[Federal Register Volume 62, Number 197 (Friday, October 10, 1997)]
[Notices]
[Pages 53062-53130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26522]
[[Page 53061]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
Self-Regulatory Organizations; Notice of Filing of a Proposed Rule
Change by the National Association of Securities Dealers, Inc.
(``NASD'') to Proposed Changes in the By-Laws and Restated Certificates
of Incorporation of NASD, NASD Regulation, Inc., The Nasdaq Stock
Market, Inc., and the Plan of Allocation and Delegation of Functions by
the NASD to Subsidiaries; Notice
Federal Register / Vol. 62, No. 197 / Friday, October 10, 1997 /
Notices
[[Page 53062]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39175; File No. SR-NASD-97-71]
Self-Regulatory Organizations; Notice of Filing of a Proposed
Rule Change by the National Association of Securities Dealers, Inc.
(``NASD'') to Proposed Changes in the By-Laws and Restated Certificates
of Incorporation of the NASD, NASD Regulation, Inc., The Nasdaq Stock
Market, Inc., and the Plan of Allocation and Delegation of Functions by
the NASD to Subsidiaries
September 30, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 1 notice is hereby given that on September 19,
1997, the National Association of Securities Dealers, Inc.
(``Association'' or ``NASD'') 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 the self-regulatory organization. 2 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. Sec. 78s(b)(1).
\2\ On September 29, 1997, the NASD filed a technical amendment
to the proposed rule change, the substance of which is included in
this notice. See letter from T. Grant Callery, General Counsel,
NASD, to Katherine A. England, Assistant Director, Division of
Market Regulation, Commission. On September 30, 1997, the filing was
further amended by the NASD to correct non-substantive typographical
errors. Meeting between Mary Dunbar, Office of General Counsel, NASD
Regulation and Mandy S. Cohen, Division of Market Regulation,
Commission.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is filing a proposed rule change to amend: (1) The By-Laws
of the NASD; (2) the By-Laws of NASD Regulation, Inc. (``NASD
Regulation''); (3) the By-Laws of The Nasdaq Stock Market, Inc.
(``Nasdaq''); (4) the Plan of Allocation and Delegation of Functions By
NASD to Subsidiaries (``Delegation Plan''); and (5) the Restated
Certificates of Incorporation for the three corporations. Attachment A
is the text of the proposed rule change. Proposed new language is
italicized; proposed deletions are in brackets.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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. The self-regulatory organization
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
a. Introduction: The purpose of the proposed rule change is to
provide for a more efficient and effective corporate structure for the
Association, to conform the Association's corporate documents to the
recently amended Code of Procedure (Rule 9000 Series) and membership
procedures (Rule 1010 Series), and to make the Association's corporate
documents more consistent with one another. 3 In particular,
the proposed corporate structure is designed to streamline the decision
making process to be more responsive to investor interests, improve
communication among Board members and the staff, enable the Association
to act quickly and decisively when necessary, and preserve the
principles set forth in the September 15, 1995 Report of the NASD
Select Committee on Structure and Governance To The NASD Board of
Governors (``Select Committee Report'').
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\3\ All references to ``Rule'' followed by a four-digit number
in this rule filing are references to one or more Rules of the
Association, as defined in NASD By-Laws, Article I, Definitions.
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Portions of the proposed rule change set forth in this rule filing
were previously submitted and noticed in the Federal Register in SR-
NASD-96-20, 4 SR-NASD-96-29, 5 and SR-NASD-97-28.
6 No comments were received on those parts of these rule
filings concerning the Association's corporate documents and the
Delegation Plan. 7 The Association believes that the changes
to its corporate structure would be better understood if all changes to
these documents were included in one rule filing. Therefore, the
Association withdrew its request for approval of the portion of the
proposed rule change relating to the Association's corporate documents
and the Delegation Plan set forth in SR-NASD-97-28 and included all
proposed changes to its corporate documents and the Delegation Plan in
this rule filing. 8 In the description of the proposed rule
change for each document below, the Association has identified the rule
changes that are proposed for the first time in this rule filing.
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\4\ Securities Exchange Act Release No. 37282 (June 6, 1996), 61
FR 29777 (June 12, 1996), as amended.
\5\ Securities Exchange Act Release No. 37425 (July 11, 1996),
61 FR 37518 (July 18, 1996), as amended.
\6\ Securities Exchange Act Release No. 38545 (April 24, 1997)
62 FR 25226 (May 8, 1997), as amended.
\7\ SR-NASD-96-20 and SR-NASD-96-29 include temporary approvals
of the corporate governance documents and the Delegation Plan,
respectively. Upon approval of this rule filing, temporary approval
of 96-20 and 96-29 will be rescinded.
\8\ See letter from Alden S. Adkins, General Counsel, NASD
Regulation, to Katherine A. England, Assistant Director, Division of
Market Regulation, Commission, dated July 11, 1997 (Amendment No. 3
to SR-NASD-97-28).
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To achieve the corporate objectives set forth above, the
Association proposes to retain the current three corporation structure,
but reduce the overall number of board members for the three
corporations and create a new board structure, with both the Nasdaq and
NASD Regulation Boards of Directors shrinking in size and becoming part
of an expanded NASD Board of Governors.9 As a result, the
Association would reduce the overall number of board members from 49 to
27, reduce the number of board meetings from 17 to seven, reduce the
number of board committees from nine to five, and replace two
subsidiary board executive committees with one parent board executive
committee.10
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\9\ Currently, the NASD Board has 11 Governors, the NASD
Regulation Board has 24 Directors, and the Nasdaq Board has 14
Directors. The Board of Governors of the NASD is referred to herein
as the NASD Board, and the Boards of Directors of NASD Regulation
and Nasdaq are referred to herein as the NASD Regulation Board and
the Nasdaq Board, respectively.
\10\ As explained below, the by-laws of each subsidiary would
continue to authorize its board to appoint executive and finance
committees, but the Association does not anticipate that the
subsidiary boards will find it necessary to continue to appoint such
committees.
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The NASD Board would consist of 21 to 27 Governors and include a
nucleus of Governors who would not serve as directors on either
subsidiary board. The subsidiary boards each would have five to eight
Directors, each of whom would be NASD Governors. The number of
directors on each subsidiary board would be equal, thereby enabling the
nucleus of individuals who served only as NASD Governors to perform a
tie-breaking function on the parent board.
The NASD Board, while remaining ultimately responsible for the
actions of its subsidiaries, would also retain its current authority to
review and ratify or reject certain actions of the subsidiaries,
although the process of exercising this authority would be expedited by
transferring certain functions to new
[[Page 53063]]
entities under each subsidiary board and changing several meeting
schedules. First, the Association proposes to transfer the functions of
the National Business Conduct Committee, a committee of the NASD
Regulation Board composed entirely of Directors, to a new entity, the
National Adjudicatory Council.11 The National Adjudicatory
Council would be appointed by the NASD Regulation Board, after
nomination by the National Nominating Committee. Similarly, the
Association proposes to transfer the functions of the Nasdaq Listing
and Hearing Review Committee to a new Nasdaq Listing and Hearing Review
Council (``Listing Council'').12 Listing Council members
would be appointed by the Nasdaq Board. Except for the Chair of
National Adjudicatory Council, members of the councils would not serve
on any of the Association's boards.
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\11\ See proposed Article V of the NASD Regulation By-Laws.
\12\ See proposed Article V of the Nasdaq By-Laws.
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These new councils would meet at least 15 days before the
subsidiary boards and generally would provide written reports of their
decisions to their respective boards not later than 15 days before the
subsidiary board meetings. The subsidiary board meetings then would be
scheduled to occur one day before the meetings of the NASD
Board.13 Although matters delegated to each subsidiary
would, as a matter of general practice, be considered by the subsidiary
boards before proceeding to the NASD Board, the time required for final
disposition would be significantly reduced by these structural and
scheduling changes. Under the current structure and meeting schedule,
the subsidiaries may have to delay issuing disciplinary, listing, and
other decisions and filing rule proposals with the Commission until a
parent board meeting is held, which may occur several weeks after the
subsidiary board takes action. Such delay would be eliminated by the
new corporate structure and meeting schedule.
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\13\ Amendments to the Association's Code of Procedure and other
rules that contain NASD Board call-out authority will be proposed in
a separate rule filing.
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In addition to compressing the time between subsidiary and parent
board meetings, the proposed structural refinements would facilitate
other efficiencies because members of the revamped subsidiary boards
would constitute a subset of NASD Board members. For example, an NASD
Regulation rule amendment that warrants consideration by the NASD Board
could be taken directly to the NASD Board for action, thereby avoiding
the need for duplicative discussions of the same matter. The same would
be true of rule amendments as to which NASD Board review is mandatory
under the Delegation Plan. Thus, action on significant or controversial
matters could be accomplished in one step, rather than the two steps
that are currently required. Furthermore, because the Directors of both
subsidiary boards would be Governors of the NASD Board, the
consideration of matters at the NASD Board level always would have the
benefit of subsidiary board participation.
To further expedite decision-making, the NASD Board would be
specifically authorized by the Delegation Plan to take action on its
own initiative. Thus, subsidiary board action on a matter within its
sphere of delegated authority would not be a prerequisite to action by
the NASD Board. Rather, the NASD Board would be authorized to take
action ab initio.14
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\14\ See Proposed Delegation Plan I.B.11.
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The Association believes that these changes are consistent with the
core principles of corporate governance outlined in the Select
Committee Report and the November 1995 Select Committee on Structure
and Governance--Staff Implementation Plan (``Staff Implementation
Plan''). The principles of the Select Committee Report and the Staff
Implementation Plan include maintaining a balanced governance
structure, an independent corporate structure, an independent and
autonomous operating structure, and a clear and distinct role for each
corporation. The proposed rule change maintains a balanced governance
structure by providing for diversity among Industry Governors and
Directors; providing for a majority of Non-Industry Governors on the
parent board, including at least five Public Governors; and providing
for at least 50 percent Non-Industry and Public Directors on the board
of directors of each subsidiary. Maintaining two separate, wholly owned
subsidiaries with their own Presidents ensures that independent
corporate structures continue to exist. Preserving separate and
independent professional staffs and substantial deference to the
subsidiaries in their areas of jurisdiction reinforces an independent
and autonomous operating structure. Finally, each corporation retains
its clear and distinct role under the proposed rule change: The NASD
continues to resolve conflicts between the subsidiaries and retain
ultimate responsibility for statutory obligations, including its
responsibilities as a self-regulatory organization; NASD Regulation
continues to perform the day-to-day regulation of brokers and dealers
and to supervise surveillance of Nasdaq and other OTC markets; and
Nasdaq continues to own and operate The Nasdaq Stock Market and develop
and implement rules governing that market.
The proposed corporate structure also is consistent with the
Undertakings set forth in the Association's August 8, 1996, settlement
with the Commission.15 Specifically, the proposed rule
changes comport with the requirements for balancing the Association's
boards and committees,16 placing primary day-to-day
responsibility for regulatory matters with NASD
Regulation,17 providing for the autonomy and independence of
the regulatory staff of the NASD and its subsidiaries,18 and
ensuring the existence of a substantial, independent internal audit
staff that reports directly to an audit committee of the NASD
Board.19
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\15\ Securities Exchange Act Release No. 37538 (August 8, 1996),
62 SEC Docket 1346, Order Instituting Public Proceedings Pursuant to
Section 19(h)(1) of the Securities Exchange Act of 1934, Making
Findings and Imposing Remedial Sanctions, In the Matter of National
Association of Securities Dealers, Inc., Administrative Proceeding
File No. 3-9056 (the ``Order'').
\16\ See Proposed NASD By-Laws Article VII, Section 4 and
Article IX; Proposed NASD Regulation By-Laws Article IV; Proposed
Nasdaq By-Laws Article IV; Delegation Plan I.C., II.C.
\17\ See Proposed Delegation Plan II.A.1.
\18\ Id.
\19\ See proposed NASD By-Laws Article IX, Section 5.
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b. Proposed Changes to NASD By-Laws: The expanded NASD Board would
function much as it does today, with ultimate responsibility for the
regulatory and market operation functions delegated to the subsidiary
boards. Substantive changes to the NASD By-Laws are set forth below.
Key changes related to the corporate restructuring are found in
proposed Article VII, Sections 4, 5, 9, 10, and 13; Article IX,
Sections 4 through 6; Article XV, Section 4(b); Article XVI, Section 1;
and Articles XX and XXI. Stylistic changes and other minor, non-
substantive changes are not described.20
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\20\ All references to Articles or Sections in this section
``b'' refer to the NASD By-Laws, unless otherwise noted.
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Proposed Article I. Definitions
The Association proposes several substantive amendments to Article
I, which sets forth definitions for the NASD By-Laws. First, the
Association proposes to move the following
[[Page 53064]]
definitions from the Delegation Plan 21 to the appropriate
corporate by-laws: ``Industry Director''; ``Industry Governor'' or
``Industry committee member''; ``National Nominating Committee'';
``Non-Industry Director''; ``Non-Industry Governor'' or ``Non-Industry
committee member''; ``Public Director''; ``Public Governor'' or
``Public committee member''.22 Related, substantive
provisions of the Delegation Plan also would be moved to the By-Laws of
the appropriate corporate entity.
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\21\ See Delegation Plan, I.A. and I.C.
\22\ See proposed NASD By-Laws Article I(n), (o),(bb), (cc),
(dd), (ff), and (gg).
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The Association also is proposing certain refinements to the NASD
By-Laws' definitions of ``Industry Governor'', ``Industry committee
member'', ``Non-Industry Governor'', and ``Non-Industry committee
member''. Specifically, the Association proposes to exclude from the
definition of Industry Governor or committee member a person who is or
was an outside director of a broker or a dealer or a director not
engaged in the day-to-day management of a broker or dealer. The
Association proposes to include in the definition of Industry Governor,
Director and Committee member a Governor, Director, or committee member
who (1) is an employee of an entity that owns more than ten percent of
the equity of a broker or dealer, and the broker or dealer accounts for
more than five percent of the gross revenues received by the
consolidated entity; (2) owns more than five percent of the equity
securities of any broker or dealer, whose investments in brokers or
dealers exceed ten percent of his or her net worth, or whose ownership
interest otherwise permits him or her to be engaged in the day-to-day
management of a broker or dealer; (3) provides professional services to
brokers or dealers, and such services constitute 20 percent or more of
the professional revenues received by the Governor or committee member
or 20 percent or more of the gross revenues received by the Governor's
or committee member's firm or partnership; or (4) provides professional
services to a director, officer, or employee of a broker, dealer, or
corporation that owns 50 percent or more of the voting stock of a
broker or dealer, and such services relate to the director's,
officer's, or employee's professional capacity and constitute 20
percent or more of the professional revenues received by the Governor
or committee member or 20 percent or more of the gross revenues
received by the Governor's or committee member's firm or partnership.
The Association proposes to delete from the definition of Non-
Industry Governor or committee member specific references to (1)
persons affiliated with brokers and dealers that operate solely to
assist the securities-related activities of the business of non-member
affiliates, such as a broker or dealer established to distribute an
affiliate's securities which are issued on a continuous or regular
basis, or process the limited buy and sell orders of the shares of
employee owners of the affiliate; and (2) employees of an entity that
is affiliated with a broker or dealer that does not account for a
material portion of the revenues of the consolidated entity, and who
are primarily engaged in the business of the non-member entity. The
Association believes that any person engaged in the day-to-day
management of any broker or dealer, including a limited purpose broker
or dealer, should be considered an Industry Governor or committee
member.
Parallel amendments are proposed for the definitions of ``Non-
Industry Director'' or ``Non-Industry member'' at the subsidiary level.
Second, the Association proposes to amend the term ``person
associated with a member'' by adding a clause to clarify that the term
includes any natural person registered under the Rules of the
Association. The impetus for the proposed change is Slade versus
Metropolitan Life Ins. Co.23 Slade involved a former
registered representative who sued his former employer, an NASD member,
for wrongful termination. The member filed a motion to compel
arbitration of the dispute. The member argued that because the former
employee had signed a Form U-4, Uniform Application for Securities
Industry Registration or Transfer, and had become registered with the
firm, he was subject to the provision of the Form U-4 that requires
arbitration of employment-related disputes. The former employee argued
that although he signed the Form U-4, he never conducted any securities
activities and never acted as an associated person of the member. The
lower court ruled that the former employee was not required to
arbitrate this dispute. The court held that the NASD's definition of
associated person in Article 1(q) of its By-Laws used the words
``engaged'' in the member's investment banking and securities business,
and because the former employee was not ``engaged'' in such business,
he was not covered by the definition of associated person. The court
also noted that the former employee's job responsibilities were not
among those listed by the associated person definition in the By-Laws.
The member appealed this ruling and in September 1996, the Supreme
Court, Appellate Division, affirmed the lower court
ruling.24 The New York Court of Appeals denied the member's
request to review the September 1996 ruling.25
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\23\ Index No. 117688/94, Decision and Order of April 9, 1996
(Sup. Ct., N.Y. Co.), aff'd, 231 A.D.2d 467 (N.Y. 1996), appeal
denied, 676 N.E.2d 500 (N.Y. 1996).
\24\ 231 A.D.2d at 467.
\25\ 676 N.E.2d at 500.
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Slade suggests that any person whose job title or position is not
specifically identified in the By-Laws' definition of associated person
would not be considered an associated person if he or she were not
deemed to be ``engaged'' in the member's securities business. The same
result might hold even for persons who are registered with a member
firm pursuant to NASD Rules. To avoid this result, the NASD proposes to
amend the definition of associated person to clarify that all
registered persons are associated persons, regardless of whether they
would be deemed to be engaged in the securities business.26
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\26\ See proposed NASD By-Laws Article I, ``Definitions'';
proposed NASD Regulation By-Laws Article I, ``Definitions''; and
proposed Nasdaq By-Laws Article I, ``Definitions''.
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Third, the Association proposes to delete the definition ``rules of
the Corporation'' to avoid confusion with the more commonly used, but
differently defined term, ``Rules of the Association''.27
The term ``rules of the Corporation'' currently is used to refer
collectively to the NASD Certificate of Incorporation, the NASD By-
Laws, and the Rules of the Association. Given the restructuring of the
NASD into three legal entities, such a collective term for all of the
corporate documents of the Association would not be useful. Thus, under
the proposed rule change, where a particular provision must be
consistent with a particular corporate document, that document is
specified. Similarly, the Association also proposes to delete the
definitions of ``Boards'' and ``Corporations'' and instead refer to
each corporate entity specifically where intended.28 The
term ``Rules of the Association'' or ``Rules'' is defined to mean the
numbered rules set forth in the NASD Manual beginning with the Rule
0100 Series, as adopted by the NASD Board pursuant to the NASD By-Laws,
as amended or supplemented. A cross-reference from the Rules of the
[[Page 53065]]
Association deferring to the NASD By-Laws is included in Rule 0121.
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\27\ See Current NASD By-Laws Article I(v).
\28\ See Current NASD By-Laws Article I (d) and (i)).
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Finally, the following definitions are added or amended to reflect
drafting conventions adopted to reflect the three corporation structure
or other drafting conventions. Those definitions are: ``Board'';
``branch office''; ``day''; ``dealer''; ``Delegation Plan'';
``district''; ``member''; ``municipal securities dealer''; ``NASD'';
``Nasdaq''; ``Nasdaq Board''; ``Nasdaq Listing and Hearing Review
Council''; ``NASD Regulation''; ``NASD Regulation Board''; and
``National Adjudicatory Council''.29
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\29\ See proposed NASD By-Laws Article I (c), (d), (g), (h),
(i), (j), (q), (t), (u), (v), (w), (x), (y), (z), and (aa).
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Proposed Article II. Offices
The Association proposes to add a new Article II ``Offices'' that
states the location of the registered corporate office of the NASD.
This change makes the NASD By-Laws consistent with the NASD Regulation
and Nasdaq By-Laws, which both include such a provision.
Proposed Article III. Qualifications of Members and Associated Persons
Current Article II, ``Qualifications of Members and Associated
Persons'', is renumbered as proposed Article III. The Association
proposes to conform Section 3, which addresses ineligibility of certain
persons for membership or association, to the Rule 9520 Series, which
sets forth rules for the Association's eligibility proceedings.
Specifically, the Association proposes to amend Section 3(d) to clarify
that members may use eligibility proceedings to obtain relief from the
Association's eligibility requirements, e.g., to resolve a statutory
disqualification problem. As written, current Section 3(d) could be
read to suggest that a broker or dealer seeking admission to the
Association could use such proceedings to obtain relief from
eligibility requirements as a means of gaining admission to the
Association. That is not the Association's practice or the intent of
the provision, and Section 3(d) is amended to remove this potential
ambiguity.
The Association proposes to delete Section 3(d)(2), which addresses
the status of members or persons engaged in eligibility proceedings,
because that subject is addressed in the Rule 9520 Series. This change
does not result in a substantive change in the Association's practice.
Specifically, if a person is already associated with a member at the
time a statutory disqualification is discovered, the person may remain
associated with the member until final action is taken under the Rules
of the Association. If the person is a prospective employee, the person
may not become associated with the member until the Association takes
final action under the Rule 9520 Series.
The Association proposes to add a new Section 3(g) to clarify that
the Board may delegate its authority under Section 3 in a manner not
inconsistent with the Delegation Plan.
Finally, the Association proposes to amend Section 4(h) to conform
it to the Act.
Proposed Article IV. Membership
Current Article III, Membership, is renumbered as proposed Article
IV. The Association proposes to delete Section 1(a)(3), which requires
members to release the Association from liability except for willful
malfeasance.30 The Association also proposes to conform
Section 7 to changes in the Rule 1010 Series, which sets forth
procedures for membership applications and changes in a member's
ownership or operations.
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\30\ This proposed deletion was not included in SR-NASD-97-28.
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Proposed Article V. Registered Representatives and Associated Persons
Current Article IV, ``Registered Representatives and Associated
Persons'', is renumbered as proposed Article V. The Association
proposes to delete current Section 2(a)(2), which requires registered
representatives to release the Association from liability except for
willful malfeasance.31
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\31\ This proposed deletion was not included in SR-NASD-97-28.
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Proposed Article VI. Dues, Assessments, and Other Charges
Current Article V, ``Dues, Assessments, and Other Charges'', is
renumbered as proposed Article VI. The Association proposes to add a
new Section 5 that states that the NASD may delegate its authority
regarding dues, assessments, and other charges in a manner not
inconsistent with the Delegation Plan.
Proposed Article VII. Board of Governors
Current Article VI, ``Board of Governors'', is renumbered as
proposed Article VII. The Association proposes to amend Section 1(c) to
clarify the Board's authority to delegate its powers. Specifically, the
Association proposes to amend Section 1(c) to provide that to the
fullest extent permitted by applicable law, the Restated Certificate of
Incorporation, and the By-Laws, the NASD may delegate any power of the
NASD or its Board of Governors to a committee appointed pursuant to
proposed Article IX, Section 1, the NASD Regulation Board, the Nasdaq
Board, or NASD staff in a manner not inconsistent with the Delegation
Plan. The Association proposes to add parallel provisions to the NASD
Regulation By-Laws and the Nasdaq By-Laws.32
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\32\ See proposed NASD Regulation By-Laws Article IV, Section
4.1 and proposed Nasdaq Article IV, Section 4.1, respectively.
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The Association proposes to amend Section 2. Proposed Section 2
authorizes the Board to cancel or suspend the membership of a member or
suspend the association of a person associated with a member for
failure to provide requested information. The proposed amendment
provides for reinstatement pursuant to the Rules of the
Association.33 The Association also proposes to delete the
delegation to the Chief Executive Officer and replace it with a
delegation provision consistent with other provisions set forth in the
proposed NASD By-Laws. Specifically, the Association proposes that the
Board be permitted to delegate its authority under this Section in a
manner not inconsistent with the Delegation Plan and otherwise in
accordance with the Rules of the Association.
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\33\ See, e.g., Rules 8225 and 9516.
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The Association proposes to amend Section 4, which addresses the
composition and qualifications of the Board, to conform to the new
corporate structure. Under the proposed rule change, the NASD Board
would consist of the Chief Executive Officer and the Chief Operating
Officer of the NASD, the Presidents of NASD Regulation and Nasdaq, the
Chair of the National Adjudicatory Council,34 and at least
16 and not more than 22 Governors elected by the members of the NASD.
Thus, the By-Laws would authorize a Board of 21 to 27 Governors in
total. Proposed Section 4(a) further provides that the Governors
elected by the members would include a representative of an issuer of
investment company shares or an affiliate of such an issuer, a
representative of an insurance company, and a Nasdaq issuer. A majority
of the Governors would be Non-Industry Governors, and the Non-Industry
Governors would include five or six Public Governors, depending on the
size of the Board. Section 4(b) is amended to prohibit the Chair of the
National
[[Page 53066]]
Adjudicatory Council from serving as Chair of the Board. The
Association believes that the responsibilities of each chairmanship
require the attention of one individual.
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\34\ The National Adjudicatory Council is a new entity that
would be appointed by the NASD Regulation Board and assume the
responsibilities of the National Business Conduct Committee. A more
detailed discussion of the National Adjudicatory Council's role and
responsibilities is included below in the description of proposed
Article V of the NASD Regulation By-Laws.
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Section 5, ``Term of Office of Governors'', is amended to reflect
the Board structure. Under proposed Section 5, the Chief Executive
Officer and the Chief Operating Officer of the NASD and the Presidents
of NASD Regulation and Nasdaq would serve as Governors until a
successor was selected, or until death, resignation, or removal. The
Chair of the National Adjudicatory Council would serve as a Governor
for a term of one year, and generally could not serve more than two
consecutive terms.35 However, proposed Section 5 provides
that a former Chair of the National Adjudicatory Council could serve as
a Governor elected by the members of the NASD. The Governors elected by
the members of the NASD would be divided into three classes and serve
three-year terms. Such Governors generally could not serve more than
two consecutive terms.
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\35\ Under the proposed rule change, the Chair of the National
Adjudicatory Council, who serves a term of one year, simultaneously
would serve as a Governor of the NASD Board and a Director of the
NASD Regulation Board. See proposed Articles IV and V of the NASD
Regulation By-Laws. Thus, this proposed change is intended to ensure
that the terms for each of these positions run concurrently.
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The Association proposes to add a new Section 6,
``Disqualification'', which addresses the disqualification of a Board
member. Proposed Section 6 states that a Governor's term of office
immediately terminates if the Board determines that: (a) The Governor
no longer satisfies the classification (Industry, Non-Industry or
Public Governor) for which the Governor was elected; and (b) failure to
remove the Governor would violate the compositional requirements of the
Board set forth in proposed Section 4. If a Governor's term of office
terminates under this Section, and the remaining term of office of such
Governor was not more than six months, during the period of vacancy the
Board would not be deemed to be in violation of its compositional
requirements by virtue of such vacancy. Proposed Section 6 replaces a
provision currently in the Delegation Plan that provides for
``automatic removal'' if a Governor no longer satisfies the
classification for which he or she was elected without describing any
process for such removal.36 The Association proposes this
rule change to avoid any potential for the Board to take an ultra vires
action in the event that a Governor failed to notify the Board promptly
of a change in his or her classification and continued to sit on the
Board and cast votes before such removal took place.37
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\36\ See Delegation Plan, I.C.5.b.
\37\ If a disqualified governor's term is greater than 6 months,
a qualifying replacement would be provided pursuant to proposed
Section 7.
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Current Section 6, which addresses the filling of vacancies on the
Board, is renumbered as proposed Section 7, ``Filling of Vacancies''.
The Association proposes to move the current provisions of the
Delegation Plan that address the filling of vacancies to this Section
and to provide further that if the remaining term of office of the
governorship to be filled is more than one year, then the replacement
Governor must stand for election in the next annual
election.38
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\38\ See current Delegation Plan, I.C.5.
---------------------------------------------------------------------------
Current Section 7, ``The National Nominating Committee'', which
describes nomination and election procedures, is expanded and
renumbered as proposed Sections 9 through 14. Proposed Section 9, ``The
National Nominating Committee'', sets forth the powers of the National
Nominating Committee. The National Nominating Committee nominates
Industry, Non-Industry, and Public Governors for each vacant or new
Governor position on the NASD Board; Industry, Non-Industry, and Public
Directors for the NASD Regulation Board and the Nasdaq Board; and
Industry, Non-Industry, and Public members for the National
Adjudicatory Council; and Industry and Non-Industry members for the
Nasdaq Listing and Hearing Review Council.
Proposed Section 9 also includes and clarifies the compositional
requirements for the National Nominating Committee, which are currently
set forth in the Delegation Plan.39 The Delegation Plan
currently provides that a National Nominating Committee member may be
removed for cause by a majority vote of the NASD Board. Proposed
Section 9 refines this provision by specifying the causes for which a
National Nominating Committee member may be removed--refusal, failure,
neglect, or inability to discharge such member's duties. This same
specific standard for removal is used throughout the Association's
corporate documents for committee and council members.
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\39\ See current Delegation Plan, I.C.2.b.(1).
---------------------------------------------------------------------------
Proposed Section 9 also includes a new provision that requires the
Secretary of the NASD to collect from each nominee for Governor such
information as is reasonably necessary to serve as the basis for a
determination of the nominee's classification as an Industry, Non-
Industry, or Public Governor. The Association proposes that the
Secretary certify to the National Nominating Committee each nominee's
classification to ensure that the compositional requirements of each
Board are met.
Proposed Section 10, ``Procedures for Nomination of Governors'',
largely parallels current Section 7(c) and adds provisions regarding
contested elections currently located in the Delegation Plan.
Conforming references also are made to proposed Article XXI, ``Meetings
of Members'', a new article that provides for meetings of the
membership. Proposed Section 10 clarifies the procedures for contested
elections and changes the number of members that must sign a petition
to support adding a candidate to the ballot for NASD Board elections.
Currently, a person seeking to be added to a ballot must obtain the
support of two percent of the members of the NASD. The Association
proposes to increase the level to three percent of the
members.40 As is currently the case, a petition may be
signed only by a member's Executive Representative. Proposed Section 10
also transfers the authority to certify the additional candidate from
the National Nominating Committee to the Secretary. Because the
Secretary maintains the records of Executive Representatives, and under
the proposed rule change would be charged with reviewing information
regarding the classification (Industry, Non-Industry, or Public) for
each governorship, the Association believes that it would be more
efficient for the Secretary to exercise this authority.
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\40\ In SR-NASD-97-28, the Association proposed to change this
provision to require supporting petitions from three percent of the
members, one-half of which would have to be obtained from members
outside of the district in which the challenger was employed. The
Association has determined that it will not propose a requirement
for out-of-district support.
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Proposed Sections 11, ``Communication of Views'', 12,
``Administrative Support'', and 15, ``Resignation'', are new provisions
that parallel new provisions added to the NASD Regulation and Nasdaq
By-Laws. Proposed Section 11 prohibits the NASD, the Board, the
National Nominating Committees, other committees, and NASD staff from
taking any official position regarding a contested nomination or
election under the proposed NASD or NASD Regulation By-Laws. Proposed
Section 11 permits Board and committee members to communicate their
views with respect to a candidate in a contested election only if the
Board or committee member acts solely in his or
[[Page 53067]]
her individual capacity and disclaims any intention to communicate in
any official capacity. Under proposed Section 12, administrative
support to the candidates in a contested NASD election is limited to
two mailings; any other administrative support in any NASD or NASD
Regulation contested election or nomination is prohibited. Proposed
Section 15 adds resignation provisions that parallel Article 4, Section
4.5 in the NASD Regulation and Nasdaq By-Laws.
Proposed Section 13, ``Election of Governors'', is largely parallel
to current Section 7(a), with conforming amendments to proposed
Sections 9 through 12 and a new cross-reference to proposed Article
XXI, which sets forth procedures for membership meetings.
Proposed Section 14, ``Maintenance of Compositional Requirements of
the Board'', is a new procedure that requires each Governor to update
the information submitted to the NASD Secretary under proposed Section
9(e) regarding his or her classification as an Industry, Non-Industry,
or Public Governor at least annually and upon request of the Secretary
and to report immediately to the Secretary any change in such
classification. Parallel provisions are proposed for the NASD
Regulation and Nasdaq By-Laws. These submissions and reports will help
the Association ensure that the compositional requirements of the Board
and its committees are maintained.
The Association proposes to amend current Section 8, ``Meetings of
Board; Quorum; Required Vote'', which addresses meetings, quorums, and
voting of the Board, to provide that a quorum consists of a majority of
the Board then in office, including not less than 50 percent of the
Non-Industry Governors.41 This proposed change would ensure
that Industry Governors alone could not constitute or dominate a quorum
of the Board, and thereby thwart the balanced compositional
requirements of the Board under proposed Section 4. Current Section 8
is not renumbered.
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\41\ Other provisions in this filing that state that a quorum
consists of a majority of a board, committee, or council also mean a
majority of the board, committee, or council then in office.
---------------------------------------------------------------------------
Proposed Article VIII. Officers, Agents, And Employees
Current Article VII, ``Officers, Agents, and Employees'', is
renumbered as proposed Article VIII. The Association proposes to amend
Section 1, ``Officers'', to require that the NASD Board elect a
Secretary and a Chief Operating Officer. Under current Section 1, the
NASD Board is authorized, but not required, to elect a Secretary. Given
the number of responsibilities assigned to the Secretary under the
proposed By-Laws and the NASD Board's practice of always electing a
person to such position, the Association proposes to require that a
Secretary be elected. The Board also must elect a Chief Operating
Officer because such officer serves on the Board under proposed Article
VII, Section 4.
The Association proposes to amend Section 3, ``Agents and
Employees'', to provide that agents and employees shall be under the
supervision and control of the officers, unless the Board, by
resolution, provides that an agent or employee shall be under the
supervision and control of the Board.42 Generally, agents
and employees are under the supervision and control of the officers,
but the NASD Board may wish in certain circumstances to retain control
over an employee or agent, e.g., as in Section 4, when the Board
determines that it wishes to retain counsel.
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\42\ But see proposed NASD By-Laws Article IX, Section 5(d). The
Office of Internal Review and the Director of Internal Review are
under the supervision and control of the Audit Committee.
---------------------------------------------------------------------------
The Association proposes to move current Section 5, which provides
for compensation of Board and committee members, to its own Article,
proposed Article X, ``Compensation of Board and Committee Members''.
The Association proposes to add new Sections 5, 6, and 7 to this
Article to conform it to proposed Article 7 of the NASD Regulation By-
Laws and proposed Article 6 of the Nasdaq By-Laws. Proposed Section 5
permits the Board to delegate the duties and powers of any officer to
any other officer. Proposed Section 6 provides for the resignation and
removal of officers. Proposed Section 7 permits the NASD to secure the
fidelity of its officers, agents, and employees by bond or otherwise.
Proposed Article IX. Committees
Current Article VIII, ``Committees'', which addresses the formation
and powers of committees, is renumbered as proposed Article IX. The
Association proposes to amend Section 1 to cross-reference proposed
Article VII, Section 1(c), which limits the Board's authority to
delegate its powers and authority.
The Association proposes to add a new Section 2, ``Maintenance of
Compositional Requirements of Committees'', which is designed to help
the Association maintain the compositional requirements of certain
committees. Undertakings 1 and 6 under the Order require certain
committees 43 to have a particular balance of Industry, Non-
Industry, and Public committee members.44 To help ensure
that compositional requirements are maintained for committees appointed
by the NASD Board, proposed Section 2 authorizes the Secretary to
collect from each prospective member of a committee that must be
balanced such information as is reasonably necessary to serve as the
basis for a determination of the prospective committee member's
classification as an Industry, Non-Industry, or Public committee
member. The Secretary must certify to the Board each prospective
committee member's classification. Each committee member must update
the information submitted at least annually and upon request of the
Secretary of the NASD, and must report immediately to the Secretary any
change in such classification. Parallel provisions are set forth in
proposed Article 4, Section 4.13(h) of the NASD Regulation By-Laws and
proposed Article 4, Section 4.13(h) of the Nasdaq By-Laws.
---------------------------------------------------------------------------
\43\ Undertaking 1 sets forth compositional requirements for
``the National Nominating Committee, the Trading/Quality of Markets
Committee, the Arbitration Committee, the Market Surveillance
Committee, the National Business Conduct Committee, the Management
Compensation Committee, and all successors thereto.'' Undertaking 6
sets forth compositional requirements for an audit committee. The
current names of such committees are the National Nominating
Committee, the Quality of Markets Committee, the National
Arbitration and Mediation Committee, the Market Regulation
Committee, the National Adjudicatory Council, the Management
Compensation Committee, and the Audit Committee.
\44\ The compositional requirements for the National Nominating
Committee and the Audit Committee are set forth in the NASD By-Laws.
The compositional requirements for the National Adjudicatory Council
are set forth in the NASD Regulation By-Laws. The compositional
requirements for the Quality of Markets Committee, the National
Arbitration and Mediation Committee, the Market Regulation
Committee, and the Management Compensation Committee are set forth
in the Delegation Plan and the Order.
---------------------------------------------------------------------------
Current Section 2, ``Removal of Committee Member'', which addresses
removal of a committee member, is renumbered as proposed Section 3 and
amended to clarify that a committee member can only be removed for
refusal, failure, neglect, or inability to discharge his or her duties
by majority vote of the whole Board.
