| Jonathan G. Katz
|1||15 U.S.C. 78(f).|
|2||See Letter to Annette L. Nazareth, Director, Division of Market Regulation ("Division"), Commission, from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, dated November 9, 2000. Exhibits A and C to Nasdaq's application were incomplete, and therefore on March 15, 2001, Nasdaq submitted to the Commission revised Exhibits A and C to address the deficiencies. As a result, Nasdaq's Form 1 was completed and officially filed with the Commission on March 15, 2001.|
|3||For both phases of the private placement, the NASD's percentage ownership of Nasdaq assumes that all warrants sold are fully exercised. Recently, Nasdaq also announced an agreement to sell subordinated debentures convertible into Nasdaq common stock to a private equity firm. If fully converted, this private equity firm would own approximately 9.8% of Nasdaq common stock. The Division currently is considering changes to Nasdaq's Certificate of Incorporation that would be necessary to consummate the sale of these debentures.|
|4||Securities Exchange Act Release No. 37107 (April 11, 1996), 61 FR 16948 (April 18, 1996).|
|5||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.|
|6||The voting trust will automatically expire and the NASD will no longer control or operate Nasdaq upon Nasdaq's registration as an exchange.|
|7||Section 19(a) of the Exchange Act, 15 U.S.C. 78(s)(a).|
|8||15 U.S.C. 78f(b)(1).|
|9||15 U.S.C. 78j(a).|
|10||15 U.S.C. 78k(a).|
|11||15 U.S.C. 78k-1.|
|12||17 CFR 240.11Ac1-1(b)1(ii).|
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Nasdaq Application for Registration
Attached please find the requested information under the following tabs:
|Tab 1:||Articles of Incorporation|
|Tab 3:||Rule 0100 Series|
|Tab 4:||Rule 1000 Series|
|Tab 5:||Rule 2000 Series|
|Tab 6:||Rule 3000 Series|
|Tab 7:||Rule 4000 Series|
|Tab 8:||Rule 5000 Series|
|Tab 9:||Rule 6000 Series|
|Tab 10:||Rule 7000 Series|
|Tab 11:||Rule 8000 Series|
|Tab 12:||Rule 9000 Series|
|Tab 13:||Rule 10000 Series|
|Tab 14:||Rule 11000 Series|
All requested items have been incorporated into Exhibit A.
Attached, please find the requested information for the following subsidiaries and affiliates of the Nasdaq Stock Market, Inc.:
|Tab 1:||American Stock Exchange, LLC|
|Tab 2:||American Stock Exchange Clearing LLC|
|Tab 3:||American Stock Exchange Realty Associates LLC|
|Tab 4:||Amex Commodities LLC|
|Tab 5:||Depository Trust and Clearing Corporation|
|Tab 6:||e-xChange Advantage Corporation|
|Tab 7:||IndigoMarkets, Ltd.|
|Tab 8:||National Association of Securities Dealers, Inc.|
|Tab 9:||NASD Dispute Resolution, Inc.|
|Tab 10:||NASD Institute for Professional Development|
|Tab 11:||NASD Insurance Agency, LLC|
|Tab 12:||NASD Holding Company, Inc.|
|Tab 13:||NASD Regulation, Inc.|
|Tab 14:||Nasdaq/BIOS R&D Joint Venture|
|Tab 15:||Nasdaq Europe Planning Company, Ltd.|
|Tab 16:||Nasdaq Global Holdings, Inc.*|
|Tab 17:||Nasdaq Global Technologies, Inc.|
|Tab 18:||Nasdaq International, Ltd.|
|Tab 19:||Nasdaq International Marketing Initiative, Inc.|
|Tab 20:||Nasdaq-Amex Investment Products Services, Inc.|
|Tab 21:||Nasdaq Japan Planning Company, Inc.|
|Tab 22:||Nasdaq LTDA|
|Tab 23:||The Nasdaq Stock Market Educational Foundation, Inc.|
|Tab 24:||Nasdaq Tools, Inc.|
|Tab 25:||National Clearing Corporation|
|Tab 26:||OPEN GETS, S.A.|
|Tab 27:||Options Clearing Corporation|
|Tab 28:||PDR Services LLC|
|Tab 29:||Quadsan Enterprises, Inc.|
|Tab 30:||Securities Dealers Insurance Company, Ltd.|
|Tab 31:||Securities Dealers Risk Purchasing Group, Inc.|
|Tab 32:||Securities Industry Automation Corporation|
Also attached, at Tabs 33 and 34 is information regarding OptiMark Holdings. Inc. and Worldcom, Inc. The Nasdaq Stock Market has a contractual agreement with OptiMark and Worldcom relating to the operation of an electronic trading system to be used to effect transactions on the exchange.
