor firms and associated persons to identify possible statutory disqualifications to continued membership. NASDR Member Regulation will have sole discretion to initiate, administer, and conclude a statutory disqualification proceeding. If the firm applies to continue membership despite the disqualification, NASDR Member Regulation will assess the application, and then make a recommendation to the NRC. The NRC may grant or deny that application subject only to SEC review.

Endnotes

---

¹ Section 15(a)(8) of the Securities Exchange Act of 1934 requires all registered brokers or dealers to be members of a registered securities association (i.e., the NASD), unless the broker or dealer effects transactions in securities solely on a national securities exchange of which it is a member. Therefore, any firm that effects transactions with customers or in the over-the-counter market must be a member of the NASD.

² Registration categories for NASDAQ members' associated persons are: general securities principal; financial and operations principal; introducing broker/dealer financial and operations principal; general securities sales supervisor; general securities representative; corporate securities representative; equity trader, limited principal - investment company and variable contracts products; and limited representative - investment company and variable contracts products. As provided in proposed Nasdaq Rule 1060, persons currently registered in other categories under the NASD Rule 1000 Series that are related solely to securities that are not eligible for listing on Nasdaq will not be required to register with Nasdaq (but would be required to maintain their registration with other SROs of which their firm is a member).

³ Between November 2005 and mid-January 2006, the NASD will be operating the annual CRD registration renewal process for the states and other SROs. During this period, changes to the system are not made. Nasdaq, as an SRO exchange, can be designated in the system; however, the minor enhancements are required to accommodate certain registration features. These enhancements will be implemented in late January 2006. If Nasdaq is operational as an exchange at that time, NASD will run mass scripts to associate the approved Nasdaq registered persons to the Nasdaq members.

Exhibit M: Provide an alphabetical list of all members, participants, subscribers or other users, including the following information:

1. Name;
    
2. Date of election to membership or acceptance as a participant, subscriber or other user;
    
3. Principal business address and telephone number;
    
4. If member, participant, subscriber or other user is an individual, the name of the entity with which such'individual is associated and the relationship of such individual to the entity (e.g. partner, officer, director, employee, etc.);
    
5. Describe the type of activities primarily engaged in by the member, participant, subscriber, or other user (e.g. floor broker, specialist, odd lot dealer, other market maker, proprietary trader, non-broker dealer, inactive or other functions). A person shall be "primarily engaged" in an activity or function for purposes of this item when that activity or function is the one in which that person is engaged for the majority of their time. When more than one type of person at an entity engages in any of the six types of activities or functions enumerated in this item, identify each type (e.g. proprietary trader, Registered Competitive Trader and Registered Competitive Market Maker) and state the number of members, participants, subscribers, or other users in each; and
    
6. The class of membership, participation or subscription or other access.
    

Presently, to participate in the Nasdaq Market Center, a broker-dealer must be a member of the NASD. Therefore, The Nasdaq Stock Market, Inc. does not currently have members, and The NASDAQ Stock Market LLC will not have members prior to its registration as a national securities exchange.

Once The NASDAQ Stock Market LLC is registered as a national securities exchange, it will file the information required by this exhibit every thirty (30) days during a period commencing on the date of registration as an exchange and ending on the date ninety (90) days after the date of registration, and thereafter in accordance with SEC Rule 6a-2.

Exhibit N: Provide a schedule for each of the following:

1. The securities listed in the exchange, indicating for each the name of the issuer and a description of the security;
    
2. The securities admitted to unlisted trading privileges, indicating for each the name of the issuer and a description of the security;
    
3. The unregistered securities admitted to trading on the exchange which are exempt from registration under Section 12(a) of the Act. For each security listed, provide the name of the issuer and a description of the security, and the statutory exemption claimed (e.g. Rule 12a-6); and
    
4. Other securities traded on the exchange, including for each the name of the issuer and a description of the security.