The Association proposes to add new sections to authorize the
appointment of an Executive Committee and a Finance Committee and to
require, consistent with Undertaking 6, the appointment of an Audit
Committee. Proposed Section 4, ``Executive Committee'', authorizes the
NASD Board to appoint an
[[Page 53068]]
Executive Committee composed of five to nine Governors of the NASD
Board, with percentages of Non-Industry and Public committee members as
least as great as the percentages of Non-Industry and Public Governors
on the Board. The Executive Committee would include the NASD Chief
Executive Officer/Chairman, at least one member each of the NASD
Regulation and Nasdaq Boards, and at least two Governors who are not
Directors of NASD Regulation of Nasdaq. The Executive Committee would
be authorized (consistent with Delaware law) to act on behalf of the
NASD Board. A quorum for the transaction of business at Executive
Committee meetings would consist of a majority of the Executive
Committee, including at least 50 percent of the Non-Industry committee
members.45
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\45\ Similar quorum requirements would be imposed on the
Executive Committees of the subsidiaries, the NASD Finance
Committee, the National Nominating Committee, the Audit Committee,
the Management Compensation Committee, and the National Adjudicatory
Council.
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Proposed Section 5, ``Audit Committee'', contains the provisions
relating to the Audit Committee currently found in the Delegation
Plan,46 except that the compositional provisions are amended
to require that two (rather than one) Public Governors serve on the
Committee. A quorum for the transaction of business at Audit Committee
meetings would consist of a majority of the Audit Committee, including
at least 50 percent of the Non-Industry committee members. The current
Delegation Plan provides that subsidiary directors serve as liaisons to
the Audit Committee rather than as full members of the Committee.
---------------------------------------------------------------------------
\46\ See current Delegation Plan, I.D.
---------------------------------------------------------------------------
Proposed Section 6, ``Finance Committee'', authorizes the Board to
appoint a Finance Committee composed of at least four Governors,
including the Chief Executive Officer of the NASD. The Finance
Committee would be balanced, with the number of Non-Industry Governors
equaling or exceeding the number of Industry Governors plus the Chief
Executive Officer. A quorum for the transaction of business at Finance
Committee meetings would consist of a majority of the Finance
Committee, including at least 50 percent of the Non-Industry committee
members.
If any officer of the NASD, NASD Regulation or Nasdaq serves as a
member (other than an ex-officio member) of a committee appointed under
the by-laws of any of the three corporations, such officer will be
counted with the Industry committee members for purposes of any
compositional or quorum requirements.
Finally, the resolution concerning interpretations and explanations
is deleted because the NASD Board rescinded it on June 26, 1997. The
resolution no longer conforms to Association practice and is contrary
to Undertaking 4.
Proposed Article X. Compensation of Board and Committee Members
As noted previously, current Article VII, Section 5, which
addresses compensation of Board and committee members, is renumbered as
proposed Article X, ``Compensation of Board and Committee Members''.
Proposed Article XI. Rules
Current Article IX, ``Rules'', which authorizes the NASD to adopt
rules, is renumbered as proposed Article XI. No substantive changes are
proposed.
Proposed Article XII. Disciplinary Proceedings
Current Article X, ``Disciplinary Proceedings'', which authorizes
disciplinary proceedings, is renumbered as proposed Article XII. No
substantive changes are proposed.
Proposed Article XIII. Powers of Board to Impose Sanctions
Current Article XI, ``Powers of Board to Prescribe Sanctions'',
which authorizes the NASD Board to impose sanctions, is renumbered as
proposed Article XIII. The Association proposes to amend Section 1(e)
and add a new Section (2) to clarify that any delegation under the
proposed Article must be in conformity with the Delegation Plan.
Proposed Article XIV. Uniform Practice Code
Current Article XII, ``Uniform Practice Code'', is renumbered as
proposed Article XIV. The Association proposes to amend Section 2,
``Administration Code'', to provide that the Board may delegate its
authority with respect to administering the Uniform Practice Code to
the NASD Regulation Board and Nasdaq Board in accordance with the
Delegation Plan.
Proposed Article XV. Limitation of Powers
Current Article XIII, ``Limitation of Powers'', is renumbered as
proposed Article XV. On June 26, 1997, the NASD Board rescinded the
resolution that follows current Article XIII, Section 2, which provides
for the use of the NASD's name by members. The provisions of the
resolution have been moved to IM-2210-4 of the Rules of the
Association.
The Association proposes to amend Section 4, ``Conflicts of
Interest'', which addresses conflicts of interest. The Association
proposes to amend Section 4 by redesignating it as Section 4(a) and
therein prohibiting any Governor or committee member from directly or
indirectly participating in any adjudication of the interests of any
party if the Governor or committee member has a conflict of interest or
bias, or if circumstances otherwise exist where his or her fairness
might reasonably be questioned. Proposed Section 4(a) further requires
the Governor or committee member to recuse himself or herself or be
disqualified in accordance with the Rules of the
Association.47 Current Section 4 simply references the Rules
of the Association. The standard set forth in proposed Section 4(a) is
consistent with the conflict of interest standard in Rule 9160.
---------------------------------------------------------------------------
\47\ See, e.g., Rule 9160.
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In addition, the Association proposes to add a new Section 4(b) to
address conflicts of interests in non-adjudicatory matters in a manner
consistent with the By-Laws for the NASD Regulation Board and the
Nasdaq Board. Proposed Section 4(b) provides that a contract or
transaction between the NASD and a Governor or officer, or between the
NASD and any entity in which a Governor or officer is a director or
officer, or has a financial interest, is not void or voidable solely
for this reason, or solely because the Governor or officer is present
at the meeting of the Board or committee that authorizes the contract
or transaction, or solely because the Governor's or officer's vote is
counted for such purposes if: (1) The material facts pertaining to such
relationship or interest are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Governors; or (2) the contract or transaction is fair to
the NASD as of the time it is authorized, approved, or ratified by the
Board or committee. Proposed Section 4(b) provides that only
disinterested Governors may be counted in determining the presence of a
quorum at a meeting of the Board or of a committee which authorizes the
contract or transaction. A contract or transaction between the NASD and
one of its subsidiaries would not be subject to proposed Section 4(b).
Finally, Section 6, ``Government Securities'', which limits the
Association rulemaking authority over
[[Page 53069]]
government securities activities, is deleted to conform the By-Laws to
changes previously made to the Association's authority over the
government securities activities of its members.
Proposed Article XVI. Procedure for Adopting Amendments to By-Laws
Current Article XIV, ``Procedure for Adopting Amendments To By-
Laws'', is renumbered as proposed Article XVI and amended. Currently, a
Governor, a district committee, or 25 members may propose amendments to
the By-Laws. Proposed Article XVI permits committees appointed by the
Board, rather than district committees, to propose By-Law amendments.
Under the new corporate structure, proposals by the district committees
normally would be presented to the NASD Regulation Board first, or if
presented directly to the NASD Board, would be presented by the NASD
Regulation President.
Proposed Article XVII. Corporate Seal
Current Article XV, ``Corporate Seal'', is renumbered as proposed
Article XVII. There are no substantive changes to proposed Article
XVII.
Proposed Article XVIII. Checks
Current Article XVI, ``Checks'', is renumbered as proposed Article
XVIII. There are no substantive changes to proposed Article XVIII.
Proposed Article XIX. Annual Financial Statement
Current Article XVII, ``Annual Financial Statement'', is renumbered
as proposed Article XIX. There are no substantive changes to proposed
Article XIX.
Proposed Article XX
The Association proposes to add a new Article XX, ``Record Dates''.
Consistent with Delaware law, proposed Section 1, ``Fixing of Date by
Board'', permits the Board to fix a record date to determine the
members that are entitled to notice of or to vote at member meetings.
Proposed Section 2, ``Default Date'', provides for a default record
date if the Board does not fix such a date. Proposed Section 3,
``Adjournment'', provides that a determination of members of record
also applies to an adjournment of a member meeting.
Proposed Article XXI
The Association proposes to add a new Article XXI, ``Meetings of
Members''. Proposed Section 1, ``Annual Meeting'', authorizes the NASD
Board to designate a time and place and set an agenda for an annual
meetings of members. Proposed Section 2, ``General Meeting'', sets
forth procedures for setting the agenda of special meetings. Proposed
Section 3, ``Notice of Meeting; Member Business'', sets forth notice
requirements for meetings. Proposed Section 4, ``Inspector'', describes
voting procedures. Proposed Section 5, ``Conduct of Meeting'', states
that the Chief Executive Officer of the NASD acts as Chair of the
meeting and authorizes the Board to adopt rules and regulations for the
conduct of meetings.
c. Proposed Changes to NASD Regulation By-Laws: NASD Regulation
adopted its current By-Laws on July 19, 1996. The Association proposes
to amend the NASD Regulation By-Laws to conform them to the changes
described in the introduction to Section II of this rule filing. In
addition, the Association proposes to explicitly recognize the NASD as
the sole stockholder of NASD Regulation capital stock and add new
articles describing the composition and powers of a new National
Adjudicatory Council, procedures for nominations to the National
Adjudicatory Council, and procedures for district elections.
Significant changes to the NASD Regulation By-Laws are described below,
including changes relating to the corporate restructuring in proposed
Article IV, Sections 4.2, 4.3, 4.4(b), 4.13, 4.14(b); Article V;
Article VI. Minor, non-substantive changes and changes to reflect
drafting conventions are not described.48
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\48\ All references to Articles or Sections in this section
``c'' refer to the NASD Regulation By-Laws, unless otherwise noted.
---------------------------------------------------------------------------
Proposed Article I. Definitions
First, a new Article I, entitled ``Definitions'', is proposed.
Current Article I, ``Offices'' is renumbered as proposed Article II.
The Association proposes that the By-Laws for each corporate entity
have a free-standing set of definitions. Therefore, the Association
proposes to add definitions for the following terms, which conform to
the definitions in proposed Article I of the NASD By-Laws: ``Delegation
Plan''; ``Executive Representative''; ``Industry Director'' or
``Industry member''; ``NASD Regulation''; ``National Adjudicatory
Council''; ``National Nominating Committee''; ``Non-Industry Director''
or ``Non-Industry member''; ``person associated with a member''; and
``Public Director'' or ``Public member''.49
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\49\ See proposed Section 1.1(h), (o), (q), (u), (v) (w), (x),
(y), and (z).
---------------------------------------------------------------------------
The Association proposes to include the following definitions only
in the NASD Regulation By-Laws: ``District Committee''; ``District
Director''; ``District Nominating Committee''; ``district office'';
``Independent Agent''; and ``Regional Nominating Committee''. These
terms relate to the nomination and election procedures set forth in
proposed Article VI, ``National Adjudicatory Council Regional
Nominations for Industry Members'', and Article VIII, ``District
Committee and District Nominating Committee'' and therefore are not
used in the proposed NASD and Nasdaq By-Laws.
In addition, the Association proposes to add the following
definitions for clarity and to conform to the drafting conventions
adopted generally, but which do not result in any substantive change:
``Board''; ``day''; ``Delaware law''; `` Director''; ``NASD''; ``NASD
member''; and ``Rules of the Association'' or ``Rules''.50
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\50\ See proposed Section 1.1(b), (e), (g), (i), (r), (t), and
(bb).
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Proposed Article II. Offices
Current Article I, ``Offices'', is renumbered as proposed Article
II. Sections 1.1 and 1.2 are renumbered as Sections 2.1 and 2.2. There
are no substantive changes in proposed Article II.
Proposed Article III. Meetings of Stockholders
Current Article II, ``Meetings of Stockholders'', is renumbered as
proposed Article III. Current Article II sets forth general provisions
for meetings of stockholders consistent with Delaware law. In proposed
Article III, in recognition of the fact that NASD Regulation has only
one stockholder, the Association proposes to delete all of the general
provisions regarding meetings of stockholders and retain only the
provision on which NASD Regulation generally relies, namely obtaining
the stockholder's written consent for any action that is required or
permitted to be taken at a stockholder meeting. Thus, Sections 2.1
through 2.6 are deleted, and Section 2.7 is renumbered as Section 3.1.
Proposed Article IV. Board of Directors
Current Article III, ``Board of Directors'', is renumbered as
proposed Article IV. Sections 3.1 through 3.4 are renumbered as Section
4.1 through 4.4. Proposed Section 4.1, ``General Powers'', sets forth
the general powers of the Board. The Association proposes to conform
the Board's authority to delegate its powers to the delegation
authority set forth in proposed Article VII, Section 1(c) of the NASD
By-Laws,
[[Page 53070]]
i.e., to the fullest extent permitted by applicable law, the Restated
Certificate of Incorporation, and these By-Laws, the Board may delegate
any of its powers to a committee appointed under proposed Section 4.14
or to NASD Regulation staff in a manner not inconsistent with the
Delegation Plan.
The Association proposes to amend Sections 4.2, ``Numbers of
Directors'', and Section 4.3, ``Qualifications''. The Association
proposes that the NASD Board appoint the NASD Regulation Directors from
among the NASD Board of Governors. The NASD Regulation Board would be
composed of between five and eight Directors, including the NASD
Regulation President, a representative of an issuer of investment
company shares or an affiliate of such an issuer and an insurance
company or an affiliated NASD member, and at least one or two Public
Directors, depending on the size of the Board. The number of Non-
Industry Directors would be equal to or greater than the number of
Industry Directors plus the President. As noted above, the Chair of
National Adjudicatory Council would serve simultaneous one-year terms
on the NASD and NASD Regulation Boards. Finally, the total number of
NASD Regulation Directors would equal the total number of Nasdaq
Directors.
Proposed Section 4.3(b) is a new provision requiring the Board to
elect a Chair and Vice Chair from among its members.
Proposed Section 4.4(a), ``Election'', which provides for the
election of Directors, is amended to reflect the NASD's role as sole
stockholder. As described in proposed Article VII, Section 9 of the
NASD By-Laws, the National Nominating Committee, an NASD Board
committee, nominates Directors for the NASD Regulation Board.
Current Section 3.5, ``Term'', is deleted. Under the proposed rule
change, the NASD Board would elect Directors annually; thus the Board
would not be divided into classes. 51 As a general matter,
NASD Regulation Directors would be appointed for three one-year terms
that coincide with their terms on the NASD Board. However, the NASD
Board would retain flexibility in this regard and could appoint
individuals to serve where they are best qualified or best able to
serve. Thus, for example, an individual who has served one year on the
NASD Regulation Board could be appointed to Nasdaq Board, or could
serve on the NASD Board alone.
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\51\ See Section 211(b) of the General Corporation Law of the
State of Delaware.
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Current Section 3.7, ``Removal'', is renumbered as proposed Section
4.6. Proposed Section 4.6 clarifies that a Director may be removed from
office only by a majority vote of the NASD Board.
Proposed Section 4.7, ``Disqualification'', and proposed Section
4.8, ``Filling of Vacancies'', are new. Current Sections 3.8 through
3.11 (``Quorum and Voting'', ``Regulation'', ``Meetings'', and ``Notice
of Meetings'', respectively) are renumbered as proposed Sections 4.9
through 4.12. Current Section 3.12, ``Conflicts of Interest'', is
renumbered as proposed Section 4.14. Current Section 3.13, ``Committees
of the Board of Directors'', is renumbered as proposed Section 4.13 and
retitled ``Committees''. Current Section 3.14, ``Action Without
Meeting'', is renumbered as proposed Section 4.15.
Proposed Sections 4.7, ``Disqualification'', 4.8, ``Filling of
Vacancies'', 4.9, ``Quorum and Voting'', and 4.14, ``Contracts and
Transactions Involving Directors'', which set forth provisions for
disqualification, filling of vacancies, quorums, and conflicts of
interest, are designed to parallel proposed Article VII, Sections 6
through 8, and proposed Article XV, Section 4 of the NASD By-Laws.
52
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\52\ There is one difference between the conflicts of interest
provision for the NASD and the conflicts of interest provisions for
the subsidiaries. The proposed By-Laws for NASD Regulation and
Nasdaq provide that a transaction also is not void or voidable if
the material facts pertaining to the Director's or officer's
relationship or interest and the contract or transaction are
disclosed or are known to the stockholder, i.e., the NASD, and the
contract or transaction is approved in good faith by vote of the
stockholder. See proposed Article IV, Section 4.14 in both the NASD
Regulation and Nasdaq By-Laws.
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There are no substantive changes in proposed Section 4.10,
``Regulation'', proposed Section 4.11, ``Meetings'', or proposed
Section 4.15, ``Action Without Meeting''.
In proposed Section 4.12, ``Notice of Meeting; Waiver of Notice'',
the Association proposes to increase the amount of time required for
mail notice of a meeting from two to seven days, to clarify that any of
the permissible forms of notice described may be used for any meeting
of the Board, and to add a subsection that provides that any meeting of
the Board is a legal meeting without any prior notice if all Directors
are present. 53
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\53\ A Director is still permitted, pursuant to Section 12.3(b),
to attend a meeting for the express purpose of objecting, at the
beginning of a meeting, to the transaction of any business because
the meeting is not lawfully called or convened.
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Proposed Section 4.13 ``Committees'', (current Section 3.13 as
renumbered) sets forth new provisions regarding committees. Proposed
Section 4.13(a) authorizes the Board to appoint committees. Proposed
Section 4.13(b) describes how the Board may delegate authority to such
committees. In accordance with the functions and responsibilities set
forth in the Delegation Plan, the Board may delegate its authority to
any duly appointed committee. Any action by such committee is subject
to review, ratification, or rejection by the Board. In addition, such
delegations must be in conformance with applicable law, the Restated
Certificate of Incorporation, these By-Laws, and the Delegation Plan.
These limitations previously were set forth in the Delegation Plan.
Proposed Section 4.13(b) further clarifies that, with respect to other
matters, the Board may delegate its powers and authority to act on
behalf of the Board in managing the business and affairs of NASD
Regulation only to committees consisting solely of one or more
Directors, and that any such delegation must be not inconsistent with
the Delegation Plan.
Proposed Sections 4.13(f) and (g) authorize the NASD Regulation
Board to appoint an Executive Committee and a Finance Committee.
54 Proposed Section 4.13(h) mirrors Article IX, Section 2 of
the NASD By-Laws.
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\54\ The by-laws of each subsidiary would continue to authorize
its board to appoint executive and finance committees, but the
Association does not anticipate that the subsidiary boards will find
it necessary to continue to appoint such committees.
---------------------------------------------------------------------------
Proposed Section 4.16, ``Communication of Views Regarding Contested
Election or Nomination'', which concerns communication of views during
a contested election or nomination, parallels Article VII, Section 11
of the NASD By-Laws.
Proposed Article V. National Adjudicatory Council
Proposed Article V is a new article that requires the NASD
Regulation Board to appoint a National Adjudicatory Council. The
adjudicatory functions of the National Business Conduct Committee would
be transferred to the National Adjudicatory Council, and the authority
to appoint a National Business Conduct Committee would be deleted from
the Delegation Plan. The National Adjudicatory Council would operate
much as the National Business Conduct Committee currently operates
under the Delegation Plan. However, in order to ensure that there is
adequate time for the NASD Regulation and NASD Boards to consider
adjudicatory decisions of the National Adjudicatory Council, written
[[Page 53071]]
reports of National Adjudicatory Council actions would be provided to
the Secretary of the NASD no later than 15 calendar days before
regularly scheduled meetings of the revamped NASD Board. 55
Thus, the National Adjudicatory Council would have greater flexibility
than currently exists in scheduling the National Business Conduct
Committee's work, and could meet telephonically if needed in order to
reduce the time demands of National Adjudicatory Council service.
Absent exigent circumstances, however, the National Adjudicatory
Council would schedule its adjudicatory work to provide a 15 calendar
day review period. In addition, the National Adjudicatory Council would
have the option of holding telephonic meetings on an as-needed basis to
expedite NASD Regulation Board consideration of disciplinary-related
policy matters.
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\55\ As stated above, revised review procedures will be set
forth in a separate rule filing.
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The National Adjudicatory Council's areas of responsibility are set
forth in proposed Section 5.1 ``Appointment and Authority''. These
areas include disciplinary and statutory disqualification decisions and
other miscellaneous and policy matters. The National Adjudicatory
Council also would assume certain other review functions, including
reviews of denials of access, denials of exemptions, limitations on
operations, and membership proceedings. As is the case with the current
National Business Conduct Committee, the National Adjudicatory Council
would consider and make recommendations to the NASD Regulation Board on
policy and rule changes relating to: (1) The business and sales
practices of NASD members and associated persons; and (2) enforcement
policies, including policies with respect to fines and other sanctions.
Proposed Section 5.2, ``Number of Members and Qualifications'',
describes the compositional requirements of the National Adjudicatory
Council. It would be composed of 12 to 14 members, including at least
three Public members. The number of Non-Industry members would equal or
exceed the number of Industry members.
Proposed Section 5.3, ``Nominations Process'', sets forth the
nomination process for membership on the National Adjudicatory Council.
All members of the National Adjudicatory Council would be proposed by
the National Nominating Committee and appointed by the NASD Regulation
Board. Beginning in 1998, the Industry members of the National
Adjudicatory Council would be nominated pursuant to procedures that are
similar to current procedures for the nomination of regional Industry
Directors to the NASD Regulation Board. The regional nominating process
for the National Adjudicatory Council is set forth in proposed Article
VI.
Under proposed Section 5.4, ``Term of Office'', all National
Adjudicatory Council members would be appointed for a one-year term in
1988. Regional nominations would be held at the end of 1998, and each
National Adjudicatory Council member would serve a term of one or two
years beginning in 1999, with staggered two-year terms thereafter.
Proposed Sections 5.5 through 5.10, which set forth procedures for
resignation, removal, disqualification, filling of vacancies, quorum
and voting, and meetings, are derived from similar provisions in the
NASD and NASD Regulation By-Laws.
Proposed Article VI. National Adjudicatory Council Regional Nominations
for Industry Members
The Association proposes to add a new Article VI, National
Adjudicatory Council Regional Nominations for Industry Members, to the
NASD Regulation By-Laws. The procedures are based on the procedures for
regional nominations to the NASD Regulation Board, which are currently
set forth in the Delegation Plan 56 and in NASD Regulation
Board resolutions. The regional nomination process would begin in 1998
for the 1999 National Adjudicatory Council.
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\56\ See current Delegation Plan II.B.
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The Industry members of the National Adjudicatory Council would
represent a geographical region of the United States. Each Industry
member initially would be nominated by a Regional Nominating Committee.
Each Regional Nominating Committee then would present a nominee to the
National Nominating Committee to represent such region on the National
Adjudicatory Council. The Regional Nominating Committee would act
essentially in an advisory capacity because only the National
Nominating Committee could formally nominate to the NASD Regulation
Board an Industry member for the National Adjudicatory Council. The
NASD Regulation Board, in turn, could appoint or reject the candidates
nominated by the National Nominating Committee.
Proposed Article VI sets forth the following procedures for the
regional nominating process. As previously noted, the Board would
designate regions. Each region would have a Regional Nominating
Committee, which would be composed of two to four members from each
District Committee in the region. These members would be selected by
their District Nominating Committee.57 When the term of
office of a National Adjudicatory Council member representing a region
was due to expire, the Secretary of NASD Regulation would notify the
appropriate Regional Nominating Committee, which would initiate the
regional nominating process.
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\57\ See discussion of proposed Article VIII, ``District
Committees and District Nominating Committees,'' for a description
of how District Committee and District Nominating Committee members
would be elected.
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The Regional Nominating Committee would receive from the Secretary
of NASD Regulation a description of the firms eligible to vote in the
region. Firms eligible to vote are those that either are headquartered
in the region or have a branch office in the region. In making
nominations, the Regional Nominating Committee would seek to ensure
appropriate and fair representation of the classes and types of firms
eligible to vote in the region. The Regional Nominating Committee could
nominate more than one candidate so that the NASD membership in the
region could vote on a nominee to present to the National Nominating
Committee. (This process would work in the same manner as a contested
nomination, which is described below.)
Once the Regional Nominating Committee selected a nominee (or
nominees), it would send notice of its nomination to the Executive
Representative of each NASD member eligible to vote. The Executive
Representative is the officer or employee of the member who casts votes
for the member in all nominations and elections. If any person not
nominated wished to contest a nomination, he or she would send notice
of intent to contest to the Regional Nominating Committee or the
Secretary of NASD Regulation within a specified period. Such person
then would be required to submit within a specified period a written
petition signed by at least ten percent of the members eligible to vote
in the region supporting such person's candidacy. If support of ten
percent of the membership was not obtained within the requisite time,
and if the Nominating Committee nominated only one candidate, then the
nominee of the Regional Nominating Committee would be presented to the
National Nominating Committee.
If the Regional Nominating Committee nominated more than one
candidate, or
[[Page 53072]]
if a person who was not nominated obtained the necessary support, then
contested nomination procedures would apply. Under these procedures,
the Association would pay for two mailings of literature for each
candidate, and the members of all NASD, Nasdaq, and NASD Regulation
Boards, councils, and committees, and NASD, Nasdaq, and NASD Regulation
staff, would be prohibited from expressing views on the nomination.
However, members of the Boards, councils, and committees could express
views if they made it clear they are acting in their individual
capacities and disclaimed any intention to communicate in an official
capacity. A ballot would be sent to Executive Representatives of the
firms eligible to vote, and specified procedures, including the use of
an independent agent to qualify returned ballots and count votes, then
would be followed to determine the outcome of the nomination. If the
National Nominating Committee or the NASD Board rejected a nominee of a
Regional Nominating Committee, the Regional Nominating Committee would
repeat the regional nomination procedures and submit another nominee to
the National Nominating Committee.
Proposed Article VII. Officers, Agents, and Employees
Former Article IV, ``Officers, Agents and Employees'', is set forth
as proposed Article VII. Former Sections 4.1, 4.3, 4.4, and 4.5 are
renumbered, respectively, as 7.1, 7.4, 7.5, and 7.6. Changes to these
sections are made only as necessary to conform to the definitions in
proposed Article I and other drafting conventions. The Association
proposes to add a new Section 7.2, ``Absence of the President'', to
provide a standard operational mechanism in the event of the
President's inability to act, absence, or a vacancy in the position, in
conformity with proposed Article VIII, Section 2 of the NASD By-Laws.
In proposed Section 7.3, ``Agents and Employees'', the Association
proposes a conforming change to clarify supervision and control of
agents and employees.58
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\58\ See proposed NASD By-Laws Article VIII, Section 3, and
proposed Nasdaq By-Laws Article VII, Section 7.3.
---------------------------------------------------------------------------
Proposed Article VIII. District Committees and District Nominating
Committees
Proposed Article VIII, ``District Committees and District
Nominating Committees'', is a new Article. Proposed Article VIII
authorizes the Board to designate districts and sets forth procedures
for the members within each district to elect a District Committee and
a District Nominating Committee. The language of proposed Article VIII
is drawn from former Article VIII of the NASD By-Laws, which authorized
the NASD Board to form such committees. Proposed Article VIII is
drafted to conform to the Undertakings. Specifically, under Proposed
Article VIII, Section 8.2, ``Composition of District Committees'', the
role of the District Committee members is limited to serving as
panelists in disciplinary proceedings in accordance with the Rule 9200
Series, recommending policy and rule changes to the NASD Regulation
Board, and selecting members of the Regional Nominating Committees in a
manner consistent with proposed Article VI of the NASD Regulation By-
Laws.
Election procedures for District Committees and District Nominating
Committees currently are set forth in corporate resolutions. The
Association proposes to add these procedures, with further
clarifications and detail, to the By-Laws in proposed Article VIII. The
procedures conform to the nomination procedures in proposed Article VI.
Proposed Article VIII sets forth the following procedures for
district elections. In May of each year, each District Nominating
Committee would solicit candidates to fill the vacancies anticipated to
occur on its District Committees as well as candidates to serve on the
following year's District Nominating Committee. District Nominating
Committee members would serve a one-year term, while District Committee
members would serve a three-year term. The District Nominating
Committee would receive from the Secretary of NASD Regulation a
description of the firms eligible to vote in the district. Firms
eligible to vote are those that either are headquartered in the
district or have a branch office in the district. In making
nominations, the District Nominating Committee would seek to ensure
appropriate and fair representation of the classes and types of firms
eligible to vote in the district. Any candidate would have to be
employed by a member eligible to vote in the district.
Current corporate resolutions authorize the District Nominating
Committee to nominate one candidate for each vacancy. The Association
proposes to authorize the District Nominating Committee to nominate
more than one candidate per vacancy. (This process would trigger
contested election procedures, which would work like the contested
nomination procedures described above.)
Once the District Nominating Committee selected its nominees, it
would send notice of its slate to the District Committee and the
Executive Representative of each firm eligible to vote. If a person
employed by a member in the district was not nominated but wished to
contest an election, he or she would send notice of intent to contest
to the District Director or the Secretary of NASD Regulation within a
specified period. Such person then would be required to submit within a
specified period a written petition evidencing support for such contest
by at least ten percent of the members eligible to vote in the
district. If the person did not obtain ten percent support for a
contest within the requisite period, or if the District Nominating
Committee nominated only one candidate per vacancy, then nominees of
the District Nominating Committee would be deemed elected, and the
election process would be complete.
If the District Nominating Committee nominated more than one
candidate per vacancy, or if a person obtained the necessary support
for a contest, then contested election procedures would apply. These
procedures conform to the procedures for contested regional nominations
in proposed Article VI. The candidates for District Committee
membership receiving the largest number of votes cast in the district
for that office would be declared elected such that the number of
candidates declared elected equaled the number of vacancies on the
District Committee. The candidates for District Nominating Committee
membership receiving the largest number of votes cast in the district
for that office would be declared elected such that the number of
candidates declared elected equaled the number of vacancies on the
District Nominating Committee.
Proposed Article IX. Compensation
Proposed Article IX, ``Compensation'', is a new Article that
parallels proposed Article X of the NASD By-Laws and also authorizes
compensation for National Adjudicatory Council members.
Proposed Article X. Indemnification
Current Article V, Indemnification, is renumbered as proposed
Article X. Sections 5.1 through 5.5 are combined, amended, and
renumbered as proposed Section 10.1, and current Section 5.6 is
renumbered as proposed Section 10.2. The Association proposes to make
the indemnification policies for all three corporate entities
essentially identical. Therefore, proposed Sections 10.1 and 10.2
conform to proposed Article VII, Sections 7.1 and 7.2 of Nasdaq By-Laws
[[Page 53073]]
and the provisions for indemnification in the NASD's Restated
Certificate of Incorporation.
NASD Regulation By-Laws provide for the indemnification of, and
advancement of expenses to, persons named or threatened to be named as
a party to any civil, administrative, or investigative proceeding
because such person is or was a Director, officer, employee, or agent
of the corporation. The By-Laws also provide that: (1) The right of
indemnification is not exclusive of any other right the person may
have; (2) the amount of indemnification is reduced by the amount the
indemnified person collects from another source; and (3) NASD
Regulation has the power to purchase and maintain indemnification
insurance.
The Association proposes to extend the indemnification provisions
to cover National Adjudicatory Council and committee members.
The Association also proposes to modify NASD Regulation's By-Laws
to make indemnification and advancement of expenses to agents
discretionary with the Board, rather than mandatory, to permit the
Board to determine whether indemnification is appropriate under the
particular circumstances. Indemnification of non-officer employees
remains the presumption. However, the Association proposes to authorize
the Board to refuse to advance expenses to an employee if: (1) The
employee (i) acted in bad faith, or (ii) did not act in a manner that
the employee believed to be in, or not opposed to, the best interests
of NASD Regulation; (2) with respect to a criminal matter, the employee
believed or had reasonable cause to believe that his or her conduct was
unlawful; or (3) the employee breached his or her duty to NASD
Regulation. Finally, the Association proposes to add a provision
requiring NASD Regulation, in response to a written claim for
indemnification or advancement, to make such payment within 60 days of
the claim.
While it is a common corporate practice to provide for
discretionary indemnification of employees (as well as agents), NASD
Regulation believes that it is essential that employees have confidence
that they will be indemnified if they are named in any proceeding
resulting from actions taken in good faith. At the same time, NASD
Regulation believes it is essential that the Board have the opportunity
to evaluate and deny advancement of expenses if it determines the
action was not taken in good faith or if the person had reason to
believe the action was illegal or breached a duty to the corporation.
Proposed Article XI. Capital Stock
Current Article VI, ``Capital Stock'', is renumbered as proposed
Article XI. The Association proposes to add a new Section 11.1, ``Sole
Stockholder'', recognizing the NASD's status as sole stockholder.
Current Sections 6.1 through 6.7 are renumbered as proposed Section
11.2 through 11.8. The Association proposes certain changes only to
conform the proposed Article to the drafting conventions and stylistic
changes incorporated generally in the NASD By-Laws, the NASD Regulation
By-Laws, and the Nasdaq By-Laws. There are no substantive changes to
proposed Article XI. In proposed Section 11.8, the Association proposes
to delete detailed provisions of Delaware law for the fixing of record
dates, which are more useful to corporations with more than one
stockholder, and instead provide that a record date may be fixed in
accordance with Delaware law.
Proposed Article XII. Miscellaneous Provisions
Current Article VII, ``Miscellaneous Provisions'', is renumbered as
proposed Article XII. There are no substantive changes in proposed
Article XII. Current Sections 7.1, 7.2, 7.3, 7.4, and 7.5 are proposed
to be renumbered, respectively, as Sections 12.1, 12.2, 12.3., 12.4,
and 12.5.
Proposed Article XIII. Amendments; Emergency By-Laws
Current Article VIII, ``Amendments; Emergency By-Laws'', is
renumbered as proposed Article XIII. There are no substantive changes
in proposed Article XIII. Current Sections 8.1, 8.2, and 8.3 are
proposed to be renumbered, respectively, as Sections 13.1, 13.2, and
13.3.
d. Proposed Changes to NASDAQ By-Laws: Nasdaq adopted its current
By-Laws on October 27, 1993. The Association proposes to amend the
Nasdaq By-Laws to conform them to changes described in the introduction
to Section 3(a)(i) of this rule filing, to the proposed NASD and NASD
Regulation By-Laws, where appropriate. Significant changes to Nasdaq's
By-Laws are described below, including changes relating to the
corporate restructuring in proposed Article IV, Sections 4.2, 4.3,
4.13, 4.14(b); and Article V. Minor, non-substantive changes and
changes to reflect drafting conventions are not described.
Proposed Article I. Definitions
The Association proposes to add a new Article I, ``Definitions''.
As noted previously, the Association proposes that the By-Laws for each
corporate entity have a free-standing set of definitions. Therefore,
the Association proposes to add the following definitions, which
conform to definitions proposed for inclusion in the NASD and NASD
Regulation By-Laws: ``Act''; ``Board''; ``broker''; ``Commission'';
``day''; ``dealer''; ``Delaware law''; ``Delegation Plan'';
``Director''; ``Industry Director'' or ``Industry committee member'';
``NASD''; ``NASD Board''; ``NASD Regulation''; ``Nasdaq''; ``Nasdaq
Listing and Hearing Review Council''; ``National Nominating
Committee''; ``Non-Industry Director'' or ``Non-Industry committee
member''; ``person associated with a member''; ``Public Director'' or
``Public committee member''; and ``Rules of the Association'' or
``Rules''.
Proposed Article II. Offices
Current Article I, ``Offices'', is renumbered as proposed, and the
Sections are renumbered accordingly.
Proposed Article III. Meetings of Stockholders
Current Article II, ``Meetings of Stockholders'', is renumbered as
proposed Article III and conformed to the changes in proposed Article
III of the NASD Regulation By-Laws.
Proposed Article IV. Board of Directors
Current Article III, ``Board of Directors'', is renumbered as
proposed Article IV. The changes in proposed Article IV are designed to
conform it, as appropriate, to proposed Article IV of the NASD
Regulation By-Laws. Sections 3.1 through 3.4 are renumbered as Section
4.1 through 4.4. In proposed Sections 4.2 and 4.3, provisions regarding
the number and qualifications of Directors are amended. Under the
proposed rule change, the Nasdaq Board would be appointed by the NASD
Board from among its members. The Nasdaq Board would be composed of
between five and eight individuals, including the President of Nasdaq,
at least one Public member, and at least one issuer representative. The
number of Non-Industry Directors would be equal to or greater than the
combined total of Industry Directors and the President of Nasdaq.
Like the NASD Regulation Board, members of the Nasdaq Board
generally would be appointed for three one-year terms that coincided
with their terms on the NASD Board. However, the NASD Board would
retain flexibility in this regard and could appoint individuals to
serve where they are best qualified to serve. Thus, as described above
in the
[[Page 53074]]
corresponding section of the NASD Regulation By-Laws, current Section
3.5, ``Term'', is deleted and the remaining sections are renumbered
accordingly.
Proposed Section 4.14(a), ``Conflicts of Interest; Contracts and
Transactions Involving Directors'', is identical to the corresponding
provision in the NASD Regulation By-Laws, except that there is no
cross-reference to the Rules of the Association because the Association
does not have a specific disqualification standard for Nasdaq
proceedings as it has in the Rule 9160 Series for NASD Regulation
disciplinary proceedings. Finally, proposed Section 4.16,
``Communication of Views Regarding NASD or NASD Regulation Elections or
Nomination'', is a new section that holds Nasdaq, Nasdaq's Board and
its committees, the Nasdaq Listing and Hearing Review Council, and
Nasdaq staff to the same standards proposed for NASD and NASD
Regulation with respect to contested elections or
nominations.59
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\59\ See proposed Article VII, Sections 11 and 12 of the NASD
By-Laws and proposed Article IV, Section 4.16 of the NASD Regulation
By-Laws.