Attached, please find financial statements, with footnotes where necessary to avoid rendering the financial statements misleading, for the Nasdaq Stock Market, Inc. and the following subsidiaries and affiliates:
|Tab 1:||The Nasdaq Stock Market, Inc.|
|Tab 2:||American Stock Exchange, LLC|
|Tab 3:||American Stock Exchange Clearing LLC|
|Tab 3:||American Stock Exchange Realty Associates LLC|
|Tab 3:||Amex Commodities LLC|
|Tab 4:||Depository Trust and Clearing Corporation|
|Tab 5:||e-xChange Advantage Corporation|
|Tab 6:||IndigoMarkets, Ltd.|
|Tab 7:||National Association of Securities Dealers, Inc.|
|Tab 8:||NASD Dispute Resolution, Inc.|
|Tab 9:||NASD Institute for Professional Development|
|Tab 10:||NASD Insurance Agency, LLC|
|Tab 11:||NASD Regulation, Inc.|
|Tab 12:||The Nasdaq Amex Market Group|
|Tab 13:||Nasdaq/BIOS R&D Joint Venture|
|Tab 14:||Nasdaq Europe Planning Company, Ltd.|
|Tab 15:||Nasdaq Global Holdings, Inc.*|
|Tab 16:||Nasdaq International, Ltd.|
|Tab 17:||Nasdaq International Marketing Initiative, Inc.|
|Tab 18:||Nasdaq Investment Products Services, Inc.|
|Tab 19:||Nasdaq Japan Planning K.K.|
|Tab 20:||Nasdaq LTDA|
|Tab 21:||The Nasdaq Stock Market Educational Foundation, Inc.|
|Tab 22:||Nasdaq Tools, Inc.|
|Tab 23:||National Clearing Corporation|
|Tab 24:||OPEN GETS, S.A.|
|Tab 25:||Options Clearing Corporation|
|Tab 26:||PDR Services LLC|
|Tab 27:||Quadsan Enterprises, Inc.|
|Tab 28:||Securities Dealers Insurance Company, Ltd.|
|Tab 29:||Securities Dealers Risk Purchasing Group, Inc.|
|Tab 30:||Securities Industry Automation Corporation|
*Nasdaq Global Technology, Ltd., a wholly-owned subsidiary of Nasdaq Global Holdings, Inc., was incorporated to hold the intellectual property rights for the trading platforms to be developed for use by Nasdaq Japan and Nasdaq Europe. As these platforms are yet to be developed, there is currently no financial information available for this entity.
|Tab 1:||Systems Description|
|Tab 2:||Proposed Fees|
|Tab 3:||ACES Pass-thru User Guide|
|Tab 4:||ACT User Guide|
|Tab 5:||CAES/ITS User Guide|
|Tab 6:||CTCI Subscriber Requirement|
|Tab 7:||Nasdaq Workstation II User Guide|
|Tab 8:||Optimark User Guide|
|Tab 9:||SelectNet User Guide|
|Tab 10:||SOES User Guide|
The following forms will be used.