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Proposed Article V. Nasdaq Listing and Hearing Review Council
Proposed Article V, ``Nasdaq Listing and Hearing Review Council'',
is a new article that requires the Nasdaq Board to appoint a Listing
Council. The responsibilities of the Nasdaq Listing and Hearing Review
Committee are transferred to the Listing Council, and the provision of
the Delegation Plan authorizing the appointment of the Committee is
deleted. Proposed Section 5.1, ``Appointment and Authority'', sets
forth the responsibilities of the Listing Council. The Listing Council
generally would operate much as the Nasdaq Listing and Hearing Review
Committee currently operates under the Delegation Plan.60 As
is the case with the current Nasdaq Listing and Hearing Review
Committee, the Listing Council would be authorized to make
recommendations to the Nasdaq Board on listing-related rule amendments.
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\60\ Procedures for NASD Board review of Listing Council
decisions will be proposed in a separate rule filing.
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Under proposed Section 5.2, ``Number of Members and
Qualifications'', the Listing Council would be composed of at least
eight and not more than 11 members, of which no more than 50 percent
could be directly engaged in market-making activity or employed by a
member firm whose revenues from market-making activity exceed ten
percent of its total revenue. The Listing Council also would include at
least three Non-Industry members, and a quorum for the transaction of
business at Listing Council meetings would include at least one of the
Non-Industry members. Under proposed Sections 5.3, ``Nomination
Process'', and 5.4, ``Term of Office'', the members of the Listing
Council would be nominated by the National Nominating Committee and
appointed by the Nasdaq Board and serve for a term of two years.
Sections 5.5 through 5.10 mirror the administrative provisions for the
National Adjudicatory Council in proposed Article VI, Sections 5.5
through 5.10 of the NASD Regulation By-Laws.
Proposed Article VI. Compensation
Proposed Article VI, ``Compensation'', is a new Article that
conforms with proposed Article X of the NASD By-Laws and proposed
Article IX of the NASD Regulation By-Laws. Proposed Article VI also
authorizes compensation of Listing Council members.
Proposed Article VII. Officers, Agents and Employees
Current Article IV, ``Officers, Agents and Employees'', is
renumbered as proposed Article VII, and the Sections are renumbered
accordingly. Only one substantive change is proposed to Article VII.
Proposed Section 7.3 (current Section 4.3), ``Subordinate Officers,
Agents, or Employees'', includes a provision that clarifies that agents
and employees of Nasdaq are under the supervision and control of the
officers of Nasdaq, unless the Nasdaq Board, by resolution, provides
that an agent or employee shall be under its supervision and
control.61
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\61\ See proposed Article VIII, Section 3 of the NASD By-Laws
and proposed Article VII, Section 7.3 of the NASD Regulation By-
Laws.
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Proposed Article VIII. Indemnification
Current Article V, ``Indemnification'', is renumbered as proposed
Article VIII, and the Sections are renumbered accordingly. Proposed
Article VIII conforms to the provisions for indemnification in the
NASD's Restated Certificate of Incorporation and proposed Article X of
the NASD Regulation By-Laws. As noted above, the Association proposes
to make the indemnification policies for all three corporate entities
identical. Proposed Section 8.1, ``Nasdaq Listing and Hearing Review
Council and Committee Members'', also provides for indemnification of
Listing Council and committee members.
Proposed Article IX. Capital Stock
Current Article VI, ``Capital Stock'', is renumbered as proposed
Article IX. The Association proposes changes to conform to those set
forth for proposed Article XI of the NASD Regulation By-Laws.
Proposed Article X. Miscellaneous Provisions
Current Article VII, ``Miscellaneous Provisions'', is renumbered as
proposed Article X, and the sections are renumbered accordingly. There
are no substantive changes.
Proposed Article XI. Amendments; Emergency By-Laws
Current Article VIII, ``Amendments; Emergency By-Laws'', is
renumbered as proposed Article XI, and the sections are renumbered
accordingly. There are no substantive changes.
e. Proposed Changes to the Delegation Plan and Restated
Certificates of Incorporation. The Association proposes to amend the
Delegation Plan to delete provisions added to the By-Laws of the NASD,
NASD Regulation, and Nasdaq.62 Specifically, in Section
I.A., the definitions of ``Industry'', ``Non-Industry'', and ``Public''
Governors, Directors, and committee members are deleted and instead the
Section cross-references the By-Laws of the NASD, NASD Regulation, and
Nasdaq, where the Association proposes to define such
terms.63
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\62\ All references to Sections in this section ``d'' refer to
the Delegation Plan, unless otherwise noted.
\63\ See proposed Article I of the NASD By-Laws; proposed
Article I of the NASD Regulation By-Laws; proposed Article I of the
Nasdaq By-Laws.
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The Association proposes to add a new Section I.B.11. to the
Delegation Plan, authorizing the NASD Board to take action ab initio;
either the full NASD Board or the NASD Executive Committee could
exercise this authority.64 This authority typically would be
exercised in two circumstances. First, when an issue was ripe for
consideration at a regularly scheduled meeting of a subsidiary board
but clearly warranted consideration by the NASD Board, separate
consideration by the subsidiary board could be avoided without any loss
of subsidiary board input because the subsidiary board members
constitute a subset of the NASD Board. This option is not available
under the current corporate structure, which invariably requires that
matters within a subsidiary's sphere of delegated authority be
considered by
[[Page 53075]]
that subsidiary's board before consideration by the NASD Board.
---------------------------------------------------------------------------
\64\ This proposed rule change is a result of the corporate
restructuring and was not proposed in SR-NASD-97-28.
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Second, should a time-sensitive issue arise between regularly
scheduled board meetings, the issue could be resolved by the NASD
Executive Committee in a single step. At present, the subsidiaries'
executive committees are authorized to take initial action on such
matters, but such action cannot be implemented without the unanimous
written consent of the NASD Board. Obtaining such unanimous written
consent can impede the Association's ability to respond to urgent
matters. This time-consuming step is avoided through the creation of an
NASD Executive Committee that could convene telephonically on an as-
needed basis to address time-sensitive matters.
The Association further proposes to delete Sections I.C., I.D.,
II.B., II.D., III.B., and part of III.D., which address the composition
of the Boards, elections, terms of office, vacancies, disqualification
due to change in classification, and the composition and authority of
certain committees because the Association proposes to include revised
provisions in the appropriate By-Laws.65 With respect to
committees, the Association proposes to include in the appropriate By-
Laws or in the Delegation Plan the compositional requirements for
specified committees as provided in the Undertakings. If the committee
consists solely of Directors or Governors, the Association proposes to
include provisions describing the committee's powers and compositional
requirements in the appropriate corporate By-Laws. If the committee
consists of Directors or Governors as well as other members, the
Association proposes to include provisions describing the committee's
powers and compositional requirements in the Delegation Plan. Thus, the
Association proposes to add provisions regarding the powers and
composition of the Market Regulation Committee and the National
Arbitration and Mediation Committee as proposed Section II.C. of the
Delegation Plan.
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\65\ See proposed Article VII, Sections 4, 5, 6, 7, 9, and 10 of
the NASD By-Laws; proposed Article IV, Sections 4.2, 4.3, 4.4, 4.7,
4.8 and 4.13 of the NASD Regulation By-Laws; proposed Article IV,
Sections 4.2., 4.3, 4.4, 4.7, 4.8 and 4.13 of the Nasdaq By-Laws.
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The Association proposes to amend Section II.A.1.f. to specify that
NASD Regulation will establish procedures to consider requests by
members, associated persons, and members of the public that NASD
Regulation initiate formal disciplinary action. This provision was
discussed in SR-NASD-97-28 in connection with the discussion of the
deletion of former Rule 8120.
The Association proposes to amend Section II.C., which sets forth
certain NASD Regulation Board review procedures, by deleting specific
procedures that are now set forth in the Rule 9000 Series.
The Association also proposes to clarify that both NASD Regulation
and Nasdaq are responsible for operating Stockwatch. Therefore, new
Sections II.A.1.s. and III.A.1.o. are added, and the section pertaining
to Stockwatch is renumbered as Section IV of the Delegation Plan.
With respect to committee procedures, the Association proposes to
require that a quorum for the transaction of business by the Quality of
Markets Committee, the National Arbitration and Mediation Committee,
and the Market Regulation Committee consist of a majority of such
committee, including not less than 50 percent of its Non-Industry
committee members. However, if at least 50 percent of the Non-Industry
committee members are present at or have filed a waiver of attendance
for a meeting after receiving an agenda prior to such meeting, the
requirement that not less than 50 percent of the Non-Industry committee
members be present to constitute the quorum would be waived. The
Association believes a waiver is appropriate because these committees
generally act only in an advisory capacity.
Finally, the Association proposes to add a new petition for
reconsideration procedure to the Delegation Plan.66 Under
the proposed rule change, if the NASD Regulation or NASD Board took
action on a rule change relating to the business and sales practices
that was materially inconsistent with the recommendation of the
National Adjudicatory Council, the NASD Regulation or NASD Board would
be required to notify the National Adjudicatory Council within one
calendar day. After receipt of such notice, the National Adjudicatory
Council would be allowed two calendar days in which to determine, by
majority vote, whether to petition the NASD Board for reconsideration.
The petition would have to be submitted in writing and accompanied by a
written statement explaining in detail why the National Adjudicatory
Council believed that the NASD Regulation or NASD Board's action should
be set aside. Upon receipt of a timely petition for reconsideration and
accompanying statement, the NASD Executive Committee would have three
calendar days in which to convene and take action on the petition. If
the NASD Executive Committee granted reconsideration, the matter would
be added to the agenda of the next regularly scheduled meeting of the
NASD Board. If the Executive Committee denied reconsideration, the NASD
Regulation or NASD Board's previous action on the rule would be final,
and the necessary rule filings would be made with the SEC. The same
procedures would apply if the Nasdaq or NASD Board took action on a
listing-related rule change that was materially inconsistent with the
recommendation of the Listing Council.
---------------------------------------------------------------------------
\66\ See proposed II.B.2. and III.B.3. This proposed rule change
is a result of the corporate restructuring and was not proposed in
SR-NASD-97-28.
---------------------------------------------------------------------------
With respect to the certificates of incorporation, the Association
proposes to amend Article Eighth of the NASD Restated Certificate of
Incorporation to conform it to the structural changes to the NASD Board
previously described. Only conforming changes are proposed to the NASD
Regulation and Nasdaq Certificates of Incorporation.
2. Statutory Basis
The NASD believes the proposed rule change is consistent with
Section 15A(b)(4) of the Act in that it assures a fair representation
of its members in the selection of its directors and administration of
its affairs and provides that one or more directors shall be
representatives of issuers and investors and not be associated with a
member of the association, a broker, or a dealer.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe 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, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The NASD has neither solicited nor received written comments.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 self-regulatory organization consents, the Commission will:
[[Page 53076]]
(A) By order approve the 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. In addition to the general comments
concerning the Association's proposal, the Commission requests
particular comments addressing whether the proposal would result in any
burdens on competition and whether the proposal would promote
efficiency, competition and capital formation. The Commission also
seeks comment on whether the proposal, given the unique nature of the
Association as a self-regulatory organization, adequately promotes the
goals of the Act.
Persons making written submissions should file six copies thereof
with the Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. 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. Sec. 552, will
be available for inspection and copying at the Commission's Public
Reference Room. Copies of such filing will also be available for
inspection and copying at the principal office of the Association.
Comments also may be submitted electronically at the following E-mail
address: [email protected]. File Number SR-NASD-97-71 should be
included on the subject line if E-mail is used to submit a comment
letter. Electronically submitted comment letters will be posted on the
Commission's Internet web site (http://www.sec.gov).
All submissions should refer to File No. SR-NASD-97-71 and should
be submitted by October 31, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.67
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\67\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
Attachment A
Additions are italicized;
Deletions are [bracketed].
The By-Laws of the NASD, NASD Regulation and Nasdaq are compared to
the versions temporarily approved in SR-NASD-96-20, Amendment No. 5;
Securities Exchange Act Release No. 34-38644 (May 15, 1997), 62 FR
43571, (May 22, 1997).
The Delegation Plan is compared to the version temporarily approved
in SR-NASD-96-29, Amendment No. 5; Securities Exchange Act Release No.
38909 (August 7, 1997), 62 FR 43571 (August 14, 1997).
The Revised Certificates of Incorporation of the NASD, NASD
Regulation and Nasdaq are compared to those filed with the Secretary of
State for the State of Delaware on September 11, 1996, January 25, 1996
and December 21, 1993, respectively.
* * * * *
By-Laws of the National Association of Securities Dealers, Inc.
Article I
Definitions
When used in these By-Laws, [and any rules of the Corporation,]
unless the context otherwise requires, the term:
(a) ``Act'' means the Securities Exchange Act of 1934, as amended;
(b) ``bank'' means (1) a banking institution organized under the
laws of the United States, (2) a member bank of the Federal Reserve
System, (3) any other banking institution, whether incorporated or not,
doing business under the laws of any State or of the United States, a
substantial portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to those permitted to
national banks under the authority of the Comptroller of the Currency
pursuant to the first section of Public Law 87-722 (12 U.S.C.
Sec. 92a), and which is supervised and examined by a State or Federal
authority having supervision over banks, and which is not operated for
the purpose of evading the provisions of the Act, and (4) a receiver,
conservator, or other liquidating agent of any institution or firm
included in clauses (1), (2), or (3) of this subsection;
(c) ``Board'' means the Board of Governors of the [Corporation.]
NASD;
[(d) ``Boards'' means the Board of Governors of the Corporation and
the Boards of Directors of The Nasdaq Stock Market, Inc. and NASD
Regulation, Inc.;]
[(e)](d) ``branch office'' means an office defined as a branch
office in [NASD Rule 3010] the Rules of the Association;
[(f)](e) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
[(g)](f) ``Commission'' means the Securities and Exchange
Commission;
[(h) ``Corporation'' means the National Association of Securities
Dealers, Inc.;]
[(i) ``Corporations'' means the National Association of Securities
Dealers, Inc. (``NASD''), and its subsidiaries, The Nasdaq Stock
Market, Inc. (``Nasdaq'') and NASD Regulation, Inc. (``NASD
Regulation'');]
(g) ``day'' means calendar day;
[(j)](h) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for [his] such individual's or entity's own
account, through a broker or otherwise, but does not include a bank, or
any person insofar as [he] such person buys or sells securities for
[his] such person's own account, either individually or in some
fiduciary capacity, but not as part of a regular business;
[(k) ``delegation] (i) ``Delegation Plan'' means the ``Plan of
Allocation and Delegation of Functions by NASD to Subsidiaries'' as
approved by the Commission, and as amended from time to time;
(j) ``district'' means a district established by the NASD
Regulation Board pursuant to the NASD Regulation By-Laws;
[(l)](k) ``government securities broker'' shall have the same
meaning as in Section 3(a)(43) of the Act except that it shall not
include financial institutions as defined in Section 3(a)(46) of the
Act;
[(m)](l) ``government securities dealer'' shall have the same
meaning as in Section 3(a)(44) of the Act except that it shall not
include financial institutions as defined in Section 3(a)(46) of the
Act;
[(n)](m) ``Governor'' means a member of the Board[.];
(n) ``Industry Director'' means a Director of the NASD Regulation
Board or Nasdaq Board (excluding the Presidents) who: (1) Is or has
served in the prior three years as an officer, director, or employee of
a broker or dealer, excluding an outside director or a director not
engaged in the day-to-day management of a broker or dealer; (2) is an
officer, director, (excluding an outside director) or employee of an
entity that owns more than ten percent of the equity of a broker or
dealer, and the broker or dealer accounts for more than five percent of
the gross revenues received by the consolidated entity; (3)
[[Page 53077]]
owns more than five percent of the equity securities of any broker or
dealer, whose investments in brokers or dealers exceed ten percent of
his or her net worth, or whose ownership interest otherwise permits him
or her to be engaged in the day-to-day management of a broker or
dealer; (4) provides professional services to brokers or dealers, and
such services constitute 20 percent or more of the professional
revenues received by the Director or 20 percent or more of the gross
revenues received by the Director's firm or partnership; (5) provides
professional services to a director, officer, or employee of a broker,
dealer, or corporation that owns 50 percent or more of the voting stock
of a broker or dealer, and such services relate to the director's,
officer's, or employee's professional capacity and constitute 20
percent or more of the professional revenues received by the Director
or 20 percent or more of the gross revenues received by the Director's
firm or partnership; or (6) has a consulting or employment relationship
with or provides professional services to the NASD, NASD Regulation, or
Nasdaq or has had any such relationship or provided any such services
at any time within the prior three years;
(o) ``Industry Governor'' or ``Industry committee member'' means a
Governor (excluding the Chief Executive Officer and Chief Operating
Officer of the NASD and the Presidents of NASD Regulation and Nasdaq)
or committee member who: (1) is or has served in the prior three years
as an officer, director, or employee of a broker or dealer, excluding
an outside director or a director not engaged in the day-to-day
management of a broker or dealer; (2) is an officer, director,
(excluding an outside director) or employee of an entity that owns more
than ten percent of the equity of a broker or dealer, and the broker or
dealer accounts for more than five percent of the gross revenues
received by the consolidated entity; (3) owns more than five percent of
the equity securities of any broker or dealer, whose investments in
brokers or dealers exceed ten percent of his or her net worth, or whose
ownership interest otherwise permits him or her to be engaged in the
day-to-day management of a broker or dealer; (4) provides professional
services to brokers or dealers, and such services constitute 20 percent
or more of the professional revenues received by the Governor or
committee member or 20 percent or more of the gross revenues received
by the Governor's or committee member's firm or partnership; (5)
provides professional services to a director, officer, or employee of a
broker, dealer, or corporation that owns 50 percent or more of the
voting stock of a broker or dealer, and such services relate to the
director's, officer's, or employee's professional capacity and
constitute 20 percent or more of the professional revenues received by
the Governor or committee member or 20 percent or more of the gross
revenues received by the Governor's or committee member's firm or
partnership; or (6) has a consulting or employment relationship with or
provides professional services to the NASD, NASD Regulation, or Nasdaq
or has had any such relationship or provided any such services at any
time within the prior three years;
[(o)](p) ``investment banking or securities business'' means the
business, carried on by a broker, dealer, or municipal securities
dealer (other than a bank or department or division of a bank), or
government securities broker or dealer, of underwriting or distributing
issues of securities, or of purchasing securities and offering the same
for sale as a dealer, or of purchasing and selling securities upon the
order and for the account of others;
[(p)](q) ``member'' means any broker or dealer admitted to
membership in the [Corporation] NASD;
[(q)](r) ``municipal securities'' means securities which are direct
obligations of, or obligations guaranteed as to principal or interest
by, a State or any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, or any
municipal corporate instrumentality of one or more States, or any
security which is an industrial development bond as defined by Section
3(a)(29) of the Act;
[(r)](s) ``municipal securities broker'' means a broker, except a
bank or department or division of a bank, engaged in the business of
effecting transactions in municipal securities for the account of
others;
[(s)](t) ``municipal securities dealer'' means any person, except a
bank or department or division of a bank, engaged in the business of
buying and selling municipal securities for [his] such person's own
account, through a broker or otherwise, but does not include any person
insofar as [he] such person buys or sells securities for [his] such
person's own account either individually or in some fiduciary capacity,
but not as a part of a regular business;
(u) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(v) ``Nasdaq'' means The Nasdaq Stock Market, Inc.;
(w) ``Nasdaq Board'' means the Board of Directors of Nasdaq;
(x) ``Nasdaq Listing and Hearing Review Council'' means a body
appointed pursuant to Article V of the Nasdaq By-Laws;
(y) ``NASD Regulation'' means NASD Regulation, Inc.;
(z) ``NASD Regulation Board'' means the Board of Directors of NASD
Regulation;
(aa) ``National Adjudicatory Council'' means a body appointed
pursuant to Article V of the NASD Regulation By-Laws;
(bb) ``National Nominating Committee'' means the National
Nominating Committee appointed pursuant to Article VII, Section 9 of
these By-Laws;
(cc) ``Non-Industry Director'' means a Director of the NASD
Regulation Board or Nasdaq Board (excluding the Presidents of NASD
Regulation and Nasdaq) who is: (1) A Public Director; (2) an officer or
employee of an issuer of securities listed on Nasdaq or traded in the
over-the-counter market; or (3) any other individual who would not be
an Industry Director;
(dd) ``Non-Industry Governor'' or ``Non-Industry committee member''
means a Governor (excluding the Chief Executive Officer and Chief
Operating Officer of the NASD and the Presidents of NASD Regulation and
Nasdaq) or committee member who is: (1) A Public Governor or committee
member; (2) an officer or employee of an issuer of securities listed on
Nasdaq or traded in the over-the-counter market; or (3) any other
individual who would not be an Industry Governor or committee member;
[(t)](ee) ``person associated with a member'' or ``associated
person of a member'' means: (1) [Every] a natural person registered
under the Rules of the Association; or (2) a sole proprietor, partner,
officer, director, or branch manager of [any] a member, or [any] a
natural person occupying a similar status or performing similar
functions, or [any] a natural person engaged in the investment banking
or securities business who is directly or indirectly controlling or
controlled by [such] a member, whether or not any such person is
registered or exempt from registration with the [Corporation] NASD
[pursuant to] under these By-Laws or the Rules of the Association;
(ff) ``Public Director'' means a Director of the NASD Regulation
Board or Nasdaq Board who has no material business relationship with a
broker or dealer or the NASD, NASD Regulation, or Nasdaq;
[[Page 53078]]
(gg) ``Public Governor'' or ``Public committee member'' means a
Governor or committee member who has no material business relationship
with a broker or dealer or the NASD, NASD Regulation, or Nasdaq;
[(u)](hh) ``registered broker, dealer, municipal securities broker
or dealer, or government securities broker or dealer'' means any
broker, dealer, municipal securities broker or dealer, or government
securities broker or dealer which is registered with the Commission
under the Act; and
[(v) ``rules of the Corporation'' means all rules of the
Corporation (which rules may be referred to as ``NASD Rules''),
Certificate of Incorporation, By-Laws, Rules of the Association, any
other rules, and any interpretations thereunder.]
(ii) ``Rules of the Association'' or ``Rules'' means the numbered
rules set forth in the NASD Manual beginning with the Rule 0100 Series,
as adopted by the Board pursuant to these By-Laws, as hereafter amended
or supplemented.
Article II
Offices
Location
Sec. 1. The address of the registered office of the NASD in the
State of Delaware and the name of the registered agent at such address
shall be: The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The NASD also may have offices at such
other places both within and without the State of Delaware as the Board
may from time to time designate or the business of the NASD may
require.
Change of Location
Sec. 2. In the manner permitted by law, the Board or the registered
agent may change the address of the NASD's registered office in the
State of Delaware and the Board may make, revoke, or change the
designation of the registered agent.
Article [II] III
Qualifications of Members and Associated Persons
Persons Eligible to [become] Become Members and Associated Persons of
Members
Sec. 1. (a) Any registered broker, dealer, municipal securities
broker or dealer, or government securities broker or dealer authorized
to transact, and whose regular course of business consists in actually
transacting, any branch of the investment banking or securities
business in the United States, under the laws of the United States,
shall be eligible for membership in the [Corporation] NASD, except such
registered brokers, dealers, or municipal securities brokers or
dealers, or government securities brokers or dealers which are excluded
under the provisions of [Sections 3 (a) or (b) of this Article] Section
3.
(b) Any person shall be eligible to become an associated person of
a member, except such persons who are excluded under the provisions of
Section 3[(b) of this Article].
Authority of Board to Adopt Qualification Requirements
Sec. 2. (a) The Board [of Governors] shall have authority to adopt
rules and regulations applicable to applicants for membership, members,
and persons associated with applicants or members establishing
specified and appropriate standards with respect to the training,
experience, competence, and such other qualifications as the Board [of
Governors] finds necessary or desirable, and in the case of an
applicant for membership or a member, standards of financial
responsibility and operational capability.
(b) In establishing and applying such standards, the Board [of
Governors] may classify members and persons associated with such
members, taking into account relevant matters, including the nature,
extent, and type of business being conducted and of securities sold,
dealt in, or otherwise handled. The Board [of Governors] may specify
that all or any portion of such standards shall be applicable to any
such class and may require the persons in any such class to be
registered with the [Corporation] NASD.
(c) The Board [of Governors] may from time to time make changes in
such rules, regulations, and standards as it deems necessary or
appropriate.
Ineligibility of Certain Persons for Membership or Association
Sec. 3. (a) No registered broker, dealer, municipal securities
broker or dealer, or government securities broker or dealer shall be
admitted to membership, and no member shall be continued in membership,
if such broker, dealer, municipal securities broker or dealer,
government securities broker or dealer, or member fails or ceases to
satisfy the qualification requirements established under Section 2 [of
this Article], if applicable, or if such broker, dealer, municipal
securities broker or dealer, government securities broker or dealer, or
member is or becomes subject to a disqualification under Section 4 [of
this Article], or if such member fails to comply with the requirement
that all forms filed pursuant to these By-Laws be filed via electronic
process or such other process as the [Corporation] NASD may prescribe.
(b) No person shall become associated with a member, continue to be
associated with a member, or transfer association to another member, if
such person fails or ceases to satisfy the qualification requirements
established under Section 2 [of this Article], if applicable, or if
such person is or becomes subject to a disqualification under Section 4
[of this Article]; and no broker, dealer, municipal securities broker
or dealer, or government securities broker or dealer shall be admitted
to membership, and no member shall be continued in membership, if any
person associated with it is ineligible to be an associated person
under this subsection.
(c) If it deems appropriate, the Board [of Governors], upon notice
and opportunity for a hearing, may cancel the membership of a member if
it becomes ineligible for continuance in membership under subsection
(a) [hereof], may suspend or bar a person [for] from continuing to be
associated with any member if such person is or becomes ineligible for
association under subsection (b) [hereof], and may cancel the
membership of any member who continues to be associated with any such
ineligible person.
(d) Any [broker, dealer, municipal securities dealer, or government
securities broker or dealer which is ineligible for admission into
membership, or any member which] member that is ineligible for
continuance in membership[,] may file with the Board [of Governors] an
application requesting relief from the ineligibility pursuant to
[procedures adopted by the Board of Governors and contained in the
Corporation's Procedural Rules. The Board of Governors] the Rules of
the Association. A member may file such application on its own behalf
and on behalf of a current or prospective associated person. The Board
may, in its discretion, approve the [admission] continuance in
membership, and may also approve the association or continuance of [an
applicant or member, or the] association of any person, if the Board
determines that such approval is consistent with the public interest
and the protection of investors. Any approval hereunder may be granted
unconditionally or on such terms and conditions as the Board considers
necessary or appropriate. In the exercise of the authority granted
hereunder, the Board [of Governors]
[[Page 53079]]
may[: (1)] Conduct such inquiry or investigation into the relevant
facts and circumstances as it, in its discretion, considers necessary
to its determination, which, in addition to the background and
circumstances giving rise to the failure to qualify or
disqualification, may include the proposed or present business of [an
applicant for membership or of] a member and the conditions of
association of any current or prospective associated person
[prospective or presently associated person, among other matters; (2)
permit, in limited types of situations, a membership or association
with a member pending completion of its inquiry or investigation, and
its final determination, based upon a consideration of relevant
factors, and may classify situations taking into account the status of
brokers, dealers, municipal securities brokers and dealers and
government securities brokers and dealers as applicants or existing
members and of persons as prospective or presently associated persons
of members; the type of disqualification or failure to qualify; whether
a member or associated person has been the subject of a previous
approval and the terms and conditions thereof; and any other relevant
factors; and (3) delegate any of its functions and authority under this
subsection (d) to appropriate committees of the Corporation or to
Corporation staff members].
(e) An application filed under subsection (d) [hereof] shall not
foreclose any action which the Board [of Governors] is authorized to
take under subsection (c) [hereof] until approval has been granted.
(f) Approval by the Board [of Governors] of an application made
under subsection (d) shall be subject to whatever further action the
Commission may take pursuant to authority granted to the Commission
under the Act.
(g) The Board may delegate its authority under this Section in a
manner not inconsistent with the Delegation Plan.
Definition of Disqualification
Sec. 4. A person is subject to a ``disqualification'' with respect
to membership, or association with a member, if such person:
(a) Has been and is expelled or suspended from membership or
participation in, or barred or suspended from being associated with a
member of, any self-regulatory organization, foreign equivalent of a
self-regulatory organization, foreign or international securities
exchange, contract market designated pursuant to Section 5 of the
Commodity Exchange Act, or foreign equivalent of a contract market
designated pursuant to any substantially equivalent foreign statute or
regulation, or futures association registered under Section 17 of the
Commodity Exchange Act or a foreign equivalent of a futures association
designated pursuant to any substantially equivalent foreign statute or
regulation, or has been and is denied trading privileges on any such
contract market or foreign equivalent;
(b) Is subject to--
(1) An order of the Commission, other appropriate regulatory
agency, or foreign financial regulatory authority:
(i) Denying, suspending for a period not exceeding 12 months, or
revoking [his] such person's registration as a broker, dealer,
municipal securities dealer, government securities broker, or
government securities dealer, or limiting [his] such person's
activities as a foreign person performing a function substantially
equivalent to any of the above; or
(ii) Barring or suspending for a period not exceeding 12 months
[his] such person from being associated with a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, or foreign person performing a function
substantially equivalent to any of the above;
(2) An order of the Commodity Futures Trading Commission denying,
suspending, or revoking [his] such person's registration under the
Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.); or
(3) An order by a foreign financial regulatory authority denying,
suspending, or revoking the person's authority to engage in
transactions in contracts of sale of a commodity for future delivery or
other instruments traded on or subject to the rules of a contract
market, board of trade, or foreign equivalent thereof;
(c) By [his] such person's conduct while associated with a broker,
dealer, municipal securities dealer, government securities broker, or
government securities dealer, or while associated with an entity or
person required to be registered under the Commodity Exchange Act, has
been found to be a cause of any effective suspension, expulsion, or
order of the character described in [subsections] subsection (a) or (b)
of this Section;
(d) By [his] such person's conduct while associated with any
broker, dealer, municipal securities dealer, government securities
broker, government securities dealer, or any other entity engaged in
transactions in securities, or while associated with an entity engaged
in transactions in contracts of sale of a commodity for future delivery
or other instruments traded on or subject to the rules of a contract
market, board of trade, or foreign equivalent thereof, has been found
to be a cause of any effective suspension, expulsion, or order by a
foreign or international securities exchange or foreign financial
regulatory authority empowered by a foreign government to administer or
enforce its laws relating to financial transactions as described in
subsection (a) or (b) of this Section;
(e) Has associated with him or her any person who is known, or in
the exercise of reasonable care should be known, to him or her to be a
person described in [subsections] subsection (a), (b), (c), or (d) of
this Section;
(f) Has willfully made or caused to be made in any application for
membership in a self-regulatory organization, or to become associated
with a member of a self-regulatory organization, or in any report
required to be filed with a self-regulatory organization, or in any
proceeding before a self-regulatory organization, any statement which
was at the time, and in light of the circumstances under which it was
made, false or misleading with respect to any material fact, or has
omitted to state in any such application, report, or proceeding any
material fact which is required to be stated therein;
(g)(1) Has been convicted within ten years preceding the filing of
any application for membership in the [Corporation] NASD, or to become
associated with a member of the [Corporation] NASD, or at any time
thereafter, of any felony or misdemeanor or of a substantially
equivalent crime by a foreign court of competent jurisdiction which:
(i) Involves the purchase or sale of any security, the taking of a
false oath, the making of a false report, bribery, perjury, burglary,
any substantially equivalent activity however denominated by the laws
of the relevant foreign government, or conspiracy to commit any such
offense;
(ii) Arises out of the conduct of the business of a broker, dealer,
municipal securities dealer, government securities broker, government
securities dealer, investment adviser, bank, insurance company,
fiduciary, transfer agent, foreign person performing a function
substantially equivalent to any of the above, or any entity or person
required to be registered under the Commodity Exchange Act or any
substantially equivalent foreign statute or regulation;
(iii) Involves the larceny, theft, robbery, extortion, forgery,
[[Page 53080]]
counterfeiting, fraudulent concealment, embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or
substantially equivalent activity however denominated by the laws of
the relevant foreign government; or
(iv) Involves the violation of Sections 152, 1341, 1342, or 1343 or
Chapters 25 or 47 of Title 18, United States Code, or a violation of a
substantially equivalent foreign statute;
(2) Has been convicted within ten years preceding the filing of any
application for membership in the [Corporation] NASD, or to become
associated with a member of the [Corporation] NASD, or at any time
thereafter of any other felony;
(h) Is permanently or temporarily enjoined by order, judgment, or
decree of any court of competent jurisdiction from acting as an
investment adviser, underwriter, broker, dealer, municipal securities
dealer, government securities broker, government securities dealer,
transfer agent, foreign person performing a function substantially
equivalent to any of the above, entity or person required to be
registered under the Commodity Exchange Act, or any substantially
equivalent foreign statute or regulation, or as an affiliated person or
employee of any investment company, bank, insurance company, foreign
entity substantially equivalent to any of the above, or entity or
person required to be registered under the Commodity Exchange Act or
any substantially equivalent foreign statute or regulation, or from
engaging in or continuing any conduct or practice in connection with
any such activity, or in connection with the purchase or sale of any
security;
(i) Has been found by a foreign financial regulatory authority to
have--
(1) Made or caused to be made in any application for registration
or report required to be filed with a foreign financial regulatory
authority, or in any proceeding before a foreign financial regulatory
authority with respect to registration, any statement that was at the
time and in the light of the circumstances under which it was made
false or misleading with respect to any material fact, or has omitted
to state in any application or report to the foreign financial
regulatory authority any material fact that is required to be stated
therein;
(2) Violated any foreign statute or regulation regarding
transactions in securities, or contracts of sale of a commodity for
future delivery, traded on or subject to the rules of a contract market
or any board of trade; or
(3) Aided, abetted, counseled, commanded, induced, or procured the
violation by any person of any provision of any statutory provisions
enacted by a foreign government, or rules or regulations thereunder,
empowering a foreign financial regulatory authority regarding
transactions in securities, or contracts of sale of a commodity for
future delivery, traded or subject to the rules of a contract market or
any board of trade, or has been found, by a foreign financial
regulatory authority, to have failed reasonably to supervise, with a
view to preventing violations of such statutory provisions, rules, and
regulations, another person who commits such a violation, if such other
person is subject to [his] such person's supervision.
Article [III] IV
Membership
Application for Membership
Sec. 1. (a) Application for membership in the [Corporation] NASD,
properly signed by the applicant, shall be made to the [Corporation]
NASD via electronic process or such other process as the [Corporation]
NASD may prescribe, on the form to be prescribed by the [Corporation]
NASD, and shall contain:
(1) An [acceptance of and an agreement to abide by, comply with,
and adhere to, all the provisions, conditions, and covenants of the
Restated Certificate of Incorporation, the By-Laws] agreement to comply
with the federal securities laws, the rules and regulations [of the
Corporation as they are or may from time to time be adopted, changed or
amended,] thereunder, the rules of the Municipal Securities Rulemaking
Board and the Treasury Department, the By-Laws of the NASD, NASD
Regulation, and Nasdaq, the Rules of the Association, and all rulings,
orders, directions, and decisions [of,] issued and sanctions imposed
[by, the Board of Governors or any duly authorized committee, and the
provisions of the federal securities laws, including the rules and
regulations adopted thereunder, including the rules of the Municipal
Securities Rulemaking Board and the Treasury Department, provided,
however, that such an agreement shall not be construed as a waiver by
the applicant of any right to appeal as provided in the Act] under the
Rules of the Association;
(2) An agreement to pay such dues, assessments, and other charges
in the manner and amount as [shall from time to time be fixed by the
Board of Governors pursuant to these By-Laws] from time to time shall
be fixed pursuant to the NASD By-Laws, Schedules to the NASD By-Laws,
and the Rules of the Association; and
[(3) An agreement that none of the Corporations, or any officer,
employee, or member of the Board or committees of the Corporations,
shall be liable, except for willful malfeasance, to the applicant or to
any member of the Corporation or to any other person, for any action
taken by such officer or member of the Boards or of any committee, in
his official capacity, or by any employee of the Corporations while
acting within the scope of his employment or under instruction of any
officer, Board, or committee of the Corporations, in connection with
the administration or enforcement of any of the provisions of the rules
of the Corporation as they are or may from time to time be adopted, or
amended, any ruling, order, directive, decision of, or penalty imposed
by, the Boards or any duly authorized committee thereof, or the
provisions of the federal securities laws, including the rules and
regulations adopted thereunder, and the rules of the Municipal
Securities Rulemaking Board and the Treasury Department; and]
[(4)] (3) Such other reasonable information with respect to the
applicant as the [Corporation] NASD may require.
(b) Any application for membership received by the [Corporation]
NASD shall be processed in the manner set forth in the [Procedural]
Rules of the [Corporation] Association.
(c) Each applicant and member shall ensure that its membership
application with the [Corporation] NASD is kept current at all times by
supplementary amendments via electronic process or such other process
as the [Corporation] NASD may prescribe to the original application.
Such amendments to the application shall be filed with the
[Corporation] NASD not later than [thirty (30) calendar] 30 days after
learning of the facts or circumstances giving rise to the amendment.
Similarity of Membership Names
Sec. 2. (a) No person or firm shall be admitted to or continued in
membership in the [Corporation] NASD having a name [which] that is
identical to the name of another member appearing on the membership
roll of the [Corporation] NASD or a name so similar to any such name as
to tend to confuse or mislead.
(b) No member may change its name without prior approval of the
[Corporation] NASD.
[[Page 53081]]
Executive Representative
Sec. 3. Each member shall appoint and certify to the Secretary of
the [Corporation] NASD one ``executive representative'' who shall
represent, vote, and act for the member in all the affairs of the
[Corporation] NASD, except that other executives of a member may also
hold office in the [Corporation] NASD, serve on the Board [of
Governors] or committees [of the Corporation] appointed under Article
IX, Section 1 or otherwise take part in the affairs of the
[Corporation] NASD. A member may change its executive representative
upon giving notice thereof via electronic process or such other process
as the [Corporation] NASD may prescribe to the Secretary, or may, when
necessary, appoint, by notice via electronic process to the Secretary,
a substitute for its executive representative. An executive
representative of a member or a substitute shall be a member of senior
management and registered principal of the member.
Membership Roll
Sec. 4. The Secretary of the [Corporation] NASD shall keep a
currently accurate and complete membership roll, containing the name
and address of each member, and the name and address of the executive
representative of each member. In any case where a membership has been
terminated, such fact shall be recorded together with the date on which
the membership ceased. The membership roll of the [Corporation] NASD
shall at all times be available to all members of the [Corporation]
NASD, to all governmental authorities, and to the general public.
Resignation of Members
Sec. 5. Membership in the [Association] NASD may be voluntarily
terminated only by formal resignation. Resignations of members must be
filed via electronic process or such other process as the [Corporation]
NASD may prescribe and addressed to the [Corporation] NASD. Any member
may resign from the [Corporation] NASD at any time. Such resignation
shall not take effect until [thirty (30) calendar] 30 days after
receipt thereof by the [Corporation] NASD and until all indebtedness
due the [Corporation] NASD from such member shall have been paid in
full and so long as any complaint or action is pending against the
member under the [Procedural] Rules of the Association. The
[Corporation] NASD, however, may in its discretion declare a
resignation effective at any time.
Retention of Jurisdiction
Sec. 6. A resigned member or a member that has had its membership
canceled or revoked shall continue to be subject to the filing of a
complaint under the [Procedural] Rules of the Association based upon
conduct which commenced prior to the effective date of the member's
resignation from the [Corporation] NASD or the cancellation or
revocation of its membership. Any such complaint, however, shall be
filed within two [(2)] years after the effective date of resignation,
cancellation, or revocation.
Transfer and Termination of Membership
Sec. 7. (a) Except as provided hereinafter, no member of the
[Corporation] NASD may transfer its membership or any right arising
therefrom and the membership of a corporation, partnership, or any
other business organization which is a member of the [Corporation] NASD
shall terminate upon its liquidation, dissolution, or winding up, and
the membership of a sole proprietor which is a member shall terminate
at death, provided that all obligations of membership under the By-Laws
and the [other rules] Rules of the [Corporation] Association have been
fulfilled.
(b) The consolidation, reorganization, merger, change of name, or
similar change in any corporate member shall not terminate the
membership of such corporate member provided that the member or
surviving organization, if any, shall be deemed a successor to the
business of the corporate member, and the member or the surviving
organization shall continue in the investment banking and securities
business, and shall possess the qualifications for membership in the
[Corporation] NASD. The death, change of name, withdrawal of any
partner, the addition of any new partner, reorganization,
consolidation, or any change in the legal structure of a partnership
member shall not terminate the membership of such partnership member
provided that the member or surviving organization, if any, shall be
deemed a successor to the business of the partnership member, and the
member or surviving organization shall continue in the investment
banking and securities business and shall possess the qualifications
for membership in the [Corporation] NASD. If the business of any
predecessor member is to be carried on by an organization deemed to be
a successor organization by the [Corporation] NASD, the membership of
such predecessor member shall be extended to the successor organization
subject to the notice and application requirements of the Rules of the
Association and the right of the NASD to place restrictions on the
successor organization pursuant to the Rules of the Association;
otherwise, any surviving organization shall be required to satisfy all
of the membership application requirements of [the] these By-Laws and
the Rules of the Association.
Registration of Branch Offices
Sec. 8. (a) Each branch office of a member of the [Corporation]
NASD shall be registered with and listed upon the membership roll of
the [Corporation] NASD, and shall pay such dues, assessments, and other
charges as shall be fixed from time to time by the Board [of Governors]
pursuant to Article [V of the By-Laws] VI.
(b) Each member of the [Corporation] NASD shall promptly advise the
[Corporation] NASD via electronic process or such other process as the
[Corporation] NASD may prescribe of the opening, closing, relocation,
change in designated supervisor, or change in designated activities of
any branch office of such member not later than [thirty (30) calendar]
30 days after the effective date of such change.
Article [IV] V
Registered Representatives and Associated Persons
Qualification Requirements
Sec. 1. No member shall permit any person associated with [such]
the member to engage in the investment banking or securities business
unless the member determines that such person [has complied with the
applicable provisions under Article II of the By-Laws] satisfies the
qualification requirements established under Article III, Section 2 and
is not subject to a disqualification under Article III, Section 4.
Application for Registration
Sec. 2. (a) Application by any person for registration with the
[Corporation] NASD, properly signed by the applicant, shall be made to
the [Corporation] NASD via electronic process or such other process as
the [Corporation] NASD may prescribe, on the form to be prescribed by
the [Corporation] NASD and shall contain:
(1) [An acceptance of and] An agreement to comply with the [all the
provisions of the rules of the Corporation as they are or may from
[[Page 53082]]
time to time be adopted or amended,] federal securities laws, the rules
and regulations thereunder, the rules of the Municipal Securities
Rulemaking Board and the Treasury Department, the By-Laws of the NASD,
NASD Regulation, and Nasdaq, the Rules of the Association, and all
rulings, orders, directions, and decisions [of, and penalties imposed
by, the Board of Governors or any duly authorized committee, and the
provisions of the federal securities laws, including the rules and
regulations adopted thereunder, and the rules of the Municipal
Securities Rulemaking Board and the Treasury Department, provided,
however, that such an agreement shall not be construed as a waiver by
the applicant of any right to appeal as provided in the Act;] issued
and sanctions imposed under the Rules of the Association; and
[(2) An agreement that none of the Corporations, or any officer,
employee, or member of the Boards or committees of the Corporation,
shall be liable except for willful malfeasance, to the applicant or to
any member of the Corporation or to any other person, for any action
taken by such officer, member of the Boards or of any committee in his
official capacity, or by any employee of the Corporation while acting
within the scope of his employment, or under instruction of any
officer, Board, or committee of the Corporations, in connection with
the administration or enforcement of any of the provisions of the By-
Laws, any rules of the Corporation as they are or may from time to time
be adopted or amended, any ruling, order, direction, decision of, or
penalty imposed by the Boards or any duly authorized committee thereof,
and the provisions of the federal securities laws, including the rules
and regulations adopted thereunder including the rules of the Municipal
Securities Rulemaking Board and the rules of the Treasury Department;
and]
[(3)] (2) Such other reasonable information with respect to the
applicant as the [Corporation] NASD may require.
(b) The [Corporation] NASD shall not approve an application for
registration of any person who is not eligible to be an associated
person of a member under the provisions of Article III, Section 3[(b)
of Article II of these By-Laws].
(c) Every application for registration filed with the [Corporation]
NASD shall be kept current at all times by supplementary amendments via
electronic process or such other process as the [Corporation] NASD may
prescribe to the original application. Such amendment to the
application shall be filed with the [Corporation] NASD not later than
[thirty (30) calendar] 30 days [of] after learning of the facts or
circumstances giving rise to the amendment. If such amendment involves
a statutory disqualification as defined in Section 3(a)(39) and Section
15(b)(4) of the Act, such amendment shall be filed not later than ten
[(10) calendar] days after such disqualification occurs.
Notification by Member to [Corporation] the NASD and Associated Person
of Termination; Amendments to Notification
Sec. 3. (a) Following the termination of the association with a
member of a person who is registered with it, such member shall, not
later than [thirty (30) calendar] 30 days after such termination, give
notice of the termination of such association to the [Corporation] NASD
via electronic process or such other process as the [Corporation] NASD
may prescribe on a form designated by the [Corporation] NASD, and
concurrently shall provide to the person whose association has been
terminated a copy of said notice as filed with the [Corporation] NASD.
A member [which] that does not submit such notification[,] and provide
a copy to the person whose association has been terminated, within the
time period prescribed, shall be assessed a late filing fee as
specified by the [Corporation] NASD. Termination of registration of
such person associated with a member shall not take effect so long as
any complaint or action under the [rules] Rules of the [Corporation]
Association is pending against a member and to which complaint or
action such person associated with a member is also a respondent, or so
long as any complaint or action is pending against such person
individually under the [rules] Rules of the [Corporation. The
Corporation] Association. The NASD, however, may in its discretion
declare the termination effective at any time.
(b) The member shall notify the [Corporation] NASD via electronic
process or such other process as the [Corporation] NASD may prescribe
by means of an amendment to the notice filed pursuant to subsection
[paragraph] (a) [above] in the event that the member learns of facts or
circumstances causing any information set forth in said notice to
become inaccurate or incomplete. Such amendment shall be filed with the
[Corporation] NASD via electronic process or such other process as the
[Corporation] NASD may prescribe and a copy provided to the person
whose association with the member has been terminated not later than
[thirty (30) calendar] 30 days after the member learns of the facts or
circumstances giving rise to the amendment.
Retention of Jurisdiction
Sec. 4. A person whose association with a member has been
terminated and is no longer associated with any member of the
[Corporation] NASD or a person whose registration has been revoked or
canceled shall continue to be subject to the filing of a complaint
under the [rules] Rules of the [Corporation] Association based upon
conduct which commenced prior to the termination [or], revocation, or
cancellation or upon such person's failure, while subject to the
[Corporation's] NASD's jurisdiction as provided herein, to provide
information requested by the [Corporation] NASD pursuant to [NASD Rule
8210] the Rules of the Association, but any such complaint shall be
filed within:
(a) Two [(2)] years after the effective date of termination of
registration pursuant to Section 3 [above], provided, however that any
amendment to a notice of termination filed pursuant to Section 3(b)
that is filed within two years of the original notice which discloses
that such person may have engaged in conduct actionable under any
applicable statute, rule, or regulation shall operate to recommence the
running of the two-year period under this [paragraph] subsection;
(b) Two [(2)] years after the effective date of revocation or
cancellation of registration pursuant to [NASD Rule 8320] the Rules of
the Association; or
(c) in the case of an unregistered person, within two [(2)] years
after the date upon which such person ceased to be associated with the
member.
Article [V] VI
Dues, Assessments, and Other Charges
Power of [Corporation] the NASD to Fix and Levy Assessments
Sec. 1. The [Corporation] NASD shall prepare an estimate of the
funds necessary to defray reasonable expenses of administration in
carrying on the work of the [Corporation] NASD each fiscal year, and on
the basis of such estimate, shall fix and levy the amount of admission
fees, dues, assessments, and other charges to be paid by members of the
[Corporation] NASD and issuers and any other persons using any facility
or system which the [Corporation] NASD, NASD Regulation, or Nasdaq
operates or controls. Fees, dues, assessments, and other charges shall
be called and payable as determined by the [Corporation] NASD
[[Page 53083]]
from time to time; provided, however, that such admission fees, dues,
assessments, and other charges shall be equitably allocated among
members and issuers and any other persons using any facility or system
which the [Corporation] NASD operates or controls. The [Corporation]
NASD may from time to time make such changes or adjustments in such
fees, dues, assessments, and other charges as it deems necessary or
appropriate to assure equitable allocation of dues among members. In
the event of termination of membership or the extension of any
membership to a successor organization during any fiscal year for which
an assessment has been levied and become payable, the [Corporation]
NASD may make such adjustment in the fees, dues, assessments, or other
charges payable by any such member or successor organization or
organizations during such fiscal years as it deems fair and appropriate
in the circumstances.
Reports of Members
Sec. 2. Each member, issuer, or other person shall promptly furnish
all information or reports requested by the [Corporation] NASD in
connection with the determination of the amount of admission fees,
dues, assessments, or other charges.
Suspension or Cancellation of Membership or Registration
Sec. 3. The [Corporation] NASD after [fifteen (15)] 15 days notice
in writing, may suspend or cancel the membership of any member or the
registration of any person in arrears in the payment of any fees, dues,
assessments, or other charges or for failure to furnish any information
or reports requested pursuant to Section 2 [of this Article], or for
failure to comply with an award of arbitrators properly rendered
pursuant to [Section 41] the Rules of the [Code of Arbitration
Procedure] Association, where a timely motion to vacate or modify such
award has not been made pursuant to applicable law or where such a
motion has been denied, or for failure to comply with a written and
executed settlement agreement obtained in connection with an
arbitration or mediation submitted for disposition pursuant to the
[procedures specified by the Corporation] Rules of the Association.
Reinstatement of Membership or Registration
Sec. 4. Any membership or registration suspended or canceled under
this Article may be reinstated by the [Corporation] NASD upon such
terms and conditions as it shall deem just; provided, however, that any
applicant for reinstatement of membership or registration shall possess
the qualifications required for membership or registration in the
[Corporation] NASD.
Delegation
Sec. 5. The NASD may delegate its authority under this Article in a
manner not inconsistent with the Delegation Plan.
Article [VI] VII
Board of Governors
Powers and Authority of Board
Sec. 1. (a) The Board [of Governors] shall be the governing body of
the [Corporation] NASD and, except as otherwise provided by applicable
law, the Restated Certificate of Incorporation, or these By-Laws, shall
be vested with all powers necessary for the management and
administration of the affairs of the [Corporation] NASD and the
promotion of the [Corporation's] NASD's welfare, objects, and purposes.
In the exercise of such powers, the Board [of Governors] shall have the
authority to:
[(1)](i) Adopt for submission to the membership, as hereinafter
provided, such By-Laws and changes or additions thereto as it deems
necessary or appropriate;
[(2)](ii) Adopt such other [rules] Rules of the [Corporation]
Association and changes or additions thereto as it deems necessary or
appropriate, provided, however, that the Board may at its option submit
to the membership any such adoption, change, or addition to such
[rules] Rules;
[(3)] (iii) make such regulations, issue such orders, resolutions,
exemptions, interpretations, including interpretations of these By-Laws
and the [rules] Rules of the [Corporation] Association, and directions,
and make such decisions as it deems necessary or appropriate;
[(4)] (iv) Prescribe [a code of arbitration procedure providing]
rules for the required or voluntary arbitration of controversies
between members and between members and customers or others as it shall
deem necessary or appropriate;
[(5)] (v) Establish rules and procedures to be followed by members
in connection with the distribution of securities issued by members and
affiliates thereof;
[(6)] (vi) Require all over-the-counter transactions in securities
between members, other than transactions in exempted securities as
defined in Section 3(a)(12) of the Act, to be cleared and settled
through the facilities of a clearing agency registered with the
Commission pursuant to the Act, which clears and settles such over-the-
counter transactions in securities;
[(7)] (vii) Organize and operate automated systems to provide
qualified subscribers with securities information and automated
services. The systems may be organized and operated by a division or
subsidiary company of the [Corporation] NASD or by one or more
independent firms under contract with the [Corporation] NASD as the
Board [of Governors] may deem necessary or appropriate. The Board [of
Governors] may adopt rules for such automated systems, establish
reasonable qualifications and classifications for members and other
subscribers, provide qualification standards for securities included in
such systems, require members to report promptly information in
connection with securities included in such systems, and establish
charges to be collected from subscribers and others;
[(8)] (viii) Require the prompt reporting by members of such
original and supplementary trade data as the Board deems appropriate.
Such reporting requirements may be administered by the [Corporation]
NASD, a division or subsidiary thereof, or a clearing agency registered
under the Act; and
[(9)] (ix) Engage in any activities or conduct necessary or
appropriate to carry out the [Corporation's] NASD's purposes under its
Restated Certificate of Incorporation and the federal securities laws.
(b) In the event of the refusal, failure, neglect, or inability of
any [member of the Board of Governors] Governor to discharge [his] such
Governor's duties, or for any cause affecting the best interests of the
[Corporation] NASD the sufficiency of which the Board [of Governors]
shall be the sole judge, the Board shall have the power, by the
affirmative vote of two-thirds of the Governors then in office, to
remove such [member] Governor and declare [his] such Governor's
position vacant and that such position shall be filled in accordance
with the provisions of Section [6] 7 [of this Article].
(c) To the fullest extent permitted by applicable law, the Restated
Certificate of Incorporation [and applicable law, the Corporation], and
these By-Laws, the NASD may delegate any power of the [Corporation or
the Board of Governors to any person or entity, including a subsidiary
of the Corporation; provided that such delegation is] NASD or the Board
to a committee appointed pursuant to Article IX, Section 1, the
[[Page 53084]]
NASD Regulation Board, the Nasdaq Board, or NASD staff in a manner not
inconsistent with the Delegation Plan.
Authority to Cancel or Suspend for Failure to Submit Required
Information
Sec. 2. (a) The Board [of Governors] shall have authority, upon
notice and opportunity for a hearing, to cancel or suspend the
membership of any member or suspend the association of any person
associated with a member for failure to file, or to submit on request,
any report, document, or other information required to be filed with or
requested by the [Corporation] NASD pursuant to these By-Laws or the
Rules of the Association.
(b) Any membership or association suspended or canceled pursuant to
this Section may be reinstated by the NASD pursuant to the Rules of the
Association.
[(b)] (c) The Board [of Governors] is authorized to delegate [the
authority hereinabove granted to the Chief Executive Officer of the
Corporation; provided, however, that the Executive Committee of the
Board of Governors shall be notified in writing of any such
contemplated action by the Chief Executive Officer] its authority under
this Section in a manner not inconsistent with the Delegation Plan and
otherwise in accordance with the Rules of the Association.
Authority to Take Action Under Emergency or Extraordinary Market
Conditions
Sec. 3. The Board [of Governors], or such person or persons as may
be designated by the Board, in the event of an emergency or
extraordinary market conditions, shall have the authority to take any
action regarding[;]:
[(1)] (a) The trading in or operation of the over-the-counter
securities market, the operation of any automated system owned or
operated by the [Corporations] NASD, NASD Regulation, or Nasdaq, and
the participation in any such system of any or all persons or the
trading therein of any or all securities; and
[(2)] (b) The operation of any or all member firms' offices or
systems, if, in the opinion of the Board or the person or persons
hereby designated, such action is necessary or appropriate for the
protection of investors or the public interest or for the orderly
operation of the marketplace or the system.
Composition and Qualifications of the Board
Sec. 4. (a) [The Board of Governors shall be composed of five or
more members, the number thereof to be determined from time to time by
the Board of Governors, and shall include at all times the Chief
Executive Officer and such Industry, Non-Industry, and Public Governors
as shall be determined from time to time by the Board of Governors,
both of which determinations shall be consistent with the Delegation
Plan and Section 15A(b)(4) of the Act. The criteria for the categories
of Industry, Non-Industry and Public Governors, as used herein, shall
be established by the Board of Governors from time to time, which
criteria shall be consistent with the Delegation Plan.] The Board shall
consist of the Chief Executive Officer and the Chief Operating Officer
of the NASD, the Presidents of NASD Regulation and Nasdaq, the Chair of
the National Adjudicatory Council, and no fewer than 16 and no more
than 22 Governors elected by the members of the NASD. The Governors
elected by the members of the NASD shall include a representative of an
issuer of investment company shares or an affiliate of such an issuer,
a representative of an insurance company, and a Nasdaq issuer. A
majority of the Governors shall be Non-Industry Governors. If the Board
consists of 21 to 23 Governors, at least five shall be Public
Governors. If the Board consists of 24 to 27 Governors, at least six
shall be Public Governors.
(b) As soon as practicable[,] following the annual election [of
members to the Board] of Governors, the Board [of Governors] shall
elect from [the] among its members [of the Board of Governors a
Chairman,] a Chair and such other persons having such titles as it
shall deem necessary or advisable, to serve until the next annual
election or until their successors are chosen and qualify. The Chair of
the National Adjudicatory Council may not serve as Chair of the Board.
The Chair and other persons [so] elected under this subsection shall
have such powers and duties as may be determined from time to time by
the Board [of Governors]. The Board [of Governors, by affirmative vote
of], by resolution adopted by a majority of [its members] the Governors
then in office, may remove the Chair and any [such] person elected
under this subsection from such position at any time.
Term of Office of Governors
Sec. 5. [Each Governor, except as otherwise provided by the
Restated Certificate of Incorporation or these By-Laws, shall hold
office for a term of not more than three years, such term to be fixed
by the Board at the time of the nomination or certification of such
Governor, or until his successor is elected and qualified, or until his
death, resignation, disqualification, or removal. Except for the Chief
Executive Officer, no Governor may serve more than two consecutive
terms, provided, however, that if a Governor is appointed to fill a
term of less than one year, such Governor may serve up to two
consecutive terms following the expiration of such Governor's current
term. The Chief Executive Officer of the Corporation shall serve as a
member of the Board until his successor is selected and qualified, or
until his death, resignation, disqualification, or removal.]
(a) The Chief Executive Officer and the Chief Operating Officer of
the NASD and the Presidents of NASD Regulation and Nasdaq shall serve
as Governors until a successor is elected, or until death, resignation,
or removal.
(b) The Chair of the National Adjudicatory Council shall serve as a
Governor for a term of one year, or until a successor is duly elected
and qualified, or until death, resignation, disqualification, or
removal. A Chair of the National Adjudicatory Council may not serve
more than two consecutive terms as a Governor, unless a Chair of the
National Adjudicatory Council is appointed to fill a term of less than
one year for such office. In such case, the Chair of the National
Adjudicatory Council may serve an initial term as a Governor and up to
two consecutive terms as a Governor following the expiration of the
initial term. After serving as a Chair of the National Adjudicatory
Council, an individual may serve as a Governor elected by the members
of the NASD.
(c) The Governors elected by the members of the NASD shall be
divided into three classes and hold office for a term of no more than
three years, such term to be fixed by the Board at the time of the
nomination or certification of such Governor, or until a successor is
duly elected and qualified, or until death, resignation,
disqualification, or removal. A Governor elected by the members of the
NASD may not serve more than two consecutive terms. If a Governor is
elected by the Board to fill a term of less than one year, the Governor
may serve up to two consecutive terms following the expiration of the
Governor's initial term. The term of office of Governors of the first
class shall expire at the January 1999 Board meeting, of the second
class one year thereafter, and of the third class two years thereafter.
At each annual election, commencing January 1999, Governors shall be
elected for a term of three years to replace those whose terms expire.
[[Page 53085]]
Disqualification
Sec. 6. Notwithstanding Section 5, the term of office of a Governor
shall terminate immediately upon a determination by the Board, by a
majority vote of the remaining Governors, that: (a) The Governor no
longer satisfies the classification (Industry, Non-Industry, or Public
Governor) for which the Governor was elected; and (b) the Governor's
continued service as such would violate the compositional requirements
of the Board set forth in Section 4. If the term of office of a
Governor terminates under this Section, and the remaining term of
office of such Governor at the time of termination is not more than six
months, during the period of vacancy the Board shall not be deemed to
be in violation of Section 4 by virtue of such vacancy.
Filling of Vacancies
Sec. [6.] 7. [(a) Any vacancy in the office of] If a Governor
position becomes vacant, whether [occurring by reason] because of
death, disability, disqualification, removal, or resignation, [other
than a vacancy by reason of an increase in the size of the Board, shall
be filled] the National Nominating Committee shall nominate, and the
Board shall elect by majority vote of the remaining Governors then in
office [and any person elected to fill such vacancy shall satisfy the
qualifications and criteria], a person satisfying the classification
(Industry, Non-Industry, or Public Governor) for the governorship
[being filled] as provided in Section 4 [of this Article.] to fill such
vacancy, except that if the remaining term of office for the vacant
Governor position is not more than six months, no replacement shall be
required. If the remaining term of office for the vacant Governor
position is more than one year, the Governor elected by the Board to
fill such position shall stand for election in the next annual election
pursuant to this Article. [(b) Any vacancy in the office of a Governor
occurring by reason of an increase in the size of the Board shall be
filled by majority vote of the Board and any person elected to fill
such vacancy shall satisfy the criteria for such newly created
governorship as shall be established by resolution of the Board,
provided that the filling of any such vacancy shall not be inconsistent
with any other provisions of these By-Laws or the Delegation Plan.]
Meetings of Board; Quorum; Required Vote
Sec. 8. Meetings of the Board shall be held at such times and
places, upon such notice, and in accordance with such procedure as the
Board [of Governors] in its discretion may determine. [A] At all
meetings of the Board, unless otherwise set forth in these By-Laws or
required by law, a quorum [of the Board of Governors] for the
transaction of business shall consist of a majority of the [total
number of Governors of the Corporation and any] Board, including not
less than 50 percent of the Non-Industry Governors. Any action taken by
a majority vote at any meeting at which a quorum is present, except as
otherwise provided in the Restated Certificate of Incorporation or
these By-Laws, shall constitute the action of the Board [of Governors].
[Members of the Board of] Governors[,] or members of any committee
appointed by the Board [of Governors or any other committee of the
Corporation,] under Article IX, Section 1 may participate in a meeting
[thereof] of the Board or a committee by means of communications
facilities that ensure all persons participating in the meeting can
hear and speak to [each other] one another, and participation in a
meeting pursuant to this By-Law shall constitute presence in person at
such meeting. No [member of the Board of Governors] Governor shall vote
by proxy at any meeting of the Board.
The National Nominating Committee
Sec. [7. (b)] 9. (a) The National Nominating Committee shall [have
such powers and shall perform such functions as shall be determined by
resolution of the Board of Governors from time to time, consistent with
the Delegation Plan] nominate: Industry, Non-Industry, and Public
Governors for each vacant or new Governor position on the NASD Board
for election by the membership; Industry, Non-Industry, and Public
Directors for each vacant or new position on the NASD Regulation Board
and the Nasdaq Board for election by the Board; Industry, Non-Industry,
and Public members for each vacant or new position on the National
Adjudicatory Council for appointment by the NASD Regulation Board; and
Industry and Non-Industry members for each vacant or new position on
the Nasdaq Listing and Hearing Review Council for appointment by the
Nasdaq Board.
(b) The National Nominating Committee shall consist of [six or more
persons who shall have such qualifications, and who shall be selected
in such manner, as shall be determined by resolution of the Board of
Governors from time to time, which qualifications and manner of
selection shall be consistent with the Delegation Plan] no fewer than
six and no more than nine members. The number of Industry committee
members shall equal or exceed the number of Non-Industry committee
members. If the National Nominating Committee consists of six members,
at least two shall be Public committee members. If the National
Nominating Committee consists of seven or more members, at least three
shall be Public committee members. No officer or employee of the
Association shall serve as a member of the National Nominating
Committee in any voting or non-voting capacity. No more than three of
the National Nominating Committee members and no more than two of the
Industry committee members shall be current members of the NASD Board.
(c) A National Nominating Committee member may not simultaneously
serve on the National Nominating Committee and the Board, unless such
member is in his or her final year of service on the Board, and
following that year, that member may not stand for election to the
Board until such time as he or she is no longer a member of the
National Nominating Committee.
(d) Members of the National Nominating Committee shall be appointed
annually by the Board and may be removed only by majority vote of the
whole Board, after appropriate notice, for refusal, failure, neglect,
or inability to discharge such member's duties. The NASD Regulation
Board and the Nasdaq Board each shall propose two candidates to the
NASD Board for appointment to the National Nominating Committee.
(e) The Secretary of the NASD shall collect from each nominee for
Governor such information as is reasonably necessary to serve as the
basis for a determination of the nominee's classification as an
Industry, Non-Industry, or Public Governor, and the Secretary shall
certify to the National Nominating Committee each nominee's
classification.
(f) At all meetings of the National Nominating Committee, a quorum
for the transaction of business shall consist of a majority of the
National Nominating Committee, including not less than 50 percent of
the Non-Industry committee members. In the absence of a quorum, a
majority of the committee members present may adjourn the meeting until
a quorum is present.
[[Page 53086]]
Procedure for Nomination of Governors
Sec. [7.(c)] 10. [At least 90 days prior] Prior to a meeting of
members pursuant to Article XXI for the election of Governors, the
[Corporation] NASD shall notify the members of the [date, place, and
time of such meeting and shall set forth in such notice the] names of
each nominee [(a ``Nominee''), as] selected by the National Nominating
Committee[,] for each governorship up for election, [and shall further
provide in such notice the qualifications] the classification of
governorship (Industry, Non-Industry, or Public Governor) for which the
nominee is nominated, the qualifications of each nominee, and such
other information regarding each [such Nominee] nominee as the National
Nominating Committee deems pertinent. A person who has not been so
nominated may be included on the ballot for the election of Governors
if: [(1)](a) [at least 60] within 30 days [prior to the scheduled date
for the meeting of members] after the date of such notice in 1997, or
within 45 days after the date of such notice in 1998 and thereafter,
such person [complies with the requirements and procedures for
nomination set forth in the Delegation Plan and (2) the person is
certified] presents to the Secretary of the NASD petitions in support
of his or her nomination duly executed by three percent of the members;
and (b) the Secretary certifies that (i) the petitions are duly
executed by the Executive Representatives of the requisite number of
members; and (ii) the person satisfies the classification (Industry,
Non-Industry, or Public Governor) of the governorship to be filled,
based on such information provided by the person as is reasonably
necessary to make the certification. The Secretary shall not
unreasonably withhold or delay the certification. Upon certification,
the election shall be deemed a contested election. After the
certification of a contested election or the expiration of time for
contesting an election under this Section, the Secretary shall deliver
notice of a meeting of members pursuant to Article XXI, Section 3(a).
Communication of Views
Sec. 11. The NASD, the Board, the National Nominating Committee, a
committee appointed pursuant to Article IX, Section 1, and NASD staff
shall not take any position publicly or with a member or person
associated with or employed by a member with respect to any candidate
in a contested election or nomination held pursuant to these By-Laws or
the NASD Regulation By-Laws. A Governor or a member of the National
Nominating Committee or any other committee may communicate his or her
views with respect to any candidate if such Governor or committee
member acts solely in his or her individual capacity and disclaims any
intention to communicate in any official capacity on behalf of the
NASD, the NASD Board, the National Nominating Committee, or any other
committee. Except as provided herein, any candidate and his or her
representatives may communicate support for the candidate to a member
or person associated with or employed by a member.
Administrative Support
Sec. 12. The Secretary of the NASD shall provide administrative
support to the candidates in a contested election under this Article by
sending to NASD members eligible to vote up to two mailings of
materials prepared by the candidates. The NASD shall pay the postage
for the mailings. If a candidate wants such mailings sent, the
candidate shall prepare such material on the candidate's personal
stationery. The material shall state that it represents the opinions of
the candidate. The candidate shall provide a copy of such material for
each member of the NASD. A candidate nominated by the National
Nominating Committee may identify himself or herself as such in his or
her materials. Any candidate may send additional materials to NASD
members at the candidate's own expense. Except as provided in this
Article, the NASD, the Board, any committee, and NASD staff shall not
provide any other administrative support to a candidate in a contested
election conducted under this Article or a contested election or
nomination conducted under the NASD Regulation By-Laws.
Election of [Board Members] Governors
Sec. [7.(a)] 13. [The members of the Board of] Governors shall be
elected by a plurality of the votes of the members of the [Corporation]
NASD present in person or represented by proxy at the annual meeting of
the [Corporation] NASD and entitled to vote thereat. The annual meeting
of the [Corporation] NASD shall be on such date and at such place as
the Board [of Governors] shall designate pursuant to Article XXI. Any
Governor so elected must be nominated by the National Nominating
Committee or certified by the Secretary [described in subsection (b)
below or certified] pursuant to [subsection (c) below and must satisfy
the other qualifications for Governors set forth in Section 4 of this
Article or as established by resolution of the Board of Governors from
time to time, which qualifications shall be consistent with the
Delegation Plan] Section 10.
Maintenance of Compositional Requirements of the Board
Sec. 14. Each Governor shall update the information submitted under
Section 9(e) regarding his or her classification as an Industry, Non-
Industry, or Public Governor at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary
any change in such classification.
Resignation
Sec. 15. Any Governor may resign at any time either upon written
notice of resignation to the Chair of the Board, the Chief Executive
Officer, or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time is not specified, upon
receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such
resignation effective.
Article [VII] VIII
Officers, Agents, and Employees
Officers
Sec. 1. The Board [of Governors] shall [select] elect a Chief
Executive Officer, who shall be responsible for the management and
administration of its affairs and shall be the official representative
of the [Corporation] NASD in all public matters and who shall have such
powers and duties in the management of the [Corporation] NASD as may be
prescribed in a resolution by the Board [of Governors], and which
powers and duties shall not be inconsistent with the Delegation Plan.
The Board shall elect a Chief Operating Officer and Secretary, who
shall have such powers and duties conferred by these By-Laws and such
other powers and duties as may be prescribed in a resolution by the
Board. The Board may provide for such other executive or administrative
officers as it shall deem necessary or advisable, including, but not
limited to, Executive Vice [-]President, Senior Vice[-] President, Vice
[-]President, [Secretary,] and Treasurer of the [Corporation] NASD. All
such officers shall have such titles, [such] powers, and duties, and
shall be entitled to such compensation, as shall be determined from
time to time by the Board [of Governors]. Each such officer shall hold
office until [his] a successor is elected and qualified or until [his]
such officer's earlier resignation or removal. Any officer may resign
at any time upon written notice
[[Page 53087]]
to the [Corporation] NASD. [The Board of Governors may remove any
officer, with or without cause, at any time, but such removal shall be
without prejudice to the contractual rights of such officer, if any,
with the Corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the Corporation by
death, resignation, removal, or otherwise may be filled for the
unexpired portion of the term by the Board of Governors at any
meeting.]
Absence of Chief Executive Officer
Sec. 2. In the case of the absence or inability to act of the
[President] Chief Executive Officer of the [Corporation] NASD, or in
the case of a vacancy in such office, the Board [of Governors] may
appoint its [Chairman] Chair or such other person as it may designate
to act as such officer pro tem, who shall assume all the functions and
discharge all the duties of the [President] Chief Executive Officer.
Agents and Employees
Sec. 3. The Board may employ or authorize the employment and
prescribe the powers and duties of such agents and employees as it
deems necessary or advisable. The employment and compensation of such
agents and employees shall be at the pleasure of the Board, provided
that such determinations are not inconsistent with the requirements of
the Delegation Plan. Except as provided in Article IX, Section 5(d),
agents and employees of the NASD shall be under the supervision and
control of the officers of the NASD, unless the Board provides by
resolution that an agent or employee shall be under the supervision and
control of the Board.
Employment of Counsel
Sec. [3.] 4. The Board [of Governors] may retain or authorize the
employment of counsel, with such powers, titles, duties, and authority
as it shall deem necessary or advisable.
[Administrative Staff
Sec. 4. The Board of Governors may employ or authorize the
employment and prescribe the powers and duties of such an
administrative staff as it deems necessary or advisable. The employment
and compensation of such administrative staff of the Corporation shall
be at the pleasure of the Board of Governors, provided that such
determinations are not inconsistent with the requirements of the
Delegation Plan.]
Delegation of Duties of Officers
Sec. 5. The Board may delegate the duties and powers of any officer
of the NASD to any other officer or to any Governor for a specified
period of time and for any reason that the Board may deem sufficient.
Resignation and Removal of Officers
Sec. 6. (a) Any officer may resign at any time upon written notice
of resignation to the Board, the Chief Executive Officer, or the
Secretary. Any such resignation shall take effect upon receipt of such
notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.
(b) Any officer of the NASD may be removed, with or without cause,
by resolution adopted by a majority of the Governors then in office at
any regular or special meeting of the Board or by a written consent
signed by all of the Governors then in office. Such removal shall be
without prejudice to the contractual rights of the affected officer, if
any, with the NASD.
Bond
Sec. 7. The NASD may secure the fidelity of any or all of its
officers, agents, or employees by bond or otherwise.
Article [VIII] IX
Committees
Appointment
Sec. 1. [The] Subject to Article VII, Section 1(c), the Board may
appoint such committees or subcommittees as it deems necessary or
desirable, and it shall fix their powers, duties, and terms of office[;
provided that such determinations are not inconsistent with
requirements of the Delegation Plan]. Any such committee or
subcommittee consisting solely of one or more Governors, to the extent
provided by these By-Laws or by resolution of the Board, shall have and
may exercise all powers and authority of the Board in the management of
the business and affairs of the [Corporation] NASD.
Maintenance of Compositional Requirements of Committees
Sec. 2. Upon request of the Secretary of the NASD, each prospective
committee member who is not a Governor shall provide to the Secretary
such information as is reasonably necessary to serve as the basis for a
determination of the prospective committee member's classification as
an Industry, Non-Industry, or Public committee member. The Secretary
shall certify to the Board each prospective committee member's
classification. Each committee member shall update the information
submitted under this Section at least annually and upon request of the
Secretary of the NASD, and shall report immediately to the Secretary
any change in such classification.