|Tab 1:||An application form that will be used by firms that are active NASD members at the time exchange registration is granted that want to exercise the option of automatically becoming Nasdaq members and automatically registering their associated persons with Nasdaq during the initial phase-in period. This will be an interim form to be used only for this purpose.|
|Tab 2:||An application form that will be used by firms that are NASD members or members of an SRO other than the NASD to apply for Nasdaq membership after the initial phase-in period. This will be the permanent form to be utilized for this purpose. See Rule 1013(a).|
SEC and SRO Forms
|Tab 3:||Form BD|
|Tab 4:||Form U-4|
|Tab 5:||Form U-5|
Other than those forms and financial statements required to be submitted with an application for Nasdaq membership (See Exhibit G), Nasdaq will not require its members to submit specific forms of financial statements, reports, or questionnaires relating to financial responsibility or minimum capital requirements.
|Tab 1:||Nasdaq National Market IPO Application (1933 Act Filings)|
|Tab 2:||Nasdaq National Market Application For Public Securities (1934 Act Filings)|
|Tab 3:||Addendum: Nasdaq National Market Application Amendment|
|Tab 4:||The Nasdaq SmallCap Market Application|
|Tab 5:||Addendum: The Nasdaq SmallCap Market Application Amendment|
|Tab 6:||Fee Structure and Financial Requirements|
|Tab 7:||The Nasdaq Stock Market Listing of Additional Shares (LAS)|
|Tab 8:||The Nasdaq Stock Market Notification Form for Change in the Number of Shares Outstanding and Change in Issuer Name|
|Tab 9:||The Nasdaq Stock Market Cash Dividend/Distribution Notification Form|
Attached, please find the Consolidated Financial Statements for The Nasdaq Stock Market Inc., prepared by Ernst & Young, independent financial auditors. The Consolidated Financial Statements cover the fiscal years ended December 31, 1999 and 1998, and the three years in the period ended December 31, 1999.
|Tab 1:||Board of Directors|
|Tab 2:||Nasdaq Officers|
|Tab 3:||Market Operations Review Committee|
|Tab 4:||Listing and Hearing Review Council|
|Tab 5:||Quality of Markets Committee|
No other person or entity owns or controls 5% or more of the common (voting) stock.
The criteria for membership in Nasdaq will be substantially the same as the criteria currently applicable to firms applying for membership in the NASD, since Nasdaq's new membership rules will essentially mirror most of the rules in the NASD's Rule 1010 eries. See Nasdaq Rule 1014(a). Nasdaq staff believes that the majority of Nasdaq members also will be members of the NASD.1 Nasdaq's rules will require a broker-dealer to be a member of at least one other self-regulatory organization ("SRO") before applying for membership in Nasdaq. However, NASD membership will be mandated for applicants that will transact business with the public.
Examinations and basic qualifications required of Nasdaq Registered Representatives and Principals will be the same as those currently required by the NASD in accordance with the activities conducted by the individual. Nasdaq member firms will be required to register individuals in the registration categories that are appropriate for their identified business practices (e.g., General Securities Principal, Equity Trader).
Nasdaq will adopt a temporary rule providing that all active NASD member firms at the time Nasdaq is approved as a securities exchange will have the option of electing to automatically become a Nasdaq member and to automatically register with Nasdaq all of their associated persons whose registrations were active at the time Nasdaq was approved as an exchange.2 Firms exercising this option will be registered as Nasdaq members under the same terms and conditions as their NASD membership. Accordingly, each firm will be able to engage in the same business and will be subject to the same restrictions as are described in its membership agreement with the NASD. In addition, all of the firm's associated persons who are registered in categories recognized by Nasdaq will become registered persons of a Nasdaq member firm. The firm's admission to Nasdaq will be contingent, however, upon execution of a simple agreement with Nasdaq at the time the option is exercised, stating that the firm will comply with the terms and conditions of its membership agreement with the NASD and Nasdaq, and submission of revised Forms BD and U-4.