Removal of Committee Member
Sec. [2] 3. [Any] A member of [any] a committee or subcommittee
appointed pursuant to this Article [VIII] may be removed from such
committee or subcommittee only by a majority vote of the whole Board,
after appropriate notice, for refusal, failure, neglect, or inability
to discharge [his] such member's duties [or for any cause the
sufficiency of which shall be decided by the Board].
[Resolution of the Board of Governors
Interpretations and Explanations
The Executive Committee be and hereby is authorized and directed to
consider and make recommendations to the Board of Governors with
respect to such interpretative questions, having to do with the
Certificate of Incorporation, By-Laws, Rules of Fair Practice and Code
of Procedure of the Association, as may from time to time be submitted
to the Committee by the Board of Governors or the President.
Where a decision is required as to which reasonable men, equally
well informed, might well not differ, the ruling shall be deemed to be
an explanation. Where a decision is required where reasonable men,
equally well informed, might well differ, the ruling shall be deemed to
be an interpretation.
Where in the judgment of the President and upon advice of Counsel,
any question involves an answer clearly in the nature of an
explanation, such question may be answered in the office of the
President.
Where in the judgment of the President and upon advice of Counsel,
any question involves an answer in the nature of an interpretation, the
President shall present such question to the Executive Committee.
The President may, after consultation with and upon advice of
Counsel, give an office opinion. Such office opinion shall state that
it reflects only the opinion of the office of the President and it is
provisional and subject to the approval of the Board of Governors.
District Committees, District Business Conduct Committees, Counsel
or staff thereof, are hereby directed not to issue any interpretations
of the Certificate of Incorporation, By-Laws, Rules of Fair
[[Page 53088]]
Practice or Code of Procedure, either in oral or written form without
presentation of the question to the President and in such case, if the
questions presented appear to be an interpretation with the meaning of
this resolution the matter shall be presented in writing to the
Executive Committee.]
Executive Committee
Sec. 4. (a) The Board may appoint an Executive Committee, which
shall, to the fullest extent permitted by the General Corporation Law
of the State of Delaware and other applicable law, have and be
permitted to exercise all the powers and authority of the Board in the
management of the business and affairs of the NASD between meetings of
the Board, and which may authorize the seal of the NASD to be affixed
to all papers that may require it.
(b) The Executive Committee shall consist of no fewer than five and
no more than nine Governors. The Executive Committee shall include the
Chief Executive Officer of the NASD, at least one Director of NASD
Regulation, at least one Director of Nasdaq, and at least two Governors
who are not Directors of NASD Regulation or Nasdaq. The number of
Directors of the NASD Regulation Board and the number of Directors of
the Nasdaq Board serving on the Executive Committee shall be equal at
all times. The Executive Committee shall have a percentage of Non-
Industry committee members at least as great as the percentage of Non-
Industry Governors on the whole Board and a percentage of Public
committee members at least as great as the percentage of Public
Governors on the whole Board.
(c) An Executive Committee member shall hold office for a term of
one year.
(d) At all meetings of the Executive Committee, a quorum for the
transaction of business shall consist of a majority of the Executive
Committee, including not less than 50 percent of the Non-Industry
committee members. In the absence of a quorum, a majority of the
committee members present may adjourn the meeting until a quorum is
present.
Audit Committee
Sec. 5. (a) The Board shall appoint an Audit Committee. The Audit
Committee shall consist of four or five Governors, none of whom shall
be officers or employees of the Association. A majority of the Audit
Committee members shall be Non-Industry Governors. The Audit Committee
shall include two Public Governors. A Public Governor shall serve as
Chair of the Committee. An Audit Committee member shall hold office for
a term of one year.
(b) The Audit Committee shall perform the following functions: (i)
ensure the existence of adequate controls and the integrity of the
financial reporting process of the NASD; (ii) recommend to the NASD
Board, and monitor the independence and performance of, the certified
public accountants retained as outside auditors by the NASD; and (iii)
direct and oversee all the activities of the NASD's internal review
function, including but not limited to management's responses to the
internal review function.
(c) No member of the Audit Committee shall participate in the
consideration or decision of any matter relating to a particular NASD
member, company, or individual if such Audit Committee member has a
material interest in, or a professional, business, or personal
relationship with, that member, company, or individual, or if such
participation shall create an appearance of impropriety. An Audit
Committee member shall consult with the General Counsel of the NASD to
determine if recusal is necessary. If a member of the Audit Committee
is recused from consideration of a matter, any decision on the matter
shall be by a vote of a majority of the remaining members of the Audit
Committee.
(d) The Audit Committee shall have exclusive authority to: (i) hire
or terminate the Director of Internal Review; (ii) determine the
compensation of the Director of Internal Review; and (iii) determine
the budget for the Office of Internal Review. The Office of Internal
Review and the Director of Internal Review shall report directly to the
Audit Committee. The Audit Committee may, in its discretion, direct
that the Office of Internal Review also report to senior management of
the NASD on matters the Audit Committee deems appropriate and may
request that senior NASD management perform such operational oversight
as necessary and proper, consistent with preservation of the
independence of the internal review function.
(e) At all meetings of the Audit Committee, a quorum for the
transaction of business shall consist of a majority of the Audit
Committee, including not less than 50 percent of the Non-Industry
committee members. In the absence of a quorum, a majority of the
committee members present may adjourn the meeting until a quorum is
present.
Finance Committee
Sec. 6(a) The Board may appoint a Finance Committee. The Finance
Committee shall advise the Board with respect to the oversight of the
financial operations and conditions of the NASD, including
recommendations for the NASD's annual operating and capital budgets and
proposed changes to the rates and fees charged by NASD.
(b) The Finance Committee shall consist of four or more Governors.
The Chief Executive Officer of the NASD shall be a member of the
Finance Committee. The number of Non-Industry committee members shall
equal or exceed the number of Industry committee members plus the Chief
Executive Officer of the NASD. A Finance Committee member shall hold
office for a term of one year.
(c) At all meetings of the Finance Committee, a quorum for the
transaction of business shall consist of a majority of the Finance
Committee, including not less than 50 percent of the Non-Industry
committee members. In the absence of a quorum, a majority of the
committee members present may adjourn the meeting until a quorum is
present.
Article X
Compensation of Board and Committee Members
[Article VII, Sec. 5.] Sec. 1. The Board may provide for reasonable
compensation of the [Chairman] Chair of the Board, the Governors, and
the members of any committee [of the Board from the Corporation]. The
Board may also provide for reimbursement of reasonable expenses
incurred by such persons in connection with the business of the
[Corporation] NASD.
Article [IX] XI
Rules
Sec. 1. To promote and enforce just and equitable principles of
trade and business, to maintain high standards of commercial honor and
integrity among members of the [Corporation] NASD, to prevent
fraudulent and manipulative acts and practices, to provide safeguards
against unreasonable profits or unreasonable rates of commissions or
other charges, to protect investors and the public interest, to
collaborate with governmental and other agencies in the promotion of
fair practices and the elimination of fraud, and in general to carry
out the purposes of the [Corporation] NASD and of the Act, the Board
[of Governors] is hereby authorized to adopt such [Rules of Fair
Practice] rules for the members and persons associated with members,
and
[[Page 53089]]
such amendments thereto as it may, from time to time, deem necessary or
appropriate. If any such [Rules] rules or amendments thereto are
approved by the Commission as provided in the Act, they shall become
effective Rules of the Association as of such date as the Board [of
Governors] may prescribe. The Board [of Governors] is hereby
authorized, subject to the provisions of the By-Laws and the Act, to
administer, enforce, suspend, or cancel any Rules of [Fair Practice]
the Association adopted hereunder.
Article [X] XII
Disciplinary Proceedings
Sec. 1. The Board [of Governors] shall have authority to establish
procedures relating to disciplinary proceedings involving members and
their associated persons.
Sec. 2. Except as otherwise permitted under these By-Laws or the
Act, in any disciplinary proceeding [before the Corporation] under the
Rules of the Association, any member or person associated with a member
shall be given the opportunity to have a hearing at which [he] such
member or person associated with a member shall be entitled to be heard
in person [and/or by counsel] or by counsel or by a representative as
provided in the Rules of the Association. Such persons may present any
relevant material in accordance with the Rules of the Association. In
any such proceeding against a member or against a person associated
with a member to determine whether the member [and/or] or the person
associated with a member shall be disciplined:
(a) Specific charges shall be brought;
(b) Such member or person associated with a member shall be
notified of and be given an opportunity to defend against such charges;
(c) A record shall be kept; and
(d) Any determination shall include a statement setting forth:
[(1)] (i) Any act or practice, in which such member or person
associated with a member may be found to have engaged or which such
member or person associated with a member may be found to have omitted;
[(2)] (ii) The rule, regulation, or statutory provision of which
any such act or practice, or omission to act, is deemed to be in
violation;
[(3)] (iii) The basis upon which any findings are made; and
[(4)] (iv) The [penalty] sanction imposed.
Article [XI] XIII
Powers of Board to [Prescribe] Impose Sanctions
Sec. 1. The Board is hereby authorized to [prescribe] impose
appropriate sanctions applicable to members, including censure, fine,
suspension, or expulsion from membership, suspension or bar from being
associated with all members, limitation of activities, functions, and
operations of a member, or any other fitting sanction, and to
[prescribe] impose appropriate sanctions applicable to persons
associated with members, including censure, fine, suspension or barring
a person associated with a member from being associated with all
members, limitation of activities, functions, and operations of a
person associated with a member, or any other fitting sanction, for:
(a) Breach by a member or a person associated with a member of any
covenant with the [Corporation] NASD or its members;
(b) Violation by a member or a person associated with a member of
any of the terms, conditions, covenants, and provisions of the [rules
of the Corporation] By-Laws of the NASD, NASD Regulation, or Nasdaq,
the Rules of the Association, or the federal securities laws, including
the rules and regulations adopted thereunder, [and including] the rules
of the Municipal Securities Rulemaking Board, and the rules of the
Treasury Department;
(c) Failure by a member or person associated with a member to: (i)
Submit a dispute for arbitration [under the Code of Arbitration
Procedure (``Arbitration Code'')] as required by the [Arbitration Code]
Rules of the Association[,]; [or to fail to] (ii) appear or [to]
produce any document in [their] the member's or person's possession or
control as directed pursuant to [provisions of] the [Arbitration Code]
Rules of the Association[,]; [or to fail to honor] (iii) comply with an
award of arbitrators properly rendered pursuant to the [Arbitration
Code] Rules of the Association, where a timely motion [has not been
made] to vacate or modify such award has not been made pursuant to
applicable law or where such a motion has been denied; or (iv) comply
with a written and executed settlement agreement obtained in connection
with an arbitration or mediation submitted for disposition pursuant to
the Rules of the Association;
(d) Refusal by a member or person associated with a member to abide
by an official ruling of the Board or any committee exercising powers
assigned by the Board with respect to any transaction which is subject
to the Uniform Practice Code; or
(e) Failure by a member or person associated with a member to
adhere to any ruling, order, direction, or decision of[,] or to pay any
[penalty,] sanction, fine, or costs[,] imposed by the Board[, or any
committee exercising powers assigned by the Board] or any entity to
which the Board has delegated its powers in accordance with the
Delegation Plan.
Sec. 2. The Board may delegate its authority under this Article in
accordance with the Delegation Plan.
Article [XII] XIV
Uniform Practice Code
Authority to Adopt Code
Sec. 1. The Board [of Governors] is hereby authorized to adopt a
Uniform Practice Code and amendments, interpretations and explanations
thereto, designed to make uniform, where practicable, custom, practice,
usage, and trading technique in the investment banking and securities
business with respect to such matters as trade terms, deliveries,
payments, dividends, rights, interest, reclamations, exchange of
confirmations, stamp taxes, claims, assignments, powers of
substitution, computation of interest and basis prices, due-bills,
transfer fees, ``when, as and if issued'' trading, ``when, as and if
distributed'' trading, marking to the market, and close-out procedure,
all to the end that the transaction of day-to-day business by members
may be simplified and facilitated, that business disputes and
misunderstandings, which arise from uncertainty and lack of uniformity
in such matters, may be eliminated, and that the mechanisms of a free
and open market may be improved and impediments thereto removed.
Administration of Code
Sec. 2. The administration of any Uniform Practice Code, or any
amendment thereto, adopted by the Board [of Governors] pursuant to
Section 1 [of this Article], shall be vested in the Board [of
Governors], and the Board is hereby granted such powers as are
reasonably necessary to achieve its effective operation. In the
exercise of such powers, the Board may issue explanations and
interpretations and make binding rulings with respect to the
applicability of the provisions of the Uniform Practice Code to
situations in which there is no substantial disagreement as to the
facts involved. [The] In accordance with the Delegation Plan, the Board
may delegate to [appropriate committees such of its
[[Page 53090]]
powers,] the NASD Regulation Board and the Nasdaq Board such of the
Board's powers hereunder as it deems necessary and appropriate to
achieve effective administration and operation of the Uniform Practice
Code.
Transactions Subject to Code
Sec. 3. All over-the-counter transactions in securities by members,
except transactions in securities which are exempted under Section
3(a)(12) of the Act, or are municipal securities as defined in Section
3(a)(29) of the Act, are subject to the provisions of the Uniform
Practice Code and to the provisions of Section 2 [of this Article]
unless exempted therefrom by the terms of the Uniform Practice Code.
Article [XIII] XV Limitation of Powers Prohibitions
Sec. 1. Under no circumstances shall the Board [of Governors] or
any officer, employee, or member of the [Corporation] NASD have the
power to:
(a) Make any donation or contribution from the funds of the
[Corporation] NASD or to commit the [Corporation] NASD for the payment
of any donations or contributions for political or charitable purposes;
or
(b) Use the name of the facilities of the [Corporation] NASD in aid
of any political party or candidate for any public office.
Use of Name of [Corporation] the NASD by Members
Sec. 2. No member shall use the name of the [Corporation] NASD
except to the extent that may be [authorized by the Board of Governors]
permitted by the Rules of the Association.
[Resolution of the Board of Governors
Limitations Upon Use of the Association Name
Members are permitted, in conformity with Article XVI, Section 2 of
the Association's By-Laws, and within the limitations prescribed by
this Resolution, to indicate membership in the Association in the
following manner:
1. Solely as a matter of record in recognized trade directories or
other similar types of business listings.
2. Solely in conjunction with the identifying use of the firm name
on letterheads, booklet covers, sales literature headings, in the
masthead of market letters and on other similar types of circular
material, so long as this use is exclusively for identification
purposes, is separate and apart from the regular text of the literature
and is always in a smaller size type and with lesser emphasis than that
used for the firm name.
3. The Association's name may be used in institutional or any other
type of general print and/or electronic advertising media so long as
such use is solely and exclusively for identifying the firm as a
member, used only in proximity to and in conjunction with the firm
name, carries no implied or specific indication of Association approval
of the securities or services discussed in the advertisement, is
separate and apart from the primary text material in the advertisement,
and is always in a smaller size type and of lesser emphasis than that
used for the firm name.
4. The following language may be used on confirmation forms, ``this
transaction (if over-the-counter) has been executed in conformity with
the rules and regulations of the Uniform Practice Code of the National
Association of Securities Dealers, Inc.''
5. The name of the Association may be used on the door or entrance
way of a member's principal office or any registered branch office in
the following manner: ``Member, (of the) National Association of
Securities Dealers, Inc.''
6. Each member shall be entitled to receive upon request to the
Association an appropriate certification of membership which may be
displayed in the principal office or any registered branch office of
the member. Such certification shall be and remain the property of the
Association and shall be returned by a member upon request of the Board
of Governors or the President of the Association.
No member or person associated with a member shall use the name of
the Association in a fraudulent or misleading manner in connection with
the promotion or sale of any specific security or in connection with
any other aspect of the member's business; or imply orally, visually or
in writing that the Association endorses, indemnifies or guarantees any
member's business practices, selling methods or class or type of
securities offered.
Any improper, fraudulent or misleading use of the Association's
name by a member or person associated with a member shall be deemed
conduct inconsistent with high standards of commercial honor and just
and equitable principles of trade in violation of Article III, Section
1 of the Association's Rules of Fair Practice.]
Unauthorized Expenditures
Sec. 3. No officer, employee, member of the Board [of Governors] or
of any committee[,] shall have any power to incur or contract any
liability on behalf of the [Corporation] NASD not authorized by the
Board [of Governors]. The Board may delegate to the Chief Executive
Officer of the [Corporation or his delegate] NASD or the Chief
Executive Officer's delegate[,] such authority as it deems necessary to
contract on behalf of the [Corporation] NASD or to satisfy
unanticipated liabilities during the period between Board meetings.
Conflicts of Interest
Sec. 4. (a) A Governor or a member of [the Board of Governors or of
any] a committee [of the Corporation] shall not directly or indirectly
participate in any adjudication of the interests of any party if such
[participation would violate the] Governor or committee member has a
conflict of interest [provisions of the Procedural Rules of the
Corporation] or bias, or if circumstances otherwise exist where his or
her fairness might reasonably be questioned. In any such case, the
Governor or committee member shall recuse himself or herself or shall
be disqualified in accordance with the Rules of the Association.
(b) No contract or transaction between the NASD and one or more of
its Governors or officers, or between the NASD and any other
corporation, partnership, association, or other organization in which
one or more of its Governors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this
reason if: (i) the material facts pertaining to such Governor's or
officer's relationship or interest and the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested Governors; or (ii)
the material facts are disclosed or become known to the Board or
committee after the contract or transaction is entered into, and the
Board or committee in good faith ratifies the contract or transaction
by the affirmative vote of a majority of the disinterested Governors.
Only disinterested Governors may be counted in determining the presence
of a quorum at the portion of a meeting of the Board or of a committee
that authorizes the contract or transaction. This subsection shall not
apply to any contract or transaction between the NASD and NASD
Regulation or Nasdaq.
Municipal Securities
Sec. 5. The provisions of the By-Laws conferring rulemaking
authority upon the Board [of Governors] shall not be applicable to the
municipal securities
[[Page 53091]]
activities of members or persons associated with members to the extent
that the application of such authority would be inconsistent with
Section 15B of the Act.
[Government Securities
Sec. 6. The provisions of the By-Laws governing qualifications of
members and persons associated with members and conferring rulemaking
authority upon the Board of Governors shall not be applicable to the
Government securities activities of members or persons associated with
members to the extent that the application of such provisions or
authority would be inconsistent with Section 15A(f) of the Act.]
Article [XIV] XVI
Procedure for Adopting Amendments to By-Laws
Sec. 1. [Any member of the Board of Governors by resolution, any
District Committee by resolution, or any twenty-five members of the
Corporation by petition signed by such members,] A Governor or a
committee appointed by the Board may propose amendments to these By-
Laws. Any 25 members of the NASD by petition signed by such members may
propose amendments to these By-Laws. Every proposed amendment shall be
presented in writing to the Board [of Governors], and a record shall be
kept thereof. The [Board of Governors] Board may adopt any proposed
amendment to these By-Laws by affirmative vote of a majority of the
[members of the Board of] Governors then in office. The Board [of
Governors], upon adoption of any such amendment to these By-Laws,
except as otherwise provided in these By-Laws, shall forthwith cause a
copy to be sent to and voted upon by each member of the [Corporation]
NASD. If such amendment to these By-Laws is approved by a majority of
the members voting within [thirty (30)] 30 days after the date of
submission to the membership, and is approved by the Commission as
provided in the Act, it shall become effective as of such date as the
Board [of Governors] may prescribe.
Article [XV] XVII
Corporate Seal
Sec. 1. The corporate seal shall have inscribed thereon the name of
the [Corporation] NASD, the year of its organization and the words
``Corporate Seal, Delaware.'' Said seal may be used by causing it or a
facsimile thereof to be imposed or affixed or reproduced or otherwise.
Article [XVI] XVIII
Checks
Sec. 1. All checks or demands for money and notes of the
[Corporation] NASD shall be signed by such officer or officers or such
other person or persons as the Board [of Governors] may from time to
time designate.
Article [XVII] XIX
Annual Financial Statement
Sec. 1. As soon as practicable after the end of each fiscal year,
the Board [of Governors] shall send to each member of the [Corporation]
NASD a reasonably itemized statement of receipts and expenditures of
the [Corporation] NASD for such preceding fiscal year.
Article XX
Record Dates
Fixing of Date by Board
Sec. 1. In order that the NASD may determine the members entitled
to notice of or to vote at any meeting of members or any adjournment
thereof, or to express consent or dissent to corporate action in
writing without a meeting, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, pursuant to
Section 213 of the General Corporation Law of the State of Delaware.
Only such members as shall be members of record on the date so fixed
shall be entitled to notice of and to vote at such meeting or any
adjournment thereof, or to give such consent or dissent.
Default Date
Sec. 2. If no record date is fixed by the Board, the record date
for determining members entitled to notice of or to vote at a meeting
of members shall be at the close of business on the day next preceding
the date on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is
held.
Adjournment
Sec. 3. A determination of members of record entitled to notice of
or to vote at a meeting of members shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new record
date for the adjourned meeting.
Article XXI
Meetings of Members
Annual Meeting
Sec. 1. The annual meeting shall be on such date and at such place
as the Board shall designate. The business of the meeting shall
include: (a) election of the members of the Board pursuant to Article
VII, Section 13; and (b) the proposal of business (i) by or at the
direction of the Chairman of the Board or the Board, or (ii) by any
member entitled to vote at the meeting who complied with the notice
procedures set forth in Section 3 and was a member at the time such
notice was delivered to the Secretary of the NASD.
Special Meetings
Sec. 2. A special meeting shall be on such date and at such place
as the Board shall designate. Only such business shall be conducted at
a special meeting as shall have been brought before the meeting
pursuant to Section 3(a); provided, however, that in no event shall the
announcement to the members of an adjournment of a special meeting
commence a new time period for the giving of notice.
Notice of Meeting; Member Business
Sec. 3. (a) Notice of each meeting shall be written or printed;
shall state the date, time, and place of the meeting; shall state the
purpose or purposes for which the meeting is called; and unless it is
the annual meeting, indicate that the notice is being issued at the
direction of the person or persons calling the meeting. The Secretary
of the NASD shall deliver the notice to the Executive Representative of
each member entitled to vote not less than 30 days nor more than 60
days before the date of an annual meeting and not less than ten days
nor more than 60 days before the date of a special meeting. If mailed,
the notice shall be deemed to be delivered when deposited with postage
in the United States mail and addressed to the Executive Representative
of the member as it appears on the records of the NASD. Such further
notice shall be given as may be required by law. Meetings may be held
without notice if all members entitled to vote are present (except as
otherwise provided by law), or if notice is waived by those not
present. Any previously scheduled meeting of the members may be
postponed and any special meeting of the members may be canceled by
resolution of the Board upon notice given to the members prior to the
time previously scheduled for the meeting.
(b) For business other than the election of Governors to be brought
properly before an annual meeting by a member pursuant to Section 1,
the member must have given timely notice thereof in writing to the
Secretary of the NASD and such other business must otherwise be a
proper matter for member action. To be timely, a member's notice shall
be delivered to the Secretary at the NASD's principal
[[Page 53092]]
executive offices within 30 days after the date of the notice of the
meeting. Such member's notice shall set forth a brief description of
the business desired to be brought before the meeting, any material
interest of the member in such business, and the reasons for conducting
such business at the meeting. In no event shall the announcement to the
members of an adjournment of an annual meeting commence a new time
period for the giving of a member's notice as described above.
(c) Except as otherwise provided by applicable law, the Restated
Certificate of Incorporation, or these By-Laws, the chairman of the
meeting shall have the power and duty to determine whether any
nomination or other business proposed to be brought before the meeting
pursuant to subsection (b) or Article VII, Section 10 was made in
accordance with the procedures set forth herein and, if any proposed
nomination or business is not in compliance with these By-Laws, to
declare that such defective nomination or proposal shall be
disregarded.
Inspector
Sec. 4. At each meeting of the members, the polls shall be opened
and closed, the proxies and ballots received and taken in charge, and
all questions touching the qualification of voters and the validity of
proxies and the acceptance or rejection of votes shall be decided by an
inspector appointed by the Secretary of the NASD before the meeting, or
in default thereof by the chairman of the meeting. If the inspector
previously appointed fails to attend or refuses or is unable to serve,
a substitute shall be appointed by the chairman of the meeting. The
inspector shall not be a Governor, officer, or employee of the NASD or
a director, officer, partner, or employee of an NASD subsidiary or
member.
Conduct of Meetings
Sec. 5. The chairman of the meeting shall be the Chief Executive
Officer of the NASD or his or her designee. The date and time of the
opening and closing of the polls for each matter upon which the members
will vote at a meeting shall be announced at the meeting by the
chairman of the meeting. The Board may adopt by resolution such rules
and regulations for the conduct of the meeting of members as it shall
deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the Board, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations, and
procedures and to do all such acts as, in the judgment of the chairman
of the meeting, are appropriate for the proper conduct of the meeting.
Such rules, regulations, or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may include, without
limitation, the following: (a) The establishment of an agenda or order
of business for the meeting; (b) rules and procedures for maintaining
order at the meeting and the safety of those present; (c) limitations
on attendance at or participation in the meeting to members, their duly
authorized and constituted proxies, or such other persons as the
chairman of the meeting shall determine; (d) restrictions on entry to
the meeting after the time fixed for the commencement thereof; and (e)
limitations on the time allotted to questions or comments by
participants. Unless and to the extent determined by the Board or the
chairman of the meeting, meetings of members shall not be required to
be held in accordance with the rules of parliamentary procedure.
* * * * *
By-Laws of NASD Regulation, Inc.
Article I
Definitions
When used in these By-Laws, unless the context otherwise requires,
the term:
(a) ``Act'' means the Securities Exchange Act of 1934, as amended;
(b) ``Board'' means the Board of Directors of NASD Regulation;
(c) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
(d) ``Commission'' means the Securities and Exchange Commission;
(e) ``day'' means calendar day;
(f) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for such individual's or entity's own account,
through a broker or otherwise, but does not include a bank, or any
person insofar as such person buys or sells securities for such
person's own account, either individually or in some fiduciary
capacity, but not as part of a regular business;
(g) ``Delaware law'' means the General Corporation Law of the State
of Delaware;
(h) ``Delegation Plan'' means the ``Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries'' as approved by the
Commission, and as amended from time to time;
(i) ``Director'' means a member of the Board, excluding the Chief
Executive Officer of the NASD;
(j) ``district'' means a district established by the Board pursuant
to Article VIII, Section 8.1 of these By-Laws;
(k) ``District Committee'' means a District Committee elected
pursuant to Article VIII of these By-Laws;
(l) ``District Director'' means an NASD Regulation staff member who
heads a district office;
(m) ``District Nominating Committee'' means a District Nominating
Committee elected pursuant to Article VIII of these By-Laws;
(n) ``district office'' means an office of NASD Regulation located
in a district;
(o) ``Executive Representative'' means the executive representative
of an NASD member appointed pursuant to Article IV, Section 3 of the
NASD By-Laws;
(p) ``Independent Agent'' means a corporation or entity selected by
the Secretary of NASD Regulation to assist NASD Regulation with
nomination and election procedures under Articles VI and VIII of these
By-Laws and the representatives of such corporation or entity;
(q) ``Industry Director'' or ``Industry member'' means a Director
(excluding the President) or a National Adjudicatory Council or
committee member who (1) is or has served in the prior three years as
an officer, director, or employee of a broker or dealer, excluding an
outside director or a director not engaged in the day-to-day management
of a broker or dealer; (2) is an officer, director, (excluding an
outside director) or employee of an entity that owns more than ten
percent of the equity of a broker or dealer, and the broker or dealer
accounts for more than five percent of the gross revenues received by
the consolidated entity; (3) owns more than five percent of the equity
securities of any broker or dealer, whose investments in brokers or
dealers exceed ten percent of his or her net worth, or whose ownership
interest otherwise permits him or her to be engaged in the day-to-day
management of a broker or dealer; (4) provides professional services to
brokers or dealers, and such services constitute 20 percent or more of
the professional revenues received by the Director or member or 20
percent or more of the gross revenues received by the Director's or
member's firm or partnership; (5) provides professional services to a
[[Page 53093]]
director, officer, or employee of a broker, dealer, or corporation that
owns 50 percent or more of the voting stock of a broker or dealer, and
such services relate to the director's, officer's, or employee's
professional capacity and constitute 20 percent or more of the
professional revenues received by the Director or member or 20 percent
or more of the gross revenues received by the Director's or member's
firm or partnership; or (6) has a consulting or employment relationship
with or provides professional services to the NASD, NASD Regulation, or
Nasdaq or has had any such relationship or provided any such services
at any time within the prior three years;
(r) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(s) ``NASD Board'' means the NASD Board of Governors;
(t) ``NASD member'' means any broker or dealer admitted to
membership in the NASD;
(u) ``NASD Regulation'' means NASD Regulation, Inc.;
(v) ``National Adjudicatory Council'' means a body appointed
pursuant to Article V of these By-Laws.
(w) ``National Nominating Committee'' means the National Nominating
Committee appointed pursuant to Article VII, Section 9 of the NASD By-
Laws;
(x) ``Non-Industry Director'' or ``Non-Industry member'' means a
Director (excluding the President) or a National Adjudicatory Council
or committee member who is (1) a Public Director or Public member; (2)
an officer or employee of an issuer of securities listed on Nasdaq or
traded in the over-the-counter market; or (3) any other individual who
would not be an Industry Director or Industry member;
(y) ``person associated with a member'' or ``associated person of a
member'' means: (1) a natural person registered under the Rules of the
Association; or (2) a sole proprietor, partner, officer, director, or
branch manager of a member, or a natural person occupying a similar
status or performing similar functions, or a natural person engaged in
the investment banking or securities business who is directly or
indirectly controlling or controlled by a member, whether or not any
such person is registered or exempt from registration with the NASD
under these By-Laws or the Rules of the Association;
(z) ``Public Director'' or ``Public member'' means a Director or
National Adjudicatory Council or committee member who has no material
business relationship with a broker or dealer or the NASD, NASD
Regulation, or Nasdaq;
(aa) ``Regional Nominating Committee'' means a Regional Nominating
Committee that nominates to the National Nominating Committee a
candidate for the National Adjudicatory Council to represent a
geographical region as provided in Article VI of these By-Laws; and
(bb) ``Rules of the Association'' or ``Rules'' means the numbered
rules set forth in the NASD Manual beginning with the Rule 0100 Series,
as adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter
amended or supplemented.
Article [I] II
Offices
Location
Sec. [1.1] 2.1 The address of the registered office of [the
Corporation] NASD Regulation in the State of Delaware and the name of
the registered agent at such address shall be: The Corporation Trust
Company, 1209 Orange [St.,] Street, Wilmington, [DE] Delaware 19801.
[The Corporation may] NASD Regulation also may have offices at such
other places both within and without the State of Delaware as the Board
[of Directors] may from time to time designate or the business of [the
Corporation] NASD Regulation may require.
Change of Location
Sec. [1.2] 2.2 In the manner permitted by law, the Board [of
Directors] or the registered agent may change the address of [the
Corporation's] NASD Regulation's registered office in the State of
Delaware and the Board [of Directors] may make, revoke, or change the
designation of the registered agent.
Article [II] III
Meetings of the [Stockholders] Stockholder
[Annual Meeting
Sec. 2.1 The annual meeting of stockholders of the Corporation for
the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held on such
date, and at such time, and place, within or without the State of
Delaware, as may be fixed, from time to time, by the Board of
Directors.]
[Special Meetings
Sec. 2.2 Special meetings of stockholders of the Corporation,
unless otherwise prescribed by law, may be called at any time by the
Chair of the Board, by the President or by order of a majority of the
Board of Directors. Special meetings of stockholders prescribed by law
for the election of directors shall be called by the Board of
Directors, the President, or the Secretary. Special meetings of
stockholders shall be held at such place within or without the State of
Delaware as shall be designated in the notice of meeting.]
[Notice of Meetings
Sec. 2.3(a) Whenever stockholders are required or permitted to
take any action at a meeting, they shall be given written notice
stating the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes thereof. Unless otherwise
required by law, the Certificate of Incorporation or these By-Laws,
written notice shall be delivered or mailed at least ten but not more
than sixty days before such meeting date to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deposited in
the United States mail, postage prepaid, directed to each stockholder
at the address that appears on the records of the Corporation.]
[(b) When a meeting of stockholders is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Corporation may transact any
business that might have been transacted at the original meeting. If,
however, the adjournment is for more than thirty days from the date of
the original meeting, or if, after the adjournment, a new record date
is set for the adjourned meeting, notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting
in the manner prescribed above in subsection (a).]
[Quorum
Sec. 2.4 Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, at each meeting of stockholders the
presence in person or by proxy of the holders of record of a majority
of the outstanding shares of capital stock entitled to vote or act at
such a meeting shall constitute a quorum for the transaction of any
business. In the absence of a quorum, the stockholders so present may
by majority rule, adjourn any meeting until a quorum shall be present.
When a quorum is once present to organize a meeting, the quorum cannot
be destroyed by the subsequent withdrawal or revocation of the proxy of
any stockholder.]
[[Page 53094]]
[Voting
Sec. 2.5(a) At any meeting of stockholders, each stockholder as of
the record date is entitled to one vote for each such share of stock
having voting power, upon the matter in question, except as otherwise
provided in the Certificate of Incorporation. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another
person or persons to act for him by proxy, provided that no proxy shall
be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only so
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of
the Corporation.]
[(b) Directors of the Corporation shall be elected by a plurality
of the votes cast at a meeting of stockholders pursuant to Sec. 2.5 of
these By-Laws. Corporate action other than the election of directors
shall be authorized by a majority of the votes cast at a meeting of
stockholders, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws.]
[(c) Upon the demand of any stockholder entitled to vote, the
election of directors or a vote on any other matter at a meeting of
stockholders shall be by written ballot; otherwise, the method of
voting and the manner in which votes are counted at such a meeting
shall be discretionary with the presiding officer of the meeting.]
[Presiding Officer and Secretary
Sec. 2.6 At every meeting of stockholders, the Chair, or in his/
her absence, the President, or in his/her absence, the appointee of the
meeting, shall preside. The Secretary, or in his/her absence, the
appointee of the presiding officer of the meeting, shall act as
Secretary of the meeting.]
Action by Consent of [Stockholders] Stockholder
Sec. [2.7]3.1 Any action required[,] or permitted by law to be
taken at any meeting of the [stockholders] stockholder of [the
Corporation] NASD Regulation may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by the [holders] holder of the
outstanding stock [having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of corporate action without a meeting and
by less than unanimous written consent shall be given to those
stockholders who have not consented in writing].
Article [III] IV
Board of Directors
General Powers
Sec. [3.1]4.1 The property, business, and affairs of [the
Corporation] NASD Regulation shall be managed by or under the direction
of the Board [of Directors]. The Board [of Directors] may exercise all
such powers of [the Corporation] NASD Regulation and have the authority
to perform all such lawful acts as are permitted by law, the Restated
Certificate of Incorporation [or], these By-Laws, or the Delegation
Plan to assist the [National Association of Securities Dealers, Inc.]
NASD in fulfilling its self-regulatory responsibilities as set forth in
Section 15A of the [Securities Exchange Act of 1934, and] Act, and to
support such other initiatives as the Board [of Directors] may deem
appropriate. To the fullest extent permitted by applicable law, the
Restated Certificate of Incorporation, and these By-Laws, the Board may
delegate any of its powers to a committee appointed pursuant to Section
4.13 or to NASD Regulation staff in a manner not inconsistent with the
Delegation Plan.
Number of Directors
Sec. [3.2]4.2 [The Board of Directors of the Corporation shall
consist of one or more members; the exact number of directors that
shall constitute the whole Board of Directors shall be fixed from time
to time by resolution adopted by the whole Board of Directors. After
fixing the number of directors constituting the whole Board of
Directors, the Board of Directors may, by resolution adopted by the
whole Board of Directors, from time to time change the number of
directors constituting the whole Board of Directors; provided that such
determination shall be consistent with the Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries (the ``Delegation
Plan'').] The Board shall consist of no fewer than five and no more
than eight Directors, the exact number to be determined by resolution
adopted by the stockholder of NASD Regulation from time to time.
Notwithstanding the preceding sentence, the number of Directors shall
equal the number of directors on the Nasdaq Board. Any new Director
position created as a result of an increase in the size of the Board
shall be filled as part of the annual election conducted under Section
4.4.
Qualifications
Sec. [3.3]4.3 (a) Directors need not be stockholders of [the
Corporation. The Board of Directors shall include at all times the
President of the Corporation and such Industry, Non-Industry, and
Public Governors as shall be determined from time to time by the Board
of Directors, which determination shall be consistent with the
Delegation Plan. The criteria for the categories of Industry, Non-
Industry, and Public Directors, as used herein, shall be established by
the Board of Directors from time to time, which criteria shall be
consistent with the Delegation Plan.] NASD Regulation. Only Governors
of the NASD Board shall be eligible for election to the Board. The
number of Non-Industry Directors shall equal or exceed the number of
Industry Directors plus the President. The Board shall include the
President and the National Adjudicatory Council Chair, representatives
of an issuer of investment company shares or an affiliate of such an
issuer, and an insurance company or an affiliated NASD member. The
Board shall include at least one Public Director, unless the Board
consists of eight Directors. In such case, at least two Directors shall
be Public Directors. The Chief Executive Officer of the NASD shall be
an ex-officio non-voting member of the Board.
(b) As soon as practicable, following the annual election of
Directors, the Board shall elect from its members a Chair and a Vice
Chair and such other persons having such titles as it shall deem
necessary or advisable to serve until the next annual election or until
their successors are chosen and qualify. The persons so elected shall
have such powers and duties as may be determined from time to time by
the Board. The Board, by resolution adopted by a majority of Directors
then in office, may remove any such person from such position at any
time.
Election
Sec. [3.4]4.4 Except as otherwise provided by law [or], these By-
Laws, or the Delegation Plan, after the first meeting of [the
Corporation] NASD Regulation at which [directors] Directors are
elected, [directors of the Corporation] Directors of NASD
[[Page 53095]]
Regulation shall be elected each year at the annual meeting of
[stockholders] the stockholder, or at a special meeting called for such
purpose in lieu of the annual meeting [, by a plurality of the votes
cast at such meeting]. If the annual election of [directors] Directors
is not held on the date designated [therefore,] therefor, the
[directors] Directors shall cause such election to be held as soon
thereafter as convenient.
[Term
Sec. 3.5 (a) Each Director shall hold office for a term of three
years or until his successor is duly elected and qualified, except in
the event of earlier termination from office by reason of death,
resignation, removal with or without cause, or other reason.]
[(b) The Board of Directors shall be divided into three classes.]
[(c) The President of the Corporation shall serve as a member of
the Board until his successor is selected and qualified, or until his
death, resignation, or removal.]
[(d) Except for the President, no Director may serve more than two
consecutive terms; provided, however, that if a Director is appointed
to fill a term of less than one year, such Director may serve up to two
consecutive terms following the expiration of such Director's current
term.]
[(e) Each director chosen to fill a newly created directorship
shall serve until the next succeeding annual meeting of stockholders.]
Resignation
Sec. [3.6] 4.5 Any [director] Director may resign at any time
either upon written notice of resignation to the Chair of the Board,
the President, or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time [be] is not specified,
upon receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such
resignation effective.
Removal
Sec. [3.7] 4.6 Any or all of the [directors] Directors may be
removed from office at any time, with or without cause, [by the
stockholders] only by a majority vote of the NASD Board.
Disqualification
Sec. 4.7 The term of office of a Director shall terminate
immediately upon a determination by the Board, by a majority vote of
the remaining Directors, that: (a) the Director no longer satisfies the
classification (Industry, Non-Industry, or Public Director) for which
the Director was elected; and (b) the Director's continued service as
such would violate the compositional requirements of the Board set
forth in Section 4.3. If the term of office of a Director terminates
under this Section, and the remaining term of office of such Director
at the time of termination is not more than six months, during the
period of vacancy the Board shall not be deemed to be in violation of
Section 4.3 by virtue of such vacancy.
Filling of Vacancies
Sec. 4.8 If a Director position becomes vacant, whether because of
death, disability, disqualification, removal, or resignation, the
National Nominating Committee shall nominate, and the NASD Board shall
elect by majority vote, a person satisfying the classification
(Industry, Non-Industry, or Public Director) for the directorship as
provided in Section 4.3 to fill such vacancy, except that if the
remaining term of office for the vacant Director position is not more
than six months, no replacement shall be required.
Quorum and Voting
Sec. [3.8]4.9(a) At all meetings of the Board [of Directors, one-
third of the total number of directors shall constitute], unless
otherwise set forth in these By-Laws or required by law, a quorum for
the transaction of business shall consist of a majority of the Board,
including not less than 50 percent of the Non-Industry Directors. In
the absence of a quorum, a majority of the [directors] Directors
present may adjourn the meeting until a quorum [be] is present.
(b) [A director interested in a matter to be acted upon by the
Board of Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors that determines the
Corporation's action.]
[(c) Subject to the restrictions of Section 3.12] Except as
provided in Section 4.14(b), the vote of a majority of the [directors]
Directors present at a meeting at which a quorum is present shall be
the act of the Board [of Directors].
Regulation
Sec. [3.9]4.10 The Board [of Directors] may adopt such rules,
regulations, and requirements for the conduct of the business and
management of [the Corporation,] NASD Regulation not inconsistent with
the law, the Restated Certificate of Incorporation, these By-Laws, [or
the rules and By-Laws of the National Association of Securities
Dealers, Inc., as the Board of Directors may deem proper. A member of
the Board of Directors] the Rules of the Association, or the By-Laws of
the NASD, as the Board may deem proper. A Director shall, in the
performance of [his or her] such Director's duties, be fully protected
in relying in good faith upon the books of account or reports made to
[the Corporation] NASD Regulation by any of its officers, [or] by an
independent certified public accountant, [or] by an appraiser selected
with reasonable care by the Board [of Directors] or any committee of
the Board [of Directors] or by any agent of [the Corporation] NASD
Regulation, or in relying in good faith upon other records of [the
Corporation] NASD Regulation.
Meetings
Sec. [3.10]4.11(a) An annual meeting of the Board [of Directors]
shall be held for the purpose of organization, election of officers,
and transaction of any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of
[stockholders] the stockholder, no notice of the annual meeting of the
Board [of Directors] need be given. Otherwise, such annual meeting
shall be held at such time and place as may be specified in a notice
given in accordance with Section [3.11 of these By-Laws] 4.12.
(b) Regular meetings of the Board [of Directors] may be held at
such time and place, within or without the State of Delaware, as
determined from time to time by the Board [of Directors]. After such
determination has been made, notice shall be given in accordance with
Section [3.11 of these By-Laws] 4.12.
(c) Special meetings of the Board [of Directors] may be called by
the Chair of the Board, [or] by the President, or by at least one-third
of the [directors at that time being] Directors then in office. Notice
of any special meeting of the Board [of Directors] shall be given to
each [director] Director in accordance with Section [3.11 of these By-
Laws] 4.12.
(d) [Members of the Board of Directors, or any committee designated
by the Board of Directors,] A Director or member of any committee
appointed by the Board may participate in a meeting of the Board [of
Directors] or of such committee through the use of a conference
telephone or similar communications [facilities that ensure] equipment
by means of which all persons participating in the meeting may hear one
another, and such participation in a meeting shall constitute presence
in person at such meeting for all purposes.
Notice of Meetings; Waiver of Notice
Sec. [3.11]4.12(a) Notice of any meeting of the Board [of
Directors] shall
[[Page 53096]]
be deemed to be duly given to a [director] Director if: (i) [if] mailed
to the address last made known in writing to [the Corporation] NASD
Regulation by such [director] Director as the address to which such
notices are to be sent, at least [two] seven days before the day on
which such [special] meeting is to be held[, or]; (ii) [if] sent to the
[director] Director at such address by telegraph, telefax, cable,
radio, or wireless, not later than the day before the day on which such
meeting is to be held[,]; or (iii) [if] delivered to the [director]
Director personally or orally, by telephone or otherwise, not later
than the day before the day on which such [special] meeting is to be
held. Each notice shall state the time and place of the meeting and the
purpose(s) thereof.
(b) Notice of any meeting of the Board [of Directors] need not be
given to any [director] Director if waived by that [director] Director
in writing (or by telegram, telefax, cable, radio, or wireless and
subsequently confirmed in writing) whether before or after the holding
of such meeting, or if such [director] Director is present at such
meeting, subject to [Section 7.3(b) hereof] Article XII, Section
12.3(b).
(c) Any meeting of the Board shall be a legal meeting without any
prior notice if all Directors then in office shall be present thereat.
Committees [of the Board of Directors]
Sec. [3.13]4.13(a) The Board [of Directors] may, by resolution or
resolutions adopted by a majority of the whole Board [of Directors,
designate], appoint one or more committees[, each committee to consist
of one or more directors of the Corporation]. Except as herein
provided, vacancies in membership of any committee shall be filled by
the vote of a majority of the whole Board [of Directors]. The Board [of
Directors] may designate one or more [directors] Directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not [he, she,] such member or [they] members constitute a
quorum, may unanimously appoint another [member of the Board of
Directors] Director to act at the meeting in the place of any such
absent or disqualified member. Members of a committee shall hold office
for such period as may be fixed by a resolution adopted by a majority
of the whole Board [of Directors, subject, however, to removal, with or
without cause, at any time by the vote of a majority of the whole Board
of Directors]. Any member of a committee may be removed from such
committee only after a majority vote of the whole Board, after
appropriate notice, for refusal, failure, neglect, or inability to
discharge such member's duties.
(b) [Any committee, to the extent permitted by law and to the
extent provided in the] The Board may, by resolution or resolutions
[creating such committee, shall have and may exercise all the powers
and authority of the Board of Directors] adopted by a majority of the
whole Board, delegate to one or more committees the power and authority
to act on behalf of the Board in carrying out the functions and
authority delegated to NASD Regulation by the NASD under the Delegation
Plan. Such delegations shall be in conformance with applicable law, the
Restated Certificate of Incorporation, these By-Laws, and the
Delegation Plan. Action taken by a committee pursuant to such delegated
authority shall be subject to review, ratification, or rejection by the
Board. In all other matters, the Board may, by resolution or
resolutions adopted by a majority of the whole Board, delegate to one
or more committees that consist solely of one or more Directors the
power and authority to act on behalf of the Board in the management of
the business and affairs of [the Corporation, and] NASD Regulation to
the extent permitted by law and not inconsistent with the Delegation
Plan. A committee, to the extent permitted by law and provided in the
resolution or resolutions creating such committee, may authorize the
seal of [the Corporation] NASD Regulation to be affixed to all papers
that may require it.
(c) Except as otherwise permitted by applicable law, no [such]
committee shall have the power or authority of the Board with regard
to: amending the Restated Certificate of Incorporation or the By-Laws
of [the Corporation,] NASD Regulation; adopting an agreement of merger
or consolidation; recommending to the [stockholders] stockholder the
sale, lease, or exchange of all or substantially all [the
Corporation's] NASD Regulation's property and assets; or recommending
to the [stockholders] stockholder a dissolution of [the Corporation]
NASD Regulation or a revocation of a dissolution. Unless the resolution
of the Board [of Directors] expressly so provides, no [such] committee
shall have the power or authority to authorize the issuance of stock.
[(c)] (d) Each committee may adopt its own rules of procedure and
may meet at stated times or on such notice as such committee may
determine. Each committee shall keep regular minutes of its proceedings
and report the same to the Board [of Directors] when required.
[(d)] (e) Unless otherwise provided by [the Board of Directors]
these By-Laws, a majority of [any such] a committee shall constitute a
quorum for the transaction of business, and the vote of a majority of
the members of such committee present at a meeting at which a quorum is
present shall be an act of such committee.
(f) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware law and other applicable law,
have and be permitted to exercise all the powers and authority of the
Board in the management of the business and affairs of NASD Regulation
between meetings of the Board, and which may authorize the seal of NASD
Regulation to be affixed to all papers that may require it. The
Executive Committee shall consist of three or four Directors, including
at least one Public Director. The President of NASD Regulation shall be
a member of the Executive Committee. The number of Non-Industry
committee members shall equal or exceed the number of Industry
committee members plus the President. An Executive Committee member
shall hold office for a term of one year. At all meetings of the
Executive Committee, a quorum for the transaction of business shall
consist of a majority of the Executive Committee, including not less
than 50 percent of the Non-Industry committee members. In the absence
of a quorum, a majority of the committee members present may adjourn
the meeting until a quorum is present.
(g) The Board may appoint a Finance Committee. The Finance
Committee shall advise the Board with respect to the oversight of the
financial operations and conditions of NASD Regulation, including
recommendations for NASD Regulation's annual operating and capital
budgets and proposed changes to the rates and fees charged by NASD
Regulation. The Finance Committee shall consist of three or four
Directors. The President of NASD Regulation shall serve as a member of
the Committee. A Finance Committee member shall hold office for a term
of one year.
(h) Upon request of the Secretary of NASD Regulation, each
prospective committee member who is not a Director shall provide to the
Secretary such information as is reasonably necessary to serve as the
basis for a determination of the prospective committee member's
classification as an Industry, Non-Industry, or Public
[[Page 53097]]
committee member. The Secretary of NASD Regulation shall certify to the
Board each prospective committee member's classification. Such
committee members shall update the information submitted under this
Section at least annually and upon request of the Secretary of NASD
Regulation, and shall report immediately to the Secretary any change in
such classification.
Conflicts of Interest; Contracts and Transactions Involving Directors
Sec. [3.12] 4.14 (a) [No member of the Board of Directors or of
any committee of the Corporation shall] A Director or a National
Adjudicatory Council or committee member shall not directly or
indirectly participate in any adjudication of the interests of any
party [that would at the same time substantially affect his interest or
the interests of any person in whom he is directly or indirectly
interested] if that Director or National Adjudicatory Council or
committee member has a conflict of interest or bias, or if
circumstances otherwise exist where his or her fairness might
reasonably be questioned. In any such case, the [member shall
disqualify himself or shall be disqualified by the Chairman of the
Board or Committee] Director or National Adjudicatory Council or
committee member shall recuse himself or herself or shall be
disqualified in accordance with the Rules of the Association.
(b) No contract or transaction between [the Corporation] NASD
Regulation and one or more of its [directors] Directors or officers, or
between [the Corporation] NASD Regulation and any other corporation,
partnership, association, or other organization in which one or more of
its [directors] Directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this
reason[, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee
thereof which] if: (i) The material facts pertaining to such Director's
or officer's relationship or interest and the contract or transaction
are disclosed or are known to the Board or the committee, and the Board
or committee in good faith authorizes the contract or transaction[, or
solely because his, her, or their votes are counted for such purposes
if: (i) The material facts pertaining to such director's or officer's
relationship or interest and] by the affirmative vote of a majority of
the disinterested Directors; (ii) the material facts are disclosed or
become known to the Board or committee after the contract or
transaction [are disclosed or are known to the Board of Directors or
the committee, and the Board] is entered into, and the Board or
committee in good faith [authorizes] ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
[directors, even though the disinterested directors be less than a
quorum; or (ii)] Directors; or (iii) the material facts pertaining to
the [director's] Director's or officer's relationship or interest and
the contract or transaction are disclosed or are known to the
[stockholders] stockholder entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
[stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by
the Board of Directors, a committee thereof, or the stockholders.
Common or interested directors] stockholder. Only disinterested
Directors may be counted in determining the presence of a quorum at the
portion of a meeting of the Board [of Directors,] or of a committee
that authorizes the contract or transaction. This subsection shall not
apply to a contract or transaction between NASD Regulation and the NASD
or Nasdaq.
Action Without Meeting
Sec. [3.14]4.15 Any action required or permitted to be taken at
[any] a meeting of the Board [of Directors or any] or of a committee
[thereof] may be taken without a meeting if all Directors or all
members of [the Board of Directors or] such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board [of Directors or such] or
the committee.
Communication of Views Regarding Contested Election or Nomination
Sec. 4.16 NASD Regulation, the Board, any committee, the National
Adjudicatory Council, and NASD Regulation staff shall not take any
position publicly or with an NASD member or person associated with or
employed by a member with respect to any candidate in a contested
election or nomination held pursuant to these By-Laws or the NASD By-
Laws. A Director, committee member, or National Adjudicatory Council
member may communicate his or her views with respect to a candidate if
such individual acts solely in his or her individual capacity and
disclaims any intention to communicate in any official capacity on
behalf of NASD Regulation, the Board, the National Adjudicatory
Council, or any committee. NASD Regulation, the Board, the National
Adjudicatory Council, any committee, and the NASD Regulation staff
shall not provide any administrative support to any candidate in a
contested election or nomination conducted pursuant to these By-Laws or
the NASD By-Laws.
[Article V Indemnification
Indemnification of Directors, Officers, Employees and Agents Right to
Indemnification
Sec. 5.1 The corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or
may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (a ``proceeding''), by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director,
officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or nonprofit entity, including service with respect to
employee benefit plans (an ``indemnitee''), against all liability and
loss suffered and expenses (including attorneys' fees) reasonably
incurred by such indemnitee, notwithstanding the foregoing, but subject
to Section 5.3 hereof, the corporation shall be required to indemnify
an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding
(or part thereof) by the indemnitee was authorized by the Board of
Directors.]
[Payment of Expenses
Sec. 5.2 The corporation shall pay the expenses (including
attorneys' fees) incurred by the persons set forth in Section 5.1 in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by that person to repay all amounts
advanced if it should be ultimately determined that the person is not
entitled to be indemnified under this Article or otherwise.]
[Nonexclusivity of Rights
Sec. 5.3 The rights conferred on any person by this Article shall
not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the
[[Page 53098]]
Certificate of Incorporation, these By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.]
[Other Indemnification
Sec. 5.4 The corporation's obligation, if any, to indemnify or
advance expenses to any person who was or is serving at its request as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity shall
be reduced by any amount such person may collect as indemnification or
advancement from such other corporation, partnership, joint venture,
trust, enterprise or nonprofit entity.]
[Amendment or Repeal
Sec. 5.5 Any repeal or modification of the foregoing provisions of
this Article shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.]
[Indemnification Insurance
Sec. 5.6 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, enterprise, or
nonprofit entity against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this section.]
Article V National Adjudicatory Council
Appointment and Authority
Sec. 5.1 The Board shall appoint a National Adjudicatory Council.
The National Adjudicatory Council may be authorized to act for the
Board in a manner consistent with these By-Laws, the Rules of the
Association, and the Delegation Plan with respect to an appeal or
review of a disciplinary proceeding, a statutory disqualification
proceeding, or a membership proceeding; a review of an offer of
settlement, a letter of acceptance, waiver, and consent, and a minor
rule violation plan letter; the exercise of exemptive authority; and
such other proceedings or actions authorized by the Rules of the
Association. The National Adjudicatory Council also shall consider and
make recommendations to the Board on policy and rule changes relating
to the business and sales practices of NASD members and associated
persons and enforcement policies, including policies with respect to
fines and other sanctions. The Board may delegate such other powers and
duties to the National Adjudicatory Council as the Board deems
appropriate in a manner not inconsistent with the Delegation Plan.
Number of Members and Qualifications
Sec. 5.2 (a) The National Adjudicatory Council shall consist of no
fewer than 12 and no more than 14 members. The number of Non-Industry
members, including at least three Public members, shall equal or exceed
the number of Industry members. In 1999 and thereafter, the Industry
members shall represent a geographic region designated by the Board
under Article VI, Section 6.1.
(b) As soon as practicable following the appointment of members,
the National Adjudicatory Council shall elect a Chair and a Vice Chair
from among its members. The Chair and Vice Chair shall have such powers
and duties as may be determined from time to time by the National
Adjudicatory Council. The Chair also shall serve as a Director of the
NASD Regulation Board and a Governor of the NASD Board for a one-year
term as provided in the By-Laws and Restated Certificate of
Incorporation of the NASD and these By-Laws. The Board, by resolution
adopted by a majority of Directors then in office and after notice to
the NASD Board, may remove the Chair or Vice Chair from such position
at any time for refusal, failure, neglect, or inability to discharge
his or her duties.
Nomination Process
Sec. 5.3 (a) Each Regional Nominating Committee shall nominate an
Industry member for consideration by the National Nominating Committee
as provided in Article VI and subsection (b) of this Section.
(b) The Secretary of NASD Regulation shall collect from each
nominee for the office of member of the National Adjudicatory Council
such information as is reasonably necessary to serve as the basis for a
determination of the nominee's classification as an Industry, Non-
Industry, or Public member, and the Secretary shall certify to the
National Nominating Committee each nominee's classification. After
appointment to the National Adjudicatory Council, each member shall
update such information at least annually and upon request of the
Secretary, and shall report immediately to the Secretary any change in
such classification.
Term of Office
Sec. 5.4 (a) Except as otherwise provided in this Article, each
National Adjudicatory Council member shall hold office for a term of
two years or until a successor is duly appointed and qualified, except
in the event of earlier termination from office by reason of death,
resignation, removal, disqualification, or other reason.
(b) In 1998, each National Adjudicatory Council member shall hold
office for a term of one year or until a successor is duly appointed
and qualified, except in the event of earlier termination from office
by reason of death, resignation, removal, disqualification, or other
reason.
(c) Beginning in January 1999 and thereafter, the National
Adjudicatory Council shall be divided into two classes. The term of
office of those of the first class shall expire in January 2000, and
the term of office of those of the second class shall expire one year
thereafter. Beginning in January 2000, members shall be appointed for
term of two years to replace those whose terms expire.
(d) Beginning in 2000, no member may serve more than two
consecutive terms, except that if a member is appointed to fill a term
of less than one year, such member may serve up to two consecutive
terms following the expiration of such member's initial term.
Resignation
Sec. 5.5 A member of the National Adjudicatory Council may resign
at any time upon written notice to the Board. Any such resignation
shall take effect at the time specified therein, or if the time is not
specified, upon receipt thereof, and the acceptance of such
resignation, unless required by the terms thereof, shall not be
necessary to make such resignation effective.
Removal
Sec. 5.6 Any or all of the members of the National Adjudicatory
Council may be removed from office at any time for refusal, failure,
neglect, or inability to discharge the duties of such office by
majority vote of the Board.
Disqualification
Sec. 5.7 Notwithstanding Section 5.4, the term of office of a
National Adjudicatory Council member shall terminate immediately upon a
determination by the Board, by a majority vote, that: (a) the member no
longer satisfies the classification (Industry, Non-Industry, or Public
member) for which the member was elected; and (b) the member's
continued
[[Page 53099]]
service as such would violate the compositional requirements of the
National Adjudicatory Council set forth in Section 5.2. If the term of
office of a National Adjudicatory Council member terminates under this
Section, and the remaining term of office of such member at the time of
termination is not more than six months, during the period of vacancy
the National Adjudicatory Council shall not be deemed to be in
violation of Section 5.2 by virtue of such vacancy.
Filling of Vacancies
Sec. 5.8 If a position on the National Adjudicatory Council
becomes vacant, whether because of death, disability, disqualification,
removal, or resignation, the National Nominating Committee shall
nominate, and the Board shall appoint a person satisfying the
classification (Industry, Non-Industry, or Public member) for the
position as provided in Section 5.2(a) to fill such vacancy, except
that if the remaining term of office for the vacant position is not
more than six months, no replacement shall be required.
Quorum and Voting
Sec. 5.9 At all meetings of the National Adjudicatory Council, a
quorum for the transaction of business shall consist of a majority of
the National Adjudicatory Council, including not less than 50 percent
of the Non-Industry members. In the absence of a quorum, a majority of
the members present may adjourn the meeting until a quorum is present.
Meetings
Sec. 5.10 The members of the National Adjudicatory Council may
participate in a meeting through the use of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting may hear one another, and such
participation in a meeting shall constitute presence in person at such
meeting for all purposes.
Article VI
National Adjudicatory Council Regional Nominations for Industry Members
Establishment of Regions
Sec. 6.1 The Board shall establish boundaries for geographical
regions within the United States for the purpose of nominating
candidates for membership on the National Adjudicatory Council to the
National Nominating Committee. The Board may make changes from time to
time in the number or boundaries of the regions as the Board deems
necessary or appropriate in accordance with Article V, Section 5.2(a).
The Board shall prescribe such policies and procedures as are necessary
or appropriate to address the implementation of a new region
configuration in the event of a change in the number or boundaries of
the regions.
Composition
Sec. 6.2 (a) A Regional Nominating Committee shall be elected for
each region designated by the Board under Section 6.1. Each District
Nominating Committee for a district located in the region shall elect
two District Committee members from the district to serve on the
Regional Nominating Committee. If a region shall consist of one
district, the District Nominating Committee for the district shall
elect four District Committee members from the district to serve on the
Regional Nominating Committee.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a Regional Nominating Committee to discharge his or her
duties, the Regional Nominating Committee may remove the member by the
affirmative vote of two-thirds of the members of the Regional
Nominating Committee then in office and declare the member's position
vacant. The Regional Nominating Committee shall notify the Regional
Nominating Committee member of his or her removal within seven days
after the vote. The member's position shall be filled pursuant to
Section 6.4. A member who is removed may submit a written appeal of the
removal to the Board within 30 days after the date he or she is
notified in writing of the removal. The Board may affirm, reverse, or
modify the determination of the Regional Nominating Committee. A vote
of a majority of the Directors then in office shall be required to
reverse or modify the action of the Regional Nominating Committee.
Term of Office
Sec. 6.3 Each regularly elected member of a Regional Nominating
Committee shall hold office for a term of two years, or until a
successor is elected and qualified, or until death, resignation, or
removal. A member of a Regional Nominating Committee may not serve more
than three consecutive terms.
Filling of Vacancies
Sec. 6.4 In the event of a vacancy on a Regional Nominating
Committee caused by the departure of a member prior to the expiration
of the member's term of office, the District Nominating Committee that
elected the member shall appoint by majority vote another member of the
District Committee to fill the vacancy. The appointment shall be
effective until the next regularly scheduled election occurs pursuant
to this Article.
Meetings
Sec. 6.5 Meetings of a Regional Nominating Committee shall be held
at such times and places, upon such notice, and in accordance with such
procedures as each Regional Nominating Committee in its discretion may
determine. A quorum of a Regional Nominating Committee shall consist of
a majority of its members, and any action taken by a majority vote at
any meeting at which a quorum is present, except as otherwise provided
in these By-Laws, shall constitute the action of the Committee. Action
by a Regional Nominating Committee may be taken by mail, telephonic, or
telegraphic vote, in which case any action taken by a majority of the
Committee shall constitute the action of the Committee. Action taken by
telephonic vote shall be confirmed in writing at a regular meeting of
the Regional Nominating Committee.
Election of Officers
Sec. 6.6 Following the annual election of members of the Regional
Nominating Committees pursuant to this Article, each Regional
Nominating Committee shall elect from its members a Chair and such
other officers as it deems necessary for the proper performance of its
duties under these By-Laws.
Expenses
Sec. 6.7 Funds to meet the regular expenses of each Regional
Nominating Committee shall be provided by the Board, and all such
expenses shall be subject to the approval of the Board.
Notice to Chair
Sec. 6.8 On or before August 1, 1998, the Secretary of NASD
Regulation shall send a written notice to the Chair of each Regional
Nominating Committee to initiate the process for nominating an
individual to represent the region on the National Adjudicatory Council
for a term of office of one or two years, as determined by the Board,
beginning in 1999. On or before August 1, 1999, and annually
thereafter, the Secretary of NASD Regulation shall send a written
notice to the chair of a Regional Nominating Committee if the term of
office of the National Adjudicatory council member representing the
region shall expire in the next calendar year. The notice shall
describe the
[[Page 53100]]
nomination procedures for filling the office.
Solicitation of Candidates
Sec. 6.9 NASD Regulation staff shall provide the Regional
Nominating Committee with a description of the NASD membership in the
region. The Regional Nominating Committee shall identify and solicit
candidates to nominate to the National Nominating Committee for the
office of National Adjudicatory Council member. The Regional Nominating
Committee Chair shall send a written notice of the upcoming nomination
to the Executive Representative and each branch office of the NASD
members in the region and request that such NASD members submit names
of candidates to the Regional Nominating Committee or the Secretary of
NASD Regulation for consideration.
Secretary's Notice to NASD Members
Sec. 6.10 The Secretary of NASD Regulation shall send a written
notice to NASD members in the region describing the nomination
procedures.
Regional Nominating Committee Candidate
Sec. 6.11 The Regional Nominating Committee shall review the
background of the candidates and the description of the NASD membership
provided by NASD Regulation staff and shall propose one or more
candidates for nomination to the National Nominating Committee. In
proposing a candidate for nomination, the Regional Nominating Committee
shall endeavor to secure appropriate and fair representation of the
region.
Notice of Regional Nominating Committee Candidate
Sec. 6.12 The Regional Nominating Committee shall send to the
Executive Representatives and branch offices of the NASD members in the
region a written notice of the name of the candidate or candidates the
Regional Nominating Committee proposes for nomination to the National
Nominating Committee.
Designation of Additional Candidates
Sec. 6.13 If an officer, director, or employee of an NASD member
in the region is not proposed for nomination by the Regional Nominating
Committee and wants to seek the nomination, he or she shall send a
written notice to the Regional Nominating Committee Chair or the
Secretary of NASD Regulation within 14 calendar days after the mailing
date of the Regional Nominating Committee's notice under Section 6.12.
The Regional Nominating Committee Chair or the Secretary of NASD
Regulation shall make a written record of the time and date of the
receipt of the officer's, director's, or employee's notice. The
officer, director, or employee shall be designated as an ``additional
candidate.''
List of NASD Members Eligible to Vote
Sec. 6.14 (a) The Secretary of NASD Regulation shall mail a list
of all NASD members eligible to vote in the region and their Executive
Representatives to the additional candidate immediately following
receipt of the additional candidate's notice by the Regional Nominating
Committee Chair or the Secretary of NASD Regulation.
(b) An NASD member that has its principal office, one or more
registered branch offices, or a principal office and one or more
registered branch offices in the region shall be eligible to cast one
vote on the nomination through the NASD member's Executive
Representative.
Requirement for Petition Supporting Additional Candidate
Sec. 6.15 An additional candidate shall be proposed for nomination
if a petition signed by at least ten percent of the NASD members
eligible to vote in the region is filed with the Regional Nominating
Committee within 30 calendar days after the date of mailing of the list
to the additional candidate pursuant to Section 6.14. Only an Executive
Representative may sign a petition on behalf of an NASD member.
Uncontested Nomination
Sec. 6.16 If the Regional Nominating Committee proposes one
candidate for nomination and no additional candidate is proposed for
nomination pursuant to Section 6.15, the Regional Nominating Committee
shall nominate its candidate to the National Nominating Committee.
Notice of Contested Nomination
Sec. 6.17 If the Regional Nominating Committee proposes more than
one candidate for nomination, or if an additional candidate is proposed
for nomination pursuant to Section 6.15, the Regional Nominating
Committee shall send a written notice to the Executive Representatives
of the NASD members eligible to vote in the region announcing the names
of the candidates and describing contested nomination procedures.
Administrative Support
Sec. 6.18 The Secretary of NASD Regulation shall designate a
district office in the region to provide administrative support to all
candidates by sending to NASD members eligible to vote in the region up
to two mailings of materials prepared by the candidates. NASD
Regulation shall pay the postage for the mailings. If a candidate wants
such mailings sent, the candidate shall prepare such material on the
candidate's personal stationery. The material shall state that it
represents the opinion of the candidate. The candidate shall provide a
copy of such material for each member of the NASD in the region. A
candidate proposed for nomination by the Regional Nominating Committee
may identify himself or herself as such in his or her materials. Any
candidate may send additional mailings to NASD members at the
candidate's own expense. Except as provided in this Article, NASD
Regulation, the Board, the Regional Nominating Committee, any other
committee, the National Adjudicatory Council, and NASD Regulation staff
shall not provide any other administrative support to a candidate for
the nomination under this Article or any candidate in a contested
election conducted under Article VII of the NASD By-Laws.
Ballots
Sec. 6.19 With the assistance of the Secretary of NASD Regulation
and an Independent Agent, the Regional Nominating Committee shall
prepare a ballot with the name or names of its candidate and any
additional candidates proposed for nomination pursuant to Section 6.15.
The ballot shall list the candidates in alphabetical order and shall
identify the candidate or candidates proposed for nomination by the
Regional Nominating Committee. The Regional Nominating Committee shall
send a ballot to the Executive Representative of each NASD member
eligible to vote in the region. Instructions on the ballot shall direct
the Executive Representative to return the ballot to the Independent
Agent and state that the ballot envelope must be postmarked on or
before the return date specified on the ballot. The return date
specified on the ballot shall be no fewer than 30 and no more than 45
days after the date of mailing of the ballot.
Vote Qualification List
Sec. 6.20 Eligibility to vote on a regional nomination shall be
based on the NASD's membership records as of a date designated by the
Secretary of NASD Regulation that is not more than 30 days before the
date of mailing of the ballot. The Secretary of NASD Regulation shall
prepare a list of NASD members eligible to vote in the region and their
Executive Representatives,
[[Page 53101]]
which shall be used for vote qualification purposes, and shall provide
the list to the candidates.
Ballots Returned As Undelivered
Sec. 6.21 The Independent Agent shall open any ballot envelope
returned undelivered and shall determine whether it was sent to the
NASD member's address of record. If incorrectly addressed, the
Independent Agent shall send a new ballot to the NASD member's address
of record.
General Procedures for Qualification and Accounting of Ballots
Sec. 6.22 After the voting period, on a date or dates designated
by the Secretary of NASD Regulation, the qualification and accounting
of ballots shall take place. The date or dates designated shall be not
later than 14 calendar days after the return date specified on the
ballot pursuant to Section 6.19. Candidates and their representatives
shall be allowed to observe the qualification and accounting of
ballots. Representation for each candidate shall be limited to two
individuals. The Independent Agent shall bring to a specified district
office in the region all ballots timely received. Under the direction
of the Secretary of NASD Regulation or the Secretary's designee, the
Independent Agent shall open and count the ballots. For ballot
qualification purposes, the Independent Agent shall identify to the
candidates the NASD members that timely returned ballots and inform the
candidates of the Independent Agent's determination of whether or not a
ballot is qualified for voting purposes. The determination shall be
based on a comparison of ballots received against the list of NASD
members eligible to vote in the region and their Executive
Representatives as prepared by the Secretary of NASD Regulation under
Section 6.20. The Secretary of NASD Regulation or the Secretary's
designee shall make the final determination of the qualification of a
ballot. Upon the qualification of a ballot, the Independent Agent shall
record the vote indicated on the ballot. The candidates and their
representatives shall not be allowed to see the vote of an NASD member.
Ballots Set Aside
Sec. 6.23 The Independent Agent shall set aside a ballot if: (a)
The ballot is received from an NASD member eligible to vote in the
region and the ballot is signed by a person who is not the Executive
Representative listed on the vote qualification list prepared under
Section 6.20, and the Secretary of the NASD has not received proper
notice of a change in Executive Representative pursuant to the NASD By-
Laws; or (b) two or more properly executed ballots are received from an
NASD member eligible to vote in the region. If the Independent Agent
determines that the ballots set aside are material to the outcome of
the nomination, the Secretary of NASD Regulation and the Independent
Agent shall make reasonable efforts to resolve each ballot set aside.
With respect to a ballot not signed by an Executive Representative of
record, the Secretary of NASD Regulation shall contact the NASD member
to request that the NASD member send proper written notice of any
change in Executive Representative by facsimile so that the ballot may
be counted. With respect to multiple ballots from an NASD member, the
Independent Agent shall contact the Executive Representative of the
NASD member to obtain the NASD member's vote. The Secretary of NASD
Regulation shall keep a list of NASD members that reported their ballot
was lost or not received and that were provided with a duplicate
ballot. The Secretary of NASD Regulation shall provide the list to the
Independent Agent and, upon request, to the candidates.
Invalid Ballots
Sec. 6.24 The Independent Agent shall declare a ballot invalid if
one or more of the following conditions exists:
(a) The ballot is not signed by the Executive Representative
(unless Section 6.23 applies);
(b) A vote is not indicated on the ballot; or
(c) A vote for more than one candidate is indicated on the ballot.
Certification of Nomination
Sec. 6.25 Under the direction of the Secretary of NASD Regulation
or the Secretary's designee, the Independent Agent shall count the
votes received for each candidate. The candidate receiving the largest
number of votes cast in the region shall be declared the nominee from
the region and the Regional Nominating Committee shall nominate such
candidate to the National Nominating Committee. In the event of a tie,
there shall be a run-off vote for the nomination. The Regional
Nominating Committee shall send a written certification of the
nomination results to the National Nominating Committee. The
certification shall state the number of votes received by each
candidate and the number of ballots set aside.
Rejection of Regional Nominating Committee Nominee
Sec. 6.26 If the National Nominating Committee rejects the nominee
of the Regional Nominating Committee, the Regional Nominating Committee
shall repeat the nomination procedures in Section 6.9 through Section
6.25.
Extension of Time and Additional Procedures
Sec. 6.27 The Secretary of NASD Regulation may extend a time
period under this Article for good cause shown. In extraordinary
circumstances, the Secretary of NASD Regulation, with the approval of
the Executive Committee or the Board, may adopt additional procedures
for nominations under this Article.
Article [IV] VII
Officers, Agents, and Employees
Officers
Sec. [4.1]7.1 The Board [of Directors] shall elect the officers of
[the Corporation] NASD Regulation, which shall include a President, a
Secretary, and such [for] other executive or administrative officers as
it shall deem necessary or advisable, including, but not limited to:
Executive Vice[-] President, Senior Vice [-]President, Vice [-
]President, General Counsel, [Secretary] and Treasurer of [the
Corporation] NASD Regulation. All such officers shall have such titles,
powers, and duties, and shall be entitled to such compensation, as
shall be determined from time to time by the Board [of Directors]. The
terms of office of such officers shall be at the pleasure of the Board
[of Directors], which by affirmative vote of a majority of the
[members] Board, may remove any such officer at any time. One person
may hold the offices and perform the duties of any two or more of said
offices, except the offices and duties of President and Vice President
or of President and Secretary. None of the officers, except the
President, need be [directors of the Corporation] Directors of NASD
Regulation.
Absence of the President
Sec. 7.2 In the case of the absence or inability to act of the
President of NASD Regulation, or in the case of a vacancy in such
office, the Board may appoint its Chair or such other person as it may
designate to act as such officer pro tem, who shall assume all the
functions and discharge all the duties of the President.