Subsequent to this initial open period for active NASD firms, a Nasdaq membership process will apply to non-NASD firms that are members of another SRO, new broker-dealers, or NASD member firms that declined initial Nasdaq inclusion. This process will require these firms to apply for membership in Nasdaq and comply with the Nasdaq Rule 1010 Series. Firms that apply to become both NASD and Nasdaq members may file one full membership application with the NASD in compliance with the NASD Rule 1010 Series. However, Nasdaq will not act on the application until the firm has become an NASD member. Members of an SRO other than the NASD or NASD members that declined the initial Nasdaq inclusion that apply to become Nasdaq members must submit a complete application form, which requires fewer items than are currently required by the NASD, due to the fact that the applicant already is a member of another SRO. 3
Nasdaq has entered into an agreement with NASDR to 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 concise evaluation report4 that will be submitted to the Nasdaq Membership Department staff for a final Nasdaq membership decision. In reviewing all prospective Nasdaq members, NASDR will apply the standards for admission found in Nasdaq Rule 1014(a). These standards encompass, among others, the adequacy of the applicant's financial viability with respect to its intended business operations, and the suitability of its supervisory system. Nasdaq staff will then review the NASDR-provided report and any other pertinent information before making an evaluation of the firm. In certain instances, as Nasdaq determines to be appropriate, Nasdaq staff may undertake additional membership inquiries of a prospective member, potentially involving requests for additional interviews or documentation. This further evaluation may be based upon an independent review by Nasdaq staff of certain factors deemed essential to the proper operation of an equity trading firm (e.g., equity trading experience, supervisory experience, disciplinary history of firm personnel). Nasdaq will make the decision as to whether an applicant should be approved as a member of the Exchange.
Upon a grant of Nasdaq membership, non-NASD members of Nasdaq will be required to sign a Nasdaq membership agreement indicating their acceptance of any terms upon which their membership is based. Dual NASD/Nasdaq members will, in most instances, be required to sign only a Nasdaq addendum to the existing NASD membership agreement.
Appeals of staff denials of membership will be heard by the Nasdaq Review Council. Decisions of this committee will be final, but may be called for review by the Nasdaq Board. This method is consistent with the current method by which the NASD Board may call for review membership decisions made by the NASDR National Adjudicatory Council.
Nasdaq will enter into an agreement with NASDR to handle applications by Nasdaq members for a change in operations or to remove a business restriction under Nasdaq Rule 1017. NASDR will then assess the propriety of this request and provide a findings report to Nasdaq. Nasdaq will make the final decision concerning this request and, in these instances, a new membership agreement may be required.
Nasdaq also will enter into an agreement with NASDR to conduct disciplinary proceedings involving Nasdaq member firms, including suspensions and terminations, which will be conducted pursuant to the NASD/Nasdaq Code of Procedure (The Rule 9000 Series) and NASD/Nasdaq Rule 8300. Nasdaq will, however, have the additional authority (as does the NASD) under Nasdaq Rule 9510 to summarily terminate or suspend members that have been barred or suspended by another SRO, are in or approaching great financial or operational difficulty, or do not otherwise meet Nasdaq's qualification requirements.
|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 OTC market must become a member of the NASD.|
|2||This election must be affirmatively made within 90 days of Nasdaq's exchange registration approval.|
|3||Minor revisions to Forms BD and U-4 will be required to add a new check box to indicate Nasdaq as a selected SRO. In the interim period until the Forms can be revised, CRD changes will be made to accomplish this goal.|
|4||The details of this report will be agreed upon by Nasdaq and NASDR.|
Presently, to participate in Nasdaq, a broker-dealer must be a member of the NASD. Nasdaq will not be a self-regulatory organization separate from the NASD until it is registered as a national securities exchange. Therefore, Nasdaq does not currently have members.
Once Nasdaq is registered as a national securities exchange, it will file the information required by this exhibit every thirty (30) days, commencing on the date of registration as an exchange and ending on the date ninety (90) days after the date of registration.
|Tab 1:||Securities Listed on The Nasdaq Stock Market as of September 30, 2000|
|Tab 2:||Securities Admitted to Unlisted Trading Privileges|
|Tab 3:||Securities Quoted on Over-the Counter Bulletin Board as of September 30, 2000|
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