[[Page 53102]]
Agents and Employees
Sec. [4.2]7.3 In addition to the officers, [the Corporation] NASD
Regulation may employ such agents and employees as the Board [of
Directors] may deem necessary or advisable, each of whom shall hold
office for such period and exercise such authority and perform such
duties as the Board [of Directors], the President, or any officer
designated by the Board [of Directors,] may from time to time
determine. [The Board of Directors at any time may appoint and remove,
or may delegate to any principal officer the power to appoint and to
remove, any agent or employee of the Corporation.] Agents and employees
of NASD Regulation shall be under the supervision and control of the
officers of the NASD Regulation, unless the Board, by resolution,
provides that an agent or employee shall be under the supervision and
control of the Board.
Delegation of Duties of Officers
Sec. [4.3]7.4 The Board [of Directors] may delegate the duties and
powers of any officer of [the Corporation] NASD Regulation to any other
officer or to any [director] Director for a specified period of time
and for any reason that the Board [of Directors] may deem sufficient.
Resignation and Removal of Officers
Sec. [4.4]7.5 (a) Any officer may resign at any time upon written
notice of resignation to the Board [of Directors], the President, or
the Secretary. Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.
(b) Any officer[, agent or employee of the Corporation] of NASD
Regulation may be removed, with or without cause, by resolution adopted
by a majority of the [directors] Directors then in office at any
regular or special meeting of the Board [of Directors] or by a written
consent signed by all of the [directors] Directors then in office. Such
removal shall be without prejudice to the contractual rights of the
affected officer, [agent, or employee,] if any, with [the Corporation]
NASD Regulation.
Bond
Sec. [4.5]7.6 [The Corporation] NASD Regulation may secure the
fidelity of any or all of its officers, agents, or employees by bond or
otherwise.
[Compensation of Board and Committee Members
Sec. 4.6 The Board of Directors may provide for reasonable
compensation of the Chairman of the Board, the Directors, and the
members of any committee of the Board or any District Committee from
the Corporation. The Board may also provide for reimbursement of
reasonable expenses incurred by such persons in connection with the
business of the Corporation.]
Article VIII
District Committees and District Nominating Committees
Establishment of Districts
Sec. 8.1 The Board shall establish boundaries for districts within
the United States to assist NASD Regulation in administering its
affairs in a manner that is consistent with applicable law, the
Restated Certificate of Incorporation, these By-Laws, the Delegation
Plan, and the Rules of the Association. The Board may make changes from
time to time in the number or boundaries of the districts as it deems
necessary or appropriate. The Board shall prescribe such policies and
procedures as are necessary or appropriate to address the
implementation of a new district configuration in the event of a change
in the number or boundaries of the districts.
Composition of District Committees
Sec. 8.2 (a) A district created under Section 8.1 shall elect a
District Committee pursuant to this Article. A District Committee shall
consist of no fewer than five and no more than 20 members, unless
otherwise provided by resolution of the Board. Each District Committee
member shall be employed in the office of an NASD member eligible to
vote in the district. A District Committee shall determine the number
of its members to be elected each year. Members of the District
Committees shall serve as panelists in disciplinary proceedings in
accordance with the Rules of the Association. The District Committees
shall consider and recommend policies and rule changes to the Board.
The District Committees shall endeavor, in such manner as they deem
appropriate, to educate NASD members and other brokers and dealers in
their respective districts as to the objects, purposes, and work of the
NASD, NASD Regulation, and Nasdaq in order to foster NASD members'
interest and cooperation.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a District Committee to discharge his or her duties, or for
any cause affecting the best interests of NASD Regulation, the
sufficiency of which shall be decided by the District Committee, the
District Committee may remove the member by the affirmative vote of
two-thirds of the members of the District Committee then in office and
declare the member's position vacant. The District Committee shall
notify the District Committee member of his or her removal within seven
days after the vote. The member's position shall be filled pursuant to
Section 8.4. A member who is removed may submit a written appeal of the
removal to the Board within 30 days after the date he or she is
notified of the removal. The Board may affirm, reverse, or modify the
determination of the District Committee. A vote of a majority of the
Directors then in office shall be required to reverse or modify the
action of the District Committee.
Term of Office of District Committee Members
Sec. 8.3 Each regularly elected member of a District Committee
shall hold office for a term of three years, or until a successor is
elected and qualified, or until death, resignation, or removal. A
member of a District Committee may not serve more than two consecutive
terms.
Filling of Vacancies on District Committees
Sec. 8.4 In the event of a vacancy on a District Committee caused
by the departure of a Committee member prior to the expiration of the
member's term of office, the District Committee shall appoint by
majority vote a representative of an NASD member eligible to vote in
the district to fill the vacancy. The appointment shall be effective
until the next regularly scheduled election occurs. Following the
election, the newly elected Committee member shall serve only the
duration of the departed Committee member's term.
Meetings of District Committees
Sec. 8.5 Meetings of a District Committee shall be held at such
times and places, upon such notice, and in accordance with such
procedures as each District Committee in its discretion may determine.
A quorum of a District Committee shall consist of a majority of its
members, and any action taken by a majority at any meeting at which a
quorum is present, except as otherwise provided in these By-Laws, shall
constitute the action of the Committee. Action by a District Committee
may be taken by mail, telephonic, or telegraphic vote, in which case
any action taken by a majority of the Committee shall
[[Page 53103]]
constitute the action of the Committee. Any action taken by telephonic
vote shall be confirmed in writing at a regular meeting of the District
Committee.
Election of District Officers
Sec. 8.6 Following the annual election of members of the District
Committees pursuant to this Article, each District Committee shall
elect from its members a Chair and such other officers as it deems
necessary for the proper performance of its duties under these By-Laws,
and shall prescribe their powers and duties.
Advisory Council
Sec. 8.7 (a) The Chairs of the District Committees, elected
pursuant to Section 8.6, shall constitute an Advisory Council to the
Board.
(b) The Advisory Council shall be advised of and entitled to attend
such meetings of the Board as the Board may designate for such Advisory
Council's attendance, and the Board shall designate at least one such
meeting annually. The Advisory Council shall not be entitled to vote at
meetings of the Board.
Expenses of District Committees
Sec. 8.8 Funds to meet the regular expenses of each District
Committee shall be provided by the Board, and all such expenses shall
be subject to the approval of the Board.
Composition of District Nominating Committees
Sec. 8.9 (a) Each district created under Section 8.1 shall elect a
District Nominating Committee pursuant to this Article. A District
Nominating Committee shall consist of five members, unless the Board by
resolution increases a District Nominating Committee to a larger
number. Each member of a District Nominating Committee shall be
employed in the office of an NASD member eligible to vote in the
district, but shall not be a member of the District Committee. A
District Nominating Committee shall include a majority of persons who
previously have served on a District Committee or who are current or
former Directors or current or former Governors of the NASD Board, and
shall include at least one current or former Director or Governor.
(b) In the event of the refusal, failure, neglect, or inability of
a member of a District Nominating Committee to discharge his or her
duties, or for any cause affecting the best interests of NASD
Regulation, the sufficiency of which shall be decided by the District
Nominating Committee, the District Nominating Committee may remove the
member by the affirmative vote of two-thirds of the members of the
District Nominating Committee then in office and declare the member's
position vacant. The member's position shall be filled pursuant to
Section 8.11. The District Nominating Committee shall notify the
District Nominating Committee member of his or her removal within seven
days after the vote. A member who is removed may submit a written
appeal of the removal to the Board within 30 days after the date he or
she is notified in writing of the removal. The Board may affirm,
reverse, or modify the determination of the District Nominating
Committee. A vote of a majority of the Directors then in office shall
be required to reverse or modify the action of the District Nominating
Committee.
Term of Office of District Nominating Committee Members
Sec. 8.10 Each regularly elected member of a District Nominating
Committee shall hold office for a term of one year, and until a
successor is elected and qualified, or until death, resignation, or
removal. A member of a District Nominating Committee may not serve more
than two consecutive terms.
Filling of Vacancies for District Nominating Committees
Sec. 8.11 In the event of a vacancy on a District Nominating
Committee caused by the departure of a Committee member prior to the
expiration of the member's term of office, the District Nominating
Committee shall appoint by majority vote a representative of an NASD
member eligible to vote in the district to fill the vacancy. The
appointment shall be effective until the next regularly scheduled
election occurs pursuant to this Article.
Meetings of District Nominating Committees
Sec. 8.12 Meetings of a District Nominating Committee shall be
held at such times and places, upon such notice, and in accordance with
such procedures as each District Nominating Committee in its discretion
may determine. A quorum of a District Nominating Committee shall
consist of a majority of its members, and any action taken by a
majority of the entire Committee at any meeting, except as otherwise
provided in these By-Laws, shall constitute the action of the
Committee. Action by a District Nominating Committee may be taken by
mail, telephonic, or telegraphic vote, in which case any action taken
by a majority of the Committee shall constitute the action of the
Committee. Action taken by telephonic vote shall be confirmed in
writing at a regular meeting of the District Nominating Committee.
Election of District Nominating Committee Officers
Sec. 8.13 Following the annual election of members of the District
Nominating Committees pursuant to this Article, each District
Nominating Committee shall elect from its members a Chair and such
other officers as it deems necessary for the proper performance of its
duties under these By-Laws, and shall prescribe their powers and
duties.
Expenses of District Nominating Committees
Sec. 8.14 Funds to meet the regular expenses of each District
Nominating Committee shall be provided by the Board, and all such
expenses shall be subject to the approval of the Board.
Notice to Chair
Sec. 8.15 On or before May 1 of each year, the Secretary of NASD
Regulation shall send a written notice to the Chair of each District
Nominating Committee and each District Committee identifying the
members of the District Nominating Committee and the District Committee
whose terms of office shall expire in the next calendar year. The
notice shall describe election procedures for filling the offices.
Solicitation of Candidates
Sec. 8.16 NASD Regulation staff shall provide the District
Nominating Committee with a description of the NASD membership in the
district. The District Nominating Committee shall identify and solicit
candidates to nominate for the vacancies on the District Committee and
the District Nominating Committee. The District Nominating Committee
Chair shall send a written notice of the upcoming election to the
Executive Representative and each branch office of the NASD members in
the district and request that such NASD members submit names of
candidates to the District Nominating Committee or the District
Director for consideration.
Secretary's Notice to NASD Members
Sec. 8.17 The Secretary of NASD Regulation shall send a written
notice to NASD members in the district describing the election
procedures.
[[Page 53104]]
District Nominating Committee Slate
Sec. 8.18 (a) The District Nominating Committee shall review the
background of proposed candidates and the description of the NASD
membership provided by NASD Regulation staff and shall nominate a slate
of candidates for the election. The slate shall include one or more
candidates for each vacancy. In nominating candidates for the office of
member of the District Committee and the office of member of the
District Nominating Committee, the District Nominating Committee shall
endeavor to secure appropriate and fair representation on the District
Committee and on the District Nominating Committee of the various
sections of the district and all classes and types of NASD members
engaged in the investment banking or securities business within the
district. In nominating candidates for the office of member of the
District Nominating Committee, a District Nominating Committee shall
assure that the composition of the District Nominating Committee meets
the standards in Section 8.9(a).
(b) A District Nominating Committee shall not nominate an incumbent
member of the District Committee to succeed himself or herself unless
the District Nominating Committee first takes appropriate action by a
written ballot of the entire NASD membership within the district to
ascertain that such nomination is acceptable to a majority of the NASD
members in the district, unless the incumbent member of the District
Committee is serving pursuant to the provisions of Section 8.4. A
District Nominating Committee may not nominate more than two incumbent
members of the District Nominating Committee to succeed themselves.
Certification of Nomination
Sec. 8.19 The District Nominating Committee shall certify to the
District Committee each candidate nominated by the District Nominating
Committee and the office to which the candidate is nominated. Within
five calendar days after the certification, the District Committee
shall send to the Executive Representatives of NASD members in the
district a copy of the certification.
Designation of Additional Candidates
Sec. 8.20 If an officer, director, or employee of an NASD member
who meets the qualifications of Section 8.2 is not nominated by the
District Nominating Committee and wants to be considered for a vacancy
on the District Committee or the District Nominating Committee, he or
she shall send a written notice to the District Director within 14
calendar days after the mailing date of the certification to the
Executive Representatives pursuant to Section 8.19. The District
Director shall make a written record of the time and date of the
receipt of the officer's, director's, or employee's notice. The
officer, director, or employee shall be designated as an ``additional
candidate.''
List of NASD Members Eligible to Vote
Sec. 8.21 (a) The Secretary of NASD Regulation shall provide a
list of all NASD members eligible to vote in the district and their
Executive Representatives to the additional candidate immediately
following receipt of the additional candidate's notice by the District
Director.
(b) An NASD member that has its principal office, one or more
registered branch offices, or its principal office and one or more
registered branch offices in the district shall be eligible to cast one
vote through the NASD member's Executive Representative for each
vacancy to be filled in the election.
Requirement for Petition Supporting Additional Candidate
Sec. 8.22 An additional candidate shall be nominated if a petition
signed by at least ten percent of the NASD members eligible to vote in
the district is filed with the District Nominating Committee within 30
calendar days after the date of mailing of the list to the additional
candidate pursuant to Section 8.21. Only an Executive Representative
may sign a petition on behalf of an NASD member.
Uncontested Election
Sec. 8.23 If the District Nominating Committee nominates one
candidate for each vacancy and no additional candidate is nominated
pursuant to Section 8.22, the candidates nominated by the District
Nominating Committee shall be considered duly elected and the District
Committee shall certify the election to the Board.
Notice of Contested Election
Sec. 8.24 If the District Nominating Committee nominates more than
one candidate for a vacancy, or if an additional candidate is nominated
pursuant to Section 8.22, the election shall be considered a contested
election. The District Committee shall send a notice to the Executive
Representatives of the NASD members eligible to vote in the district
announcing the names of the candidates and the office to which each
candidate is nominated and describing contested election procedures.
Administrative Support
Sec. 8.25 The District Office shall provide administrative support
to all candidates by sending to NASD members eligible to vote in the
district up to two mailings of materials prepared by the candidates.
NASD Regulation shall pay the postage for the mailings. If a candidate
wants such mailings sent, the candidate shall prepare such material on
the candidate's personal stationery. The material shall state that it
represents the opinion of the candidate. The candidate shall provide a
copy of the material for each member of the NASD in the district.
Candidates nominated by the District Nominating Committee may identify
themselves as such in their materials. Any candidate may send
additional mailings at the candidate's own expense. Except as provided
in this Article, NASD Regulation, the Board, the Regional Nominating
Committee, any other committee, and NASD Regulation staff shall not
provide any other administrative support to a candidate in the
election.
Ballots
Sec. 8.26 With the assistance of the Secretary of NASD Regulation
and an Independent Agent, the District Nominating Committee shall
prepare a ballot with the names of the District Nominating Committee's
candidates and any additional candidate nominated pursuant to Section
8.22 and the office to which each candidate is nominated. The ballot
shall list the candidates in alphabetical order and shall identify the
candidates nominated by the District Nominating Committee. The District
Nominating Committee shall send a ballot to the Executive
Representative of each NASD member eligible to vote in the district.
Instructions on the ballot shall direct the Executive Representative to
return the ballot to the Independent Agent and state that the ballot
envelope must be postmarked on or before the return date specified on
the ballot. The return date specified on the ballot shall be no fewer
than 30 and no more than 45 days after the date of mailing of the
ballot.
Vote Qualification List
Sec. 8.27 Eligibility to vote in a district election shall be
based on the NASD's membership records as of a date selected by the
Secretary of NASD Regulation that is not more than 30 days before the
date of mailing of the ballot. The Secretary of NASD Regulation shall
prepare a list of NASD members eligible
[[Page 53105]]
to vote in the district and their Executive Representatives, which
shall be used for vote qualification purposes, and shall provide the
list to the candidates.
Ballots Returned As Undelivered
Sec. 8.28 The Independent Agent shall open any ballot envelope
returned undelivered and shall determine whether it was sent to the
NASD member's address of record. If incorrectly addressed, the
Independent Agent shall send a new ballot to the address of record.
General Procedures for Qualification and Accounting of Ballots
Sec. 8.29 After the voting period, on a date or dates designated
by the Secretary of NASD Regulation, the qualification and accounting
of ballots shall take place. The date or dates designated shall be not
later than 14 calendar days after the return date specified on the
ballot pursuant to Section 8.26. Candidates and their representatives
shall be allowed to observe the qualification and accounting of
ballots. Representation for each candidate shall be limited to two
individuals. The Independent Agent shall bring to the district office
all ballots timely received. Under the direction of the Secretary of
NASD Regulation or the Secretary's designee, the Independent Agent
shall open and count the ballots. For ballot qualification purposes,
the Independent Agent shall identify to the candidates the NASD members
that timely returned ballots and inform the candidates of the
Independent Agent's determination of whether or not a ballot is
qualified for voting purposes. The determination shall be based on a
comparison of ballots received against the list of NASD members
eligible to vote in the district and their Executive Representatives as
prepared by the Secretary of NASD Regulation pursuant to Section 8.27.
The Secretary of NASD Regulation or the Secretary's designee shall make
the final determination of the qualification of a ballot. Upon the
qualification of a ballot, the Independent Agent shall record the vote
indicated on the ballot. The candidates and their representatives shall
not be allowed to see the vote of an NASD member.
Ballots Set Aside
Sec. 8.30 The Independent Agent shall set aside a ballot if: (a)
The ballot is received from an NASD member eligible to vote in the
district and the ballot is signed by a person who is not the Executive
Representative listed on the vote qualification list prepared under
Section 8.27, and the Secretary of the NASD has not received proper
notice of a change in Executive Representative pursuant to the NASD By-
Laws; or (b) if two or more properly executed ballots are received from
an NASD member eligible to vote in the district. If the Independent
Agent determines that the ballots set aside are material to the outcome
of the election, the Secretary of NASD Regulation and the Independent
Agent shall make reasonable efforts to resolve each ballot set aside.
With respect to a ballot not signed by an Executive Representative of
record, the Secretary of NASD Regulation shall contact the NASD member
to request that the NASD member send written notice of any change in
Executive Representative by facsimile so that the ballot may be
counted. With respect to multiple ballots from an NASD member, the
Independent Agent shall contact the Executive Representative of the
NASD member to obtain the NASD member's vote. The Secretary of NASD
Regulation shall keep a list of NASD members that reported their ballot
was lost or not received and that were provided with a duplicate
ballot. The Secretary of NASD Regulation shall provide the list to the
Independent Agent and, upon request, to the candidates.
Invalid Ballots
Sec. 8.31 The Independent Agent shall declare a ballot invalid if
one or more of the following conditions exist:
(a) the ballot is not signed by the Executive Representative
(unless Section 8.30 applies);
(b) a vote is not indicated on the ballot; or
(c) the ballot indicates votes for more candidates than there are
vacancies for an office.
Certification of Election
Sec. 8.32 Under the direction of the Secretary of NASD Regulation
or the Secretary's designee, the Independent Agent shall count the
votes received for each candidate in a district. The candidates for the
office of member of the District Committee receiving the largest number
of votes cast in the district for the office shall be declared elected
such that the number of candidates declared elected equals the number
of vacancies on the District Committee. The candidates for the office
of member of the District Nominating Committee receiving the largest
number of votes cast in the district for the office shall be declared
elected such that the number of candidates declared elected equals the
number of vacancies on the District Nominating Committee. In the event
of a tie, there shall be a run-off election. Each District Committee
shall send a written certification of the election results to the
Board. The certification shall state the number of votes received by
each candidate and the number of ballots set aside.
Extensions of Time and Additional Procedures
Sec. 8.33 The Secretary of NASD Regulation may extend a time
period under this Article for good cause shown. In extraordinary
circumstances, the Secretary of NASD Regulation, with the approval of
the Executive Committee or the Board, may adopt additional procedures
for elections under this Article.
Article IX
Compensation
Compensation of Board, Council, and Committee Members
Sec. 9.1 The Board may provide for reasonable compensation of the
Chair of the Board, the Directors, National Adjudicatory Council
members, and the members of any committee of the Board or any District
Committee. The Board may also provide for reimbursement of reasonable
expenses incurred by such persons in connection with the business of
NASD Regulation.
Article X
Indemnification
Indemnification of Directors, Officers, Employees, Agents, National
Adjudicatory Council and Committee Members
Sec. 10.1 (a) NASD Regulation shall indemnify, and hold harmless,
to the fullest extent permitted by Delaware law as it presently exists
or may thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or
she is or was a Director, officer, or employee of NASD Regulation or a
National Adjudicatory Council or committee member, or is or was a
Director, officer, or employee of NASD Regulation who is or was serving
at the request of NASD Regulation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust,
enterprise, or non-profit entity, including service with respect to
employee benefit plans, is or was a party, or is threatened to be made
a party to:
(i) Any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of NASD Regulation)
[[Page 53106]]
against expenses (including attorneys' fees and disbursements),
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with any such action,
suit, or proceeding; or
(ii) Any threatened, pending, or completed action or suit by or in
the right of NASD Regulation to procure a judgment in its favor against
expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit.
(b) NASD Regulation shall advance expenses (including attorneys'
fees and disbursements) to persons described in subsection (a);
provided, however, that the payment of expenses incurred by such person
in advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.
(c) NASD Regulation may, in its discretion, indemnify and hold
harmless, to the fullest extent permitted by Delaware law as it
presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such persons) who, by reason of
the fact that he or she is or was an agent of NASD Regulation or is or
was an agent of NASD Regulation who is or was serving at the request of
NASD Regulation as a director, officer, employee, or agent of another
corporation, partnership, trust, enterprise, or non-profit entity,
including service with respect to employee benefit plans, was or is a
party, or is threatened to be made a party to any action or proceeding
described in subsection (a).
(d) NASD Regulation may, in its discretion, pay the expenses
(including attorneys' fees and disbursements) reasonably and actually
incurred by an agent in defending any action, suit, or proceeding in
advance of its final disposition; provided, however, that the payment
of expenses incurred by such person in advance of the final disposition
of the matter shall be conditioned upon receipt of a written
undertaking by that person to repay all amounts advanced if it should
be ultimately determined that the person is not entitled to be
indemnified under this Section or otherwise.
(e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by NASD Regulation to an agent or
non-officer employee if a determination is reasonably and promptly made
by the Board by a majority vote of those Directors who have not been
named parties to the action, even though less than a quorum, or, if
there are no such Directors or if such Directors so direct, by
independent legal counsel, that, based upon the facts known to the
Board or such counsel at the time such determination is made: (1) The
person seeking advancement of expenses (i) Acted in bad faith, or (ii)
did not act in a manner that he or she reasonably believed to be in or
not opposed to the best interests of NASD Regulation; (2) with respect
to any criminal proceeding, such person believed or had reasonable
cause to believe that his or her conduct was unlawful; or (3) such
person deliberately breached his or her duty to NASD Regulation.
(f) The indemnification provided by this Section in a specific case
shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled, both as to action in his or
her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a Director, officer, National Adjudicatory Council or committee
member, employee, or agent and shall inure to the benefit of such
person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to subsection (j),
NASD Regulation shall be required to indemnify any person identified in
subsection (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
(h) NASD Regulation's obligation, if any, to indemnify or advance
expenses to any person who is or was serving at its request as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity
shall be reduced by any amount such person may collect as
indemnification or advancement from such other corporation,
partnership, joint venture, trust, enterprise, or non-profit entity.
(i) Any repeal or modification of the foregoing provisions of this
Section shall not adversely affect any right or protection hereunder of
any person respecting any act or omission occurring prior to the time
of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article is not paid in full within 60 days after a written claim
therefor by an indemnified person has been received by NASD Regulation,
the indemnified person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim. In any such action, NASD
Regulation shall have the burden of proving that the indemnified person
is not entitled to the requested indemnification or advancement of
expenses under Delaware law.
Indemnification Insurance
Sec. 10.2 NASD Regulation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director,
officer, National Adjudicatory Council or committee member, employee,
or agent of NASD Regulation, or is or was serving at the request of
NASD Regulation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, enterprise, or non-
profit entity against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not NASD Regulation would have the
power to indemnify such person against such liability hereunder.
Article [VI] XI
Capital Stock
Sole Stockholder
Sec. 11.1 The NASD shall be the sole stockholder of the capital
stock of NASD Regulation.
Certificates
Sec. [6.1]11.2 [Each] The stockholder [in the Corporation] shall
be entitled to a certificate or certificates in such form as shall be
approved by the Board, certifying the number of shares of capital stock
in [the Corporation] NASD Regulation owned by [such] the stockholder.
Signatures
Sec. [6.2]11.3 (a) Certificates for shares of capital stock of
[the Corporation] NASD Regulation shall be signed in the name of [the
Corporation] NASD Regulation by two officers with one being the Chair
of the Board, the President, or a Vice President, and the other being
the Secretary, the Treasurer, or such other officer that may be
authorized by the Board [of Directors]. Such certificates may be sealed
with the corporate [Seal] seal of [the Corporation] NASD Regulation or
a facsimile thereof.
(b) If any such certificates are countersigned by a transfer agent
other than [the Corporation] NASD Regulation or its employee, or by a
registrar other
[[Page 53107]]
than [the Corporation] NASD Regulation or its employee, any other
signature on the certificate may be a facsimile. In [case] the event
that any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall [have
ceased] cease to be such officer, transfer agent, or registrar before
such certificate is issued, such certificate may be issued by [the
Corporation] NASD Regulation with the same effect as if such person
were such officer, transfer agent, or registrar at the date of issue.
Stock Ledger
Sec. [6.3]11.4 (a) A record of all certificates for capital stock
issued by [the Corporation] NASD Regulation shall be kept by the
Secretary or any other officer, employee, or agent designated by the
Board [of Directors]. Such record shall show the name and address of
the person, firm, or corporation in which certificates for capital
stock are registered, the number of shares represented by each such
certificate, the date of each such certificate, and in the case of
certificates that have been canceled, the date of cancellation thereof.
(b) [The Corporation] NASD Regulation shall be entitled to treat
the holder of record of shares of capital stock as shown on the stock
ledger as the owner thereof and as the person entitled to vote such
shares and to receive notice of meetings, and for all other purposes.
Except as otherwise required by applicable law, [the Corporation] NASD
Regulation shall not be bound to recognize any equitable or other claim
to or interest in any share of capital stock on the part of any other
person, whether or not [the Corporation] NASD Regulation shall have
express or other notice thereof.
Transfers of Stock
Sec. [6.4]11.5 (a) The Board [of Directors] may make such rules
and regulations as it may deem expedient, not inconsistent with law,
the Restated Certificate of Incorporation, or these By-Laws, concerning
the issuance, transfer, and registration of certificates for [share]
shares of capital stock of [the Corporation] NASD Regulation. The Board
[of Directors] may appoint, or authorize any principal officer to
appoint, one or more transfer agents or one or more transfer clerks and
one or more registrars and may require all certificates for capital
stock to bear the signature or signatures of any of them.
(b) Transfers of capital stock shall be made on the books of [the
Corporation] NASD Regulation only upon delivery to [the Corporation]
NASD Regulation or its transfer agent of: (i) A written direction of
the registered holder named in the certificate or such holder's
attorney lawfully constituted in writing[,]; (ii) the certificate for
the shares of capital stock being transferred[,]; and (iii) a written
assignment of the shares of capital stock evidenced thereby.
Cancellation
Sec. [6.5]11.6 Each certificate for capital stock surrendered to
[the Corporation] NASD Regulation for exchange or transfer shall be
canceled and no new certificate or certificates shall be issued in
exchange for any existing certificate other than pursuant to [Sec. 6.6]
Section 11.7 until such existing certificate shall have been canceled.
Lost, Stolen, Destroyed, and Mutilated Certificates
Sec. [6.6]11.7 In the event that any certificate for shares of
capital stock of [the Corporation] NASD Regulation shall be mutilated,
[the Corporation] NASD Regulation shall issue a new certificate in
place of such mutilated certificate. In [case] the event that any such
certificate shall be lost, stolen, or destroyed [the Corporation] NASD
Regulation may, in the discretion of the Board [of Directors] or a
committee [designated] appointed thereby with power so to act, issue a
new certificate for capital stock in the place of any such lost,
stolen, or destroyed certificate. The applicant for any substituted
certificate or certificates shall surrender any mutilated certificate
or, in the case of any lost, stolen, or destroyed certificate, furnish
satisfactory proof of such loss, theft, or destruction of such
certificate and of the ownership thereof. The Board [of Directors] or
such committee may, in its discretion, require the owner of a lost or
destroyed certificate, or [his] such owner's representatives, to
furnish to [the Corporation] NASD Regulation a bond with an acceptable
surety or sureties and in such sum as [will] shall be sufficient to
indemnify [the Corporation] NASD Regulation against any claim that may
be made against it on account of the lost, stolen, or destroyed
certificate or the issuance of such new certificate. A new certificate
may be issued without requiring a bond when, in the judgment of the
Board [of Directors], it is proper to do so.
Fixing of Record Date
Sec. [6.7]11.8 The Board may fix a record date in accordance with
Delaware law. [(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent or
dissent to corporate action in writing without a meeting, or to
exercise any rights with respect to any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, pursuant to and in
accordance with Section 213 of the General Corporation Law of the State
of Delaware. Only such stockholders as shall be stockholders of record
on the date so fixed shall be entitled to notice of and to vote at such
meeting or any adjournment thereof, or to give such consent or dissent,
or to exercise such rights with respect to any such change, conversion
or exchange of stock, or to participate in any such action,
notwithstanding the transfer of any stock on the books of the
Corporation after any record date so fixed.]
[(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the date on which notice is given,
or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be at the
close of business on the day on which the first written consent is
expressed; and
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.]
[(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.]
Article [VII] XII
Miscellaneous Provisions
Corporate Seal
Sec. [7.1]12.1 The seal of [the Corporation] NASD Regulation shall
be circular in form and shall bear, in addition to any other emblem or
device approved by the Board [of Directors], the name of [the
Corporation] NASD Regulation, the year of its incorporation, and the
words ``Corporate Seal'' and ``Delaware[''].'' The seal may be used by
causing it to be affixed or impressed, or
[[Page 53108]]
a facsimile thereof may be reproduced or otherwise used in such manner
as the Board [of Directors] may determine.
Fiscal Year
Sec. [7.2]12.2 The fiscal year of [the Corporation] NASD
Regulation shall begin on the [1st] first day of January in each year,
or such other month as the Board [of Directors] may determine by
resolution.
Waiver of Notice
Sec. [7.3]12.3 (a) Whenever notice is required to be given by law,
the Restated Certificate of Incorporation, or these By-Laws, a written
waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
[stockholders, directors] stockholder, Directors, or members of a
committee of [directors] Directors need be specified in any written
waiver of notice.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully
called or convened.
Execution of Instruments, Contracts, Etc.
Sec. [7.4]12.4 (a) All checks, drafts, bills of exchange, notes,
or other obligations or orders for the payment of money shall be signed
in the name of [the Corporation] NASD Regulation by such officer or
officers or person or persons[,] as the Board [of Directors], or a duly
authorized committee thereof, may from time to time designate. Except
as otherwise provided by law, the Board [of Directors], any committee
given specific authority in the premises by the Board [of Directors],
or any committee given authority to exercise generally the powers of
the Board [of Directors] during intervals between meetings of the Board
[of Directors], may authorize any officer, employee, or agent, in the
name of and on behalf of [the Corporation] NASD Regulation, to enter
into or execute and deliver deeds, bonds, mortgages, contracts, and
other obligations or instruments, and such authority may be general or
confined to specific instances.
(b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name
of [the Corporation] NASD Regulation by any principal officer or
subordinate officer of [the Corporation] NASD Regulation, or, to the
extent designated for such purpose from time to time by the Board [of
Directors], by an employee or agent of [the Corporation] NASD
Regulation. Such designation may contain the power to substitute, in
the discretion of the person named, one or more other persons.
Form of Records
Sec. [7.5]12.5 Any records maintained by [the Corporation] NASD
Regulation in the regular course of business, including its stock
ledger, books of account, and minute books, may be kept on, or be in
the form of, magnetic tape, computer disk, or any other information
storage device, provided that the records so kept can be converted into
clearly legible form within a reasonable time.
Article [VIII] XIII
Amendments; Emergency By-Laws
By [Stockholders] Stockholder
Sec. [8.1]13.1 These By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any meeting of [stockholders] the
stockholder, provided that, in the case of a special meeting, notice
that an amendment is to be considered and acted upon shall be inserted
in the notice or waiver of notice of said meeting.
By Directors
Sec. [8.2]13.2 To the extent permitted by the Restated Certificate
of Incorporation, these By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any regular or special meeting of the
Board [of Directors].
Emergency By-Laws
Sec. [8.3]13.3 The Board [of Directors] may adopt emergency By-
Laws subject to repeal or change by action of the [stockholders]
stockholder that shall, notwithstanding any different provision of law,
the Restated Certificate of Incorporation, or these By-Laws, be
operative during any emergency resulting from any nuclear or atomic
disaster, an attack on the United States or on a locality in which [the
Corporation] NASD Regulation conducts its business or customarily holds
meetings of the Board [of Directors or stockholders] or stockholder,
any catastrophe, or other emergency condition, as a result of which a
quorum of the Board [of Directors] or a committee thereof cannot
readily be convened for action. Such emergency By-Laws may make any
provision that may be practicable and necessary [for] under the
circumstances of the emergency.
* * * * *
By-Laws of the NASDAQ Stock Market, Inc.
Article I
Definitions
When used in these By-Laws, unless the context otherwise requires,
the term:
(a) ``Act'' means the Securities Exchange Act of 1934, as amended;
(b) ``Board'' means the Board of Directors of Nasdaq;
(c) ``broker'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of
effecting transactions in securities for the account of others, but
does not include a bank;
(d) ``Commission'' means the Securities and Exchange Commission;
(e) ``day'' means calendar day;
(f) ``dealer'' means any individual, corporation, partnership,
association, joint stock company, business trust, unincorporated
organization, or other legal entity engaged in the business of buying
and selling securities for such individual's or entity's own account,
through a broker or otherwise, but does not include a bank, or any
person insofar as such person buys or sells securities for such
person's own account, either individually or in some fiduciary
capacity, but not as part of a regular business;
(g) ``Delaware law'' means the General Corporation Law of the State
of Delaware;
(h) ``Delegation Plan'' means the ``Plan of Allocation and
Delegation of Functions by NASD to Subsidiaries'' as approved by the
Commission, and as amended from time to time;
(i) ``Director'' means a member of the Board, excluding the Chief
Executive Officer of the NASD;
(j) ``Industry Director'' or ``Industry member'' means a Director
(excluding the President) or National Listing and Hearing Review
Council or committee member who (1) is or has served in the prior three
years as an officer, director, or employee of a broker or dealer,
excluding an outside director or a director not engaged in the day-to-
day management of a broker or dealer; (2) is an officer, director,
(excluding an outside director) or employee of an entity that owns more
than ten percent of the equity of a broker or dealer, and the broker or
dealer accounts for more
[[Page 53109]]
than five percent of the gross revenues received by the consolidated
entity; (3) owns more than five percent of the equity securities of any
broker or dealer, whose investments in brokers or dealers exceed ten
percent of his or her net worth, or whose ownership interest otherwise
permits him or her to be engaged in the day-to-day management of a
broker or dealer; (4) provides professional services to brokers or
dealers, and such services constitute 20 percent or more of the
professional revenues received by the Director or member or 20 percent
or more of the gross revenues received by the Director's or member's
firm or partnership; (5) provides professional services to a director,
officer, or employee of a broker, dealer, or corporation that owns 50
percent or more of the voting stock of a broker or dealer, and such
services relate to the director's, officer's, or employee's
professional capacity and constitute 20 percent or more of the
professional revenues received by the Director or member or 20 percent
or more of the gross revenues received by the Director's or member's
firm or partnership; or (6) has a consulting or employment relationship
with or provides professional services to the NASD, NASD Regulation, or
Nasdaq or has had any such relationship or provided any such services
at any time within the prior three years;
(k) ``NASD'' means the National Association of Securities Dealers,
Inc.;
(l) ``Nasdaq'' means The Nasdaq Stock Market, Inc.;
(m) ``Nasdaq Listing and Hearing Review Council'' means a body
appointed by the Board pursuant to Article V of these By-Laws;
(n) ``NASD Board'' means the NASD Board of Governors;
(o) ``NASD Regulation'' means NASD Regulation, Inc.;
(p) ``National Nominating Committee'' means the National Nominating
Committee appointed pursuant to Article VII, Section 9 of the NASD By-
Laws;
(q) ``Non-Industry Director'' or ``Non-Industry member'' means a
Director (excluding the President) or National Listing and Hearing
Review Council or committee member who is (1) a Public Director or
Public member; (2) an officer or employee of an issuer of securities
listed on Nasdaq or traded in the over-the-counter market; or (3) any
other individual who would not be an Industry Director or Industry
member;
(r) ``person associated with a member'' or ``associated person of a
member'' means: (1) A natural person registered under the Rules of the
Association; or (2) a sole proprietor, partner, officer, director, or
branch manager of a member, or a natural person occupying a similar
status or performing similar functions, or a natural person engaged in
the investment banking or securities business who is directly or
indirectly controlling or controlled by a member, whether or not any
such person is registered or exempt from registration with the NASD
under these By-Laws or the Rules of the Association;
(s) ``Public Director'' or ``Public member'' means a Director or
National Listing and Hearing Review Council or committee member who has
no material business relationship with a broker or dealer or the NASD,
NASD Regulation, or Nasdaq; and
(t) ``Rules of the Association'' or ``Rules'' means the numbered
rules set forth in the NASD Manual beginning with the Rule 0100 Series,
as adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter
amended or supplemented.
Article [I] II
Offices
Location
Sec. [1.1]2.1 The address of the registered office of [the
Corporation] Nasdaq in the State of Delaware and the name of the
registered agent at such address shall be: The Corporation Trust
Company, 1209 Orange [St.,] Street, Wilmington, [DE] Delaware 19801.
[The Corporation] Nasdaq also may [also] have offices at such other
places both within and without the State of Delaware as the Board [of
Directors] may from time to time designate or the business of [the
Corporation] Nasdaq may require.
Change of Location
Sec. [1.2]2.2 In the manner permitted by law, the Board [of
Directors] or the registered agent may change the address of [the
Corporation's] Nasdaq's registered office in the State of Delaware and
the Board [of Directors] may make, revoke, or change the designation of
the registered agent.
Article [II] III
Meetings of the [Stockholders]
Stockholder
[Annual Meeting
Sec. 2.1 The annual meeting of stockholders of the Corporation for
the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held on such
date, and at such time, and place, within or without the State of
Delaware, as may be fixed, from time to time, by the Board of
Directors.]
[Special Meetings
Sec. 2.2 Special meetings of stockholders of the Corporation,
unless otherwise prescribed by law, may be called at any time by the
Chair of the Board, by the President or by order of a majority of the
Board of Directors. Special meetings of stockholders prescribed by law
for the election of directors shall be called by the Board of
Directors, the President, or the Secretary. Special meetings of
stockholders shall be held at such place within or without the State of
Delaware as shall be designated in the notice of meeting.]
[Notice of Meetings
Sec. 2.3 (a) Whenever stockholders are required or permitted to
take any action at a meeting, they shall be given written notice
stating the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes thereof. Unless otherwise
required by law, the Certificate of Incorporation or these By-Laws,
written notice shall be delivered or mailed at least ten but not more
than sixty days before such meeting date to each stockholder entitled
to vote at such meeting. If mailed, such notice shall be deposited in
the United States mail, postage prepaid, directed to each stockholder
at the address that appears on the records of the Corporation.]
[(b) When a meeting of stockholders is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If,
however, the adjournment is for more than thirty days from the date of
the original meeting, or if, after the adjournment, a new record date
is set for the adjourned meeting, notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting
in the manner prescribed above in subsection (a).]
[Quorum
Sec. 2.4 Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, at each meeting of stockholders the
presence in person or by proxy of the holders of record of a majority
of the outstanding shares of capital stock entitled to vote or act at
such a meeting shall constitute a quorum for the transaction of any
business. In the absence of a quorum,
[[Page 53110]]
the stockholders so present may by majority rule, adjourn any meeting
until a quorum shall be present. When a quorum is once present to
organize a meeting, the quorum cannot be destroyed by the subsequent
withdrawal or revocation of the proxy of any stockholder.]
[Voting
Sec. 2.5 (a) At any meeting of stockholders, each stockholder as
of the record date is entitled to one vote for each such share of stock
having voting power, upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or
dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy, provided that no
proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and
only so long as, it is coupled with an interest, whether in the stock
itself or in the Corporation, sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or by delivering a proxy in
accordance with applicable law bearing a later date to the Secretary of
the Corporation.]
[(b) Directors of the Corporation shall be elected by a plurality
of the votes cast at a meeting of stockholders pursuant to Sec. 2.5 of
these By-Laws. Corporate action other than the election of directors
shall be authorized by a majority of the votes cast at a meeting of
stockholders, except as otherwise required by law, the Certificate of
Incorporation or these By-Laws.]
(c) Upon the demand of any stockholder entitled to vote, the
election of directors or a vote on any other matter at a meeting of
stockholders shall be by written ballot; otherwise, the method of
voting and the manner in which votes are counted at such a meeting
shall be discretionary with the presiding officer of the meeting.]
[Presiding Officer and Secretary
Sec. 2.6 At every meeting of stockholders, the Chair, or in his/
her absence, the President, or in his/her absence, the appointee of the
meeting, shall preside. The Secretary, or in his/her absence, the
appointee of the presiding officer of the meeting, shall act as
Secretary of the meeting.]
Action by Consent of Stockholder[s]
Sec. [2.7]3.1 Any action required[,] or permitted by law to be
taken at any meeting of the stockholder [stockholders] of [the
Corporation] Nasdaq may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the
action so taken, is signed by the [holders] holder of the outstanding
stock [having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice
of the taking of corporate action without a meeting and by less than
unanimous written consent shall be given to those stockholders who have
not consented in writing and who would be entitled to vote thereon at a
meeting].
Article [III] IV
Board of Directors
General Powers
Sec. [3.1]4.1 The property, business, and affairs of [the
Corporation] Nasdaq shall be managed by or under the direction of the
Board [of Directors]. The Board [of Directors] may exercise all such
powers of [the Corporation] Nasdaq and have the authority to perform
all such lawful acts as are permitted by law, the Restated Certificate
of Incorporation [or], these By-Laws, or the Delegation Plan for the
organization, development, and operation of electronic data processing
and communications facilities, including computer hardware and
software, for the purposes of: [(i)](a) Supporting the operation,
regulation, and surveillance of The Nasdaq Stock Market and other
organized securities markets established for trading equity securities,
debt securities, derivative instruments, or other financial products
that may be developed; [(ii)](b) supporting the efficient clearance and
settlement of securities transactions; [(iii)](c) supporting various
elements of the national market system pursuant to Section 11A of the
[Securities Exchange Act of 1934 (``Exchange Act'')] Act and the rules
thereunder; [(iv)](d) assisting the [National Association of Securities
Dealers, Inc.] NASD in fulfilling its self-regulatory responsibilities
as set forth in Section 15A of the [Exchange] Act[,]; and [(v)](e)
supporting such other initiatives as the Board [of Directors] may deem
appropriate. To the fullest extent permitted by applicable law, the
Restated Certificate of Incorporation, and these By-Laws, the Board may
delegate any of its powers to a committee appointed pursuant to Section
4.13 or to Nasdaq staff in a manner not inconsistent with the
Delegation Plan.
Number of Directors
Sec. [3.2]4.2 [The Board of Directors of the Corporation shall
consist of one or more members; the exact number of directors which
shall constitute the whole Board of Directors shall be fixed from time
to time by resolution adopted by a majority of the whole Board of
Directors. After fixing the number of directors constituting the whole
Board of Directors, the Board of Directors may, by resolution adopted
by a majority of the whole Board of Directors, from time to time change
the number of directors constituting the whole Board of Directors.] The
Board shall consist of no fewer than five and no more than eight
Directors, the exact number to be determined by resolution adopted by
the stockholder of Nasdaq from time to time. Notwithstanding the
preceding sentence, the number of Directors shall equal the number of
Directors on the NASD Regulation Board. Any new Director position
created as a result of an increase in the size of the Board shall be
filled as part of the annual election conducted under Section 4.4.
Qualifications
Sec. [3.3]4.3 Directors need not be stockholders of [the
Corporation] Nasdaq. Only Governors of the NASD Board shall be eligible
for election to the Board. The President of Nasdaq shall be a Director.
The number of Non-Industry Directors, including at least one Public
Director and at least one issuer representative, shall equal or exceed
the number of Industry Directors plus the President. The Chief
Executive Officer of the NASD shall be an ex-officio non-voting member
of the Board.
Election
Sec. [3.4]4.4 Except as otherwise provided by law [or], these By-
Laws, or the Delegation Plan, after the first meeting of [the
Corporation] Nasdaq at which [directors] Directors are elected,
[directors of the Corporation] Directors of Nasdaq shall be elected
each year at the annual meeting of [stockholders] the stockholder, or
at a special meeting called for such purpose in lieu of the annual
meeting[, by a plurality of the votes cast at such meeting]. If the
annual election of [directors] Directors is not held on the date
designated [therefore,] therefor, the [directors] Directors shall cause
such election to be held as soon thereafter as convenient.
[[Page 53111]]
[Term
Sec. 3.5 (a) Each director shall hold office for a term of three
years or until his successor is duly elected and qualified, except in
the event of earlier termination from office by reason of death,
resignation, removal, with or without cause, or other reason.]
[(b) The Board of Directors shall be divided into three classes.]
[(c) The President of the Corporation shall serve as a member of
the Board until his successor is selected and qualified, or until his
death, resignation, or removal.]
[(d) Except for the President, no Director may serve more than two
consecutive terms; provided, however, that if a Director is appointed
to fill a term of less than one year, such Director may serve up to two
consecutive terms following the expiration of such Director's current
term.]
[(e) Each Director chosen to fill newly created directorship shall
serve until the next succeeding annual meeting of stockholders.]
Resignation
Sec. [3.6]4.5 Any [director] Director may resign at any time
either upon written notice of resignation to the Chair of the Board,
the President, or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time [be] is not specified,
upon receipt thereof, and the acceptance of such resignation, unless
required by the terms thereof, shall not be necessary to make such
resignation effective.
Removal
Sec. [3.7]4.6 Any or all of the [directors] Directors may be
removed from office at any time, with or without cause, only by a
majority vote of the [stockholders] NASD Board.
Disqualification
Sec. 4.7 The term of office of a Director shall terminate
immediately upon a determination by the Board, by a majority vote of
the remaining Directors, that: (a) The Director no longer satisfies the
classification (Industry, Non-Industry, or Public Director) for which
the Director was elected; and (b) the Director's continued service as
such would violate the compositional requirements of the Board set
forth in Section 4.3. If the term of office of a Director terminates
under this Section, and the remaining term of office of such Director
at the time of termination is not more than six months, during the
period of vacancy the Board shall not be deemed to be in violation of
Section 4.3 by virtue of such vacancy.
Filling of Vacancies
Sec. 4.8 If a Director position becomes vacant, whether because of
death, disability, disqualification, removal, or resignation, the
National Nominating Committee shall nominate, and the NASD Board shall
elect by majority vote, a person satisfying the classification
(Industry, Non-Industry, or Public Director) for the directorship as
provided in Section 4.3 to fill such vacancy, except that if the
remaining term of office for the vacant Director position is not more
than six months, no replacement shall be required.
Quorum and Voting
Sec. [3.8]4.9 (a) At all meetings of the Board [of Directors, one-
third of the total number of directors shall constitute], unless
otherwise set forth in these By-Laws or required by law, a quorum for
the transaction of business shall consist of a majority of the Board,
including not less than 50 percent of the Non-Industry Directors. In
the absence of a quorum, a majority of the [directors] Directors
present may adjourn the meeting until a quorum be present.
(b) [A director interested in a contract or transaction may be
counted in determining the presence of a quorum at a meeting of the
Board of Directors which authorizes the contract or transaction.]
Except as provided in Section 4.14(b), the vote of a majority of the
Directors present at a meeting at which a quorum is present shall be
the act of the Board.
[(c) The vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of
Directors.]
Regulation
Sec. [3.9]4.10 The Board [of Directors] may adopt such rules,
regulations, and requirements for the conduct of the business and
management of [the Corporation] Nasdaq, not inconsistent with law, the
Restated Certificate of Incorporation, these By-Laws, [or the rules and
By-Laws of the National Association of Securities Dealers, Inc., as the
Board of Directors may deem proper. A member of the Board of Directors]
the Rules of the Association, or the By-Laws of the NASD, as the Board
may deem proper. A Director shall, in the performance of [his or her]
such Director's duties, be fully protected in relying in good faith
upon the books of account or reports made to [the Corporation] Nasdaq
by any of its officers, [or] by an independent certified public
accountant, [or] by an appraiser selected with reasonable care by the
Board [of Directors] or any committee of the Board [of Directors] or by
any agent of [the Corporation] Nasdaq, or in relying in good faith upon
other records of [the Corporation] Nasdaq.
Meetings
Sec. [3.10]4.11 (a) An annual meeting of the Board [of Directors]
shall be held for the purpose of organization, election of officers,
and transaction of any other business. If such meeting is held promptly
after and at the place specified for the annual meeting of
[stockholders] the stockholder, no notice of the annual meeting of the
Board [of Directors] need be given. Otherwise, such annual meeting
shall be held at such time and place as may be specified in a notice
given in accordance with Section [3.11 of these By-Laws] 4.13.
(b) Regular meetings of the Board [of Directors] may be held at
such time and place, within or without the State of Delaware, as
determined from time to time by the Board [of Directors]. After such
determination has been made, notice shall be given in accordance with
Section [3.11 of these By-Laws] 4.12.
(c) Special meetings of the Board [of Directors] may be called by
the Chair of the Board, [or] by the President, or by at least one-third
of the [directors at that time being] Directors then in office. Notice
of any special meeting of the Board [of Directors] shall be given to
each [director] Director in accordance with Section [3.11 of these By-
Laws.] 4.12.
(d) [Members of the Board of Directors, or any committee designated
by the Board of Directors,] Directors or members of any committee
appointed by the Board may participate in a meeting of the Board [of
Directors] or of such committee through the use of a conference
telephone or similar communications equipment by means of which all
persons participating in the meeting may hear one another, and such
participation in a meeting shall constitute presence in person at such
meeting for all purposes.
Notice of Meetings; Waiver of Notice
Sec. [3.11]4.12 (a) Notice of any meeting of the Board [of
Directors] shall be deemed to be duly given to a [director (i) if
]Director if: (i) Mailed to the address last made known in writing to
[the Corporation] Nasdaq by such [director] Director as the address to
which such notices are to be sent, at least [two] seven days before the
day on which such [special] meeting is to be held[, or]; (ii) [if] sent
to the [director] Director at such address by telegraph, telefax,
cable, radio, or wireless, not
[[Page 53112]]
later than the day before the day on which such meeting is to be
held[,]; or (iii) [if] delivered to the [director] Director personally
or orally, by telephone or otherwise, not later than the day before the
day on which such [special] meeting is to be held. Each notice shall
state the time and place of the meeting and the purpose(s) thereof.
(b) Notice of any meeting of the Board [of Directors] need not be
given to any [director] Director if waived by that [director] Director
in writing (or by telegram, telefax, cable, radio, or wireless and
subsequently confirmed in writing) whether before or after the holding
of such meeting, or if such [director] Director is present at such
meeting, subject to Article IX, Section 9.3(b).
(c) Any meeting of the Board [of Directors] shall be a legal
meeting without any prior notice if all [directors] Directors then in
office shall be present thereat.
Committees [of the Board of Directors]
Sec. [3.13]4.13 (a) The Board [of Directors] may, by resolution or
resolutions adopted by a majority of the whole Board [of Directors,
designate], appoint one or more committees[, each committee to consist
of one or more directors of the Corporation]. Except as herein
provided, vacancies in membership of any committee shall be filled by
the vote of a majority of the whole Board [of Directors]. The Board [of
Directors] may designate one or more [directors] Directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting,
whether or not [he, she,] such member or [they] members constitute a
quorum, may unanimously appoint another [member of the Board of
Directors] Director to act at the meeting in the place of any such
absent or disqualified member. Members of a committee shall hold office
for such period as may be fixed by a resolution adopted by a majority
of the whole Board [of Directors, subject, however, to removal, with or
without cause, at any time by the vote of a majority of the whole Board
of Directors]. Any member of a committee may be removed from such
committee only after a majority vote of the whole Board, after
appropriate notice, for refusal, failure, neglect, or inability to
discharge such committee member's duties.
(b) [Any committee, to the extent permitted by law and to the
extent provided in the] The Board may, by resolution or resolutions
[creating such committee, shall have and may exercise all the powers
and authority of the Board of Directors] adopted by a majority of the
whole Board, delegate to one or more committees the power and authority
to act on behalf of the Board in carrying out the functions and
authority delegated to Nasdaq by the NASD under the Delegation Plan.
Such delegations shall be in conformance with applicable law, the
Restated Certificate of Incorporation, these By-Laws, and the
Delegation Plan. Action taken by a committee pursuant to such delegated
authority shall be subject to review, ratification, or rejection by the
Board. In all other matters, the Board may, by resolution or
resolutions adopted by a majority of the whole Board, delegate to one
or more committees that consist solely of one or more Directors the
power and authority to act on behalf of the Board in the management of
the business and affairs of [the Corporation,] and Nasdaq to the extent
permitted by law and not inconsistent with the Delegation Plan. A
committee, to the extent permitted by law and provided in the
resolution or resolutions creating such committee, may authorize the
seal of [the Corporation] Nasdaq to be affixed to all papers [which]
that may require it.
(c) Except as otherwise provided by applicable law, no [No such]
committee shall have the power or authority of the Board with regard
to: amending the Restated Certificate of Incorporation or the By-Laws
of [the Corporation,] Nasdaq; adopting an agreement of merger or
consolidation; recommending to the [stockholders] stockholder the sale,
lease, or exchange of all or substantially all [the Corporation's]
Nasdaq's property and assets; or recommending to the [stockholders]
stockholder a dissolution of [the Corporation] Nasdaq or a revocation
of a dissolution. Unless the resolution of the Board [of Directors]
expressly so provides, no [such] committee shall have the power or
authority to authorize the issuance of stock.
(d) The Board may appoint an Executive Committee, which shall, to
the fullest extent permitted by Delaware law and other applicable law,
have and be permitted to exercise all the powers and authority of the
Board in the management of the business and affairs of Nasdaq between
meetings of the Board, and which may authorize the seal of Nasdaq to be
affixed to all papers that may require it. The Executive Committee
shall consist of three or four Directors, including at least one Public
Director. The President of Nasdaq shall be a member of the Executive
Committee. The number of Non-Industry committee members shall equal or
exceed the number of Industry committee members plus the President. An
Executive Committee member shall hold office for a term of one year. At
all meetings of the Executive Committee, a quorum for the transaction
of business shall consist of a majority of the Executive Committee,
including not less than 50 percent of the Non-Industry committee
members. In the absence of a quorum, a majority of the committee
members present may adjourn the meeting until a quorum is present.
(e) The Board may appoint a Finance Committee. The Finance
Committee shall advise the Board with respect to the oversight of the
financial operations and conditions of Nasdaq, including
recommendations for Nasdaq's annual operating and capital budgets and
proposed changes to the rates and fees charged by Nasdaq. The Finance
Committee shall consist of three or four Directors. The President of
Nasdaq shall serve as a member of the Committee. A Finance Committee
member shall hold office for a term of one year.
[(c)](f) Each committee may adopt its own rules of procedure and
may meet at stated times or on such notice as such committee may
determine. Each committee shall keep regular minutes of its proceedings
and report the same to the Board [of Directors] when required.
[(d)](g) Unless otherwise provided by [the Board of Directors]
these By-Laws, a majority of [any such] a committee shall constitute a
quorum for the transaction of business, and the vote of a majority of
the members of such committee present at a meeting at which a quorum is
present shall be an act of such committee.
(h) Upon request of the Secretary of Nasdaq, each prospective
committee member who is not a Director shall provide to the Secretary
such information as is reasonably necessary to serve as the basis for a
determination of the prospective committee member's classification as
an Industry, Non-Industry, or Public committee member. The Secretary of
Nasdaq shall certify to the Board each prospective committee member's
classification. Such committee members shall update the information
submitted under this Section at least annually and upon request of the
Secretary of Nasdaq, and shall report immediately to the Secretary any
change in such classification.
[[Page 53113]]
Conflicts of Interest; Contracts and Transactions Involving Directors
Sec. [3.12]4.14 (a) A Director or a member of the National Listing
and Hearing Review Council or a committee shall not directly or
indirectly participate in any adjudication of the interests of any
party if that Director or National Listing and Hearing Review Council
or committee member has a conflict of interest or bias, or if
circumstances otherwise exist where his or her fairness might
reasonably be questioned. In any such case, the Director or National
Listing and Hearing Review Council or committee member shall recuse
himself or herself or shall be disqualified.
(b) No contract or transaction between [the Corporation] Nasdaq and
one or more of its [directors] Directors or officers, or between [the
Corporation] Nasdaq and any other corporation, partnership,
association, or other organization in which one or more of its
[directors] Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason[,
or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or the committee thereof
which] if: (i) The material facts pertaining to such Director's or
officer's relationship or interest and the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or
committee in good faith authorizes the contract or transaction[, or
solely because his, her, or their votes are counted for such purposes
if: (i) The material facts pertaining to such director's or officer's
relationship or interest and] by the affirmative vote of a majority of
the disinterested Directors; (ii) the material facts are disclosed or
become known to the Board or committee after the contract or
transaction [are disclosed or are known to the Board of Directors or
the committee, and the Board] is entered into, and the Board or
committee in good faith [authorizes] ratifies the contract or
transaction by the affirmative vote of a majority of the disinterested
[directors, even though the disinterested directors be less than a
quorum; or (ii)] Directors; or (iii) the material facts pertaining to
the [director's] Director's or officer's relationship or interest and
the contract or transaction are disclosed or are known to the
[stockholders] stockholder entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
[stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by
the Board of Directors, a committee thereof, or the stockholders.
Common or interested directors] stockholder. Only disinterested
Directors may be counted in determining the presence of a quorum at the
portion of a meeting of the Board [of Directors,] or of a committee
that [which] authorizes the contract or transaction. This subsection
shall not apply to a contract or transaction between Nasdaq and the
NASD or NASD Regulation.
Communication of Views Regarding NASD or NASD Regulation Election or
Nomination
Sec. 4.15 Nasdaq, the Board, any committee, the Nasdaq Listing and
Hearing Review Council, and Nasdaq staff shall not take any position
publicly or with an NASD member or person associated with or employed
by a member with respect to any candidate in a contested election or
nomination held pursuant to the NASD By-Laws or the NASD Regulation By-
Laws. A Director, committee member, or Nasdaq Listing and Hearing
Review Council member may communicate his or her views with respect to
a candidate if such individual acts solely in his or her individual
capacity and disclaims any intention to communicate in any official
capacity on behalf of Nasdaq, the Board, the Nasdaq Listing and Hearing
Review Council, or any committee. Nasdaq, the Board, the Nasdaq Listing
and Hearing Review Council, any committee, and the Nasdaq staff shall
not provide any administrative support to any candidate in a contested
election or nomination conducted pursuant to the NASD By-Laws or the
NASD Regulation By-Laws.
Action Without Meeting
Sec. [3.14]4.16 Any action required or permitted to be taken at
[any] a meeting of the Board [of Directors or any] or of a committee
[thereof] may be taken without a meeting if all Directors or all
members of [the Board of Directors or] such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board [of Directors or such
committee] or the committee.
Article V
Nasdaq Listing and Hearing Review Council Appointment and Authority
Sec. 5.1 The Board shall appoint a Nasdaq Listing and Hearing
Review Council. The Nasdaq Listing and Hearing Review Council may be
authorized to act for the Board in a manner consistent with these By-
Laws, the Rules of the Association, and the Delegation Plan with
respect to listing decisions. The Nasdaq Listing and Hearing Review
Council also shall consider and make recommendations to the Board on
policy and rule changes relating to issuer listings. The Board may
delegate such other powers and duties to the Nasdaq Listing and Hearing
Review Council as the Board deems appropriate in a manner not
inconsistent with the Delegation Plan.
Number of Members and Qualifications
Sec. 5.2 (a) The Nasdaq Listing and Hearing Review Council shall
consist of no fewer than eight and no more than 11 members, of which
not more than 50 percent may be engaged in market-making activity or
employed by a member whose revenues from market-making activity exceed
ten percent of its total revenues. The Nasdaq Listing and Hearing
Review Council shall include at least three Non-Industry members.
(b) As soon as practicable following the appointment of members,
the Nasdaq Listing and Hearing Review Council shall elect a Chair from
among its members. The Chair shall have such powers and duties as may
be determined from time to time by the Nasdaq Listing and Hearing
Review Council. The Board, by resolution adopted by a majority of
Directors then in office and after notice to the NASD Board, may remove
the Chair from such position at any time for refusal, failure, neglect,
or inability to discharge the duties of Chair.
Nomination Process
Sec. 5.3 The Secretary of Nasdaq shall collect from each nominee
for the office of member of the Nasdaq Listing and Hearing Review
Council such information as is reasonably necessary to serve as the
basis for a determination of the nominee's qualifications and
classification as an Industry or Non-Industry member, and the Secretary
shall certify to the National Nominating Committee each nominee's
qualifications and classification. After appointment to the Nasdaq
Listing and Hearing Review Council, each member shall update such
information at least annually and upon request of the Secretary, and
shall report immediately to the Secretary any change in such
qualifications or classification.
Term of Office
Sec. 5.4 (a) Except as otherwise provided in this Article, each
Nasdaq Listing and Hearing Review Council member shall hold office for
a term of two years or until a successor is duly
[[Page 53114]]
appointed and qualified, except in the event of earlier termination
from office by reason of death, resignation, removal, disqualification,
or other reason.
(b) The Nasdaq Listing and Hearing Review Council shall be divided
into two classes. The term of office of those of the first class shall
expire in January 1999, and the term of office of those of the second
class shall expire one year thereafter. Beginning in January 1999,
members shall be appointed for a term of two years to replace those
whose terms expire.
(c) Beginning in 1999, no member may serve more than two
consecutive terms, except that if a member is appointed to fill a term
of less than one year, such member may serve up to two consecutive
terms following the expiration of such member's initial term.
Resignation
Sec. 5.5 A member of the Nasdaq Listing and Hearing Review Council
may resign at any time upon written notice to the Board. Any such
resignation shall take effect at the time specified therein, or if the
time is not specified, upon receipt thereof, and the acceptance of such
resignation, unless required by the terms thereof, shall not be
necessary to make such resignation effective.
Removal
Sec. 5.6 Any or all of the members of the Nasdaq Listing and
Hearing Review Council may be removed from office at any time for
refusal, failure, neglect, or inability to discharge the duties of such
office by majority vote of the Board.
Disqualification
Sec. 5.7 Notwithstanding Section 5.4, the term of office of a
Nasdaq Listing and Hearing Review Council member shall terminate
immediately upon a determination by the Board, by a majority vote,
that: (a) The member no longer satisfies the classification (Industry
or Non-Industry) for which the member was elected; and (b) the member's
continued service as such would violate the compositional requirements
of the Nasdaq Listing and Hearing Review Council set forth in Section
5.2. If the term of office of a Nasdaq Listing and Hearing Review
Council member terminates under this Section, and the remaining term of
office of such member at the time of termination is not more than six
months, during the period of vacancy the Nasdaq Listing and Hearing
Review Council shall not be deemed to be in violation of Section 5.2 by
virtue of such vacancy.
Filling of Vacancies
Sec. 5.8 If a position on the Nasdaq Listing and Hearing Review
Council becomes vacant, whether because of death, disability,
disqualification, removal, or resignation, the National Nominating
Committee shall nominate, and the Board shall appoint a person
satisfying the qualifications for the position as provided in Section
5.2(a) to fill such vacancy, except that if the remaining term of
office for the vacant position is not more than six months, no
replacement shall be required.
Quorum and Voting
Sec. 5.9 At all meetings of the Nasdaq Listing and Hearing Review
Council, unless otherwise set forth in these By-Laws, a quorum for the
transaction of business shall consist of a majority of the Nasdaq
Listing and Hearing Review Council, including one Non-Industry member.
In the absence of a quorum, a majority of the members present may
adjourn the meeting until a quorum is present.
Meetings
Sec. 5.10 The members of the Nasdaq Listing and Hearing Review
Council may participate in a meeting through the use of a conference
telephone or similar communications equipment by means of which all
person participating in the meeting may hear one another, and such
participation in a meeting shall constitute presence in person at such
meeting for all purposes.
Article VI
Compensation
Compensation of Board, Council, and Committee Members
Sec. 6.1 The Board may provide for reasonable compensation of the
Chair of the Board, the Directors, Nasdaq Listing and Hearing Review
Council members, and the members of any committee. The Board may also
provide for reimbursement of reasonable expenses incurred by such
persons in connection with the business of Nasdaq.
Article [IV] VII
Officers, Agents, and Employees
Principal Officers
Sec. [4.1]7.1 The principal officers of [the Corporation] Nasdaq
shall be elected by the Board [of Directors] and shall include a Chair,
a President, a Secretary, a Treasurer, and such other officers as may
be designated by the Board [of Directors]. One person may hold the
offices and perform the duties of any two or more of said principal
offices, except the offices and duties of President and Vice President
or of President and Secretary. None of the principal officers, except
the Chair of the Board and the President, need be [directors of the
Corporation] Directors of Nasdaq.
Election of Principal Officers; Term of Office
Sec. [4.2]7.2 (a) The principal officers of [the Corporation]
Nasdaq shall be elected annually by the Board [of Directors] at the
annual meeting of the Board [of Directors] convened pursuant to Section
[3.10(a) of these By-Laws] 4.11(a). Failure to elect any principal
officer annually shall not dissolve [the Corporation] Nasdaq.
(b) If the Board [of Directors] shall fail to fill any principal
office at an annual meeting, or if any vacancy in any principal office
shall occur, or if any principal office shall be newly created, such
principal office may be filled at any regular or special meeting of the
Board [of Directors].
(c) Each principal officer shall hold office until [his or her] a
successor is duly elected and qualified, or until [his or her earlier]
death, resignation, or removal.
Subordinate Officers, Agents, or Employees
Sec. [4.3]7.3 In addition to the principal officers, [the
Corporation] Nasdaq may have one or more subordinate officers, agents,
and employees as the Board [of Directors] may deem necessary, each of
whom shall hold office for such period and exercise such authority and
perform such duties as the Board [of Directors], the President, or any
officer designated by the Board [of Directors], may from time to time
determine. [The Board of Directors at any time may appoint and remove,
or may delegate to any principal officer the power to appoint and to
remove, any subordinate officer, agent, or employee of the
Corporation.] Agents and employees of Nasdaq shall be under the
supervision and control of the officers of Nasdaq, unless the Board, by
resolution, provides that an agent or employee shall be under the
supervision and control of the Board.
Delegation of Duties of Officers
Sec. [4.4]7.4 The Board [of Directors] may delegate the duties and
powers of any officer of [the Corporation] Nasdaq to any other officer
or to any [director] Director for a specified period of time and for
any reason that the Board [of Directors] may deem sufficient.
[[Page 53115]]
Resignation and Removal of Officers
Sec. [4.5]7.5 (a) Any officer may resign at any time upon written
notice of resignation to the Board [of Directors], the President, or
the Secretary. Any such resignation shall take effect upon receipt of
such notice or at any later time specified therein. The acceptance of a
resignation shall not be necessary to make the resignation effective.
(b) Any officer[, agent or employee of the Corporation] of Nasdaq
may be removed, with or without cause, by resolution adopted by a
majority of the [directors] Directors then in office at any regular or
special meeting of the Board [of Directors] or by a written consent
signed by all of the [directors] Directors then in office. Such removal
shall be without prejudice to the contractual rights of the affected
officer, [agent, or employee,] if any, with [the Corporation] Nasdaq.
Bond
Sec. [4.6]7.6 [The Corporation] Nasdaq may secure the fidelity of
any or all of its officers, agents, or employees by bond or otherwise.
Chair of the Board
Sec. [4.7]7.7 The Chair of the Board shall preside at all meetings
of the Board [of Directors] at which [he or she] the Chair is present.
The Chair shall exercise such other powers and perform such other
duties as may be assigned to [him or her] the Chair from time to time
by the Board [of Directors].
President
Sec. [4.8] 7.8 The President shall, in the absence of the Chair of
the Board, preside at all meetings of the Board [of Directors] at which
[he or she] the President is present. The President shall be the [chief
executive officer of the Corporation] Chief Executive Officer of Nasdaq
and shall have general supervision over the business and affairs of
[the Corporation] Nasdaq. The President shall have all powers and
duties usually incident to the office of the President, except as
specifically limited by a resolution of the Board [of Directors]. The
President shall exercise such other powers and perform such other
duties as may be assigned to [him or her] the President from time to
time by the Board [of Directors].
Vice President
Sec. [4.9] 7.9 The Board shall elect one or more Vice Presidents.
In the absence or disability of the President or if the office of
President [be] becomes vacant, the Vice Presidents in the order
determined by the Board [of Directors], or if no such determination has
been made, in the order of their seniority, shall perform the duties
and exercise the powers of the President, subject to the right of the
Board [of Directors] at any time to extend or restrict such powers and
duties or to assign them to others. Any Vice President may have such
additional designations in [his or her] such Vice President's title as
the Board [of Directors] may determine. The Vice Presidents shall
generally assist the President in such manner as the President shall
direct. Each Vice President shall exercise such other powers and
perform such other duties as may be assigned to [him or her] such Vice
President from time to time by the Board [of Directors] or the
President. The term ``Vice President'' used in this Section shall
include the positions of Executive Vice President, Senior Vice
President, and Vice President.
Secretary
Sec. [4.10] 7.10 The Secretary shall act as Secretary of all
meetings of [stockholders] the stockholder and of the Board [of
Directors] at which [he or she] the Secretary is present, shall record
all the proceedings of all such meetings in a book to be kept for that
purpose, shall have supervision over the giving and service of notices
of [the Corporation] Nasdaq, and shall have supervision over the care
and custody of the corporate records and the corporate seal of [the
Corporation] Nasdaq. The Secretary shall be empowered to affix the
corporate seal to documents, the execution of which on behalf of [the
Corporation] Nasdaq under its seal, is duly authorized, and when so
affixed, may attest the same. The Secretary shall have all powers and
duties usually incident to the office of Secretary, except as
specifically [listed] limited by a resolution of the Board [of
Directors]. The Secretary shall exercise such other powers and perform
such other duties as may be assigned to [him or her] the Secretary from
time to time by the Board [of Directors] or the President.
Assistant Secretary
Sec. [4.11] 7.11 In the absence of the Secretary or in the event
of [his or her] the Secretary's inability or refusal to act, any
Assistant Secretary, approved by the Board, shall exercise all powers
and perform all duties of the Secretary. An Assistant Secretary shall
also exercise such other powers and perform such other duties as may be
assigned to [him or her] such Assistant Secretary from time to time by
the Board [of Directors] or the Secretary.
Treasurer
Sec. [4.12] 7.12 The Treasurer shall have general supervision over
the care and custody of the funds and over the receipts and
disbursements of [the Corporation] Nasdaq and shall cause the funds of
[the Corporation] Nasdaq to be deposited in the name of [the
Corporation] Nasdaq in such banks or other depositories as the Board
[of Directors] may designate. The Treasurer shall have supervision over
the care and safekeeping of the securities of [the Corporation] Nasdaq.
The Treasurer shall have all powers and duties usually incident to the
office of Treasurer except as specifically limited by a resolution of
the Board [of Directors]. The Treasurer shall exercise such other
powers and perform such other duties as may be assigned to [him] the
Treasurer from time to time by the Board [of Directors] or the
President.
Assistant Treasurer
Sec. [4.13] 7.13 In the absence of the Treasurer or in the event
of [his or her] the Treasurer's inability or refusal to act, any
Assistant Treasurer, approved by the Board, shall exercise all powers
and perform all duties of the Treasurer. An Assistant Treasurer shall
also exercise such other powers and perform such other duties as may be
assigned to [him or her] such Assistant Treasurer from time to time by
the Board [of Directors] or the Treasurer.
Article [V] VIII
Indemnification of Directors, Officers, Employees, [and] Agents,
Nasdaq Listing and Hearing Review Council and Committee Members
Sec. [5.1] 8.1 (a) [The Corporation] Nasdaq shall indemnify, and
hold harmless, to the fullest extent permitted by Delaware law as it
presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such person) who, by reason of
the fact that he or she is or was a [director or] Director, officer [of
the Corporation], or employee of Nasdaq or a Nasdaq Listing and Hearing
Review Council or committee member, or is or was a [director or]
Director, officer, or employee of Nasdaq who is or was serving at the
request of [the Corporation] Nasdaq as a director, officer, employee,
or agent of another corporation, partnership, joint venture, trust [or
other enterprise, ], enterprise, or non-profit entity, including
service with respect to employee benefit plans, is or was a party, or
is threatened to be made a party to:
(i) Any threatened, pending, or completed action, suit, or
proceeding,
[[Page 53116]]
whether civil, criminal, administrative, or investigative (other than
an action by or in the right of [the Corporation)] Nasdaq) against
expenses (including attorneys' fees and disbursements), judgments,
fines, and amounts paid in settlement actually and reasonably incurred
by such person in connection with any such action, suit, or proceeding;
or
(ii) Any threatened, pending, or completed action or suit by or in
the right of [the Corporation] Nasdaq to procure a judgment in its
favor against expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such [persons] person in connection
with the defense or settlement of such action or suit.
(b) Nasdaq shall advance expenses (including attorneys' fees and
disbursements) to persons described in subsection (a); provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Section or otherwise.
[(b)](c) [The Corporation] Nasdaq may, in its discretion, indemnify
and hold harmless, to the fullest extent permitted by Delaware law as
it presently exists or may thereafter be amended, any person (and the
heirs, executors, and administrators of such persons) who, by reason of
the fact that he or she is or was an [employee or agent of the
Corporation, or ] agent of Nasdaq or is or was an agent of Nasdaq who
is or was serving at the request of [the Corporation] Nasdaq as a
director, officer, employee, or agent of another corporation,
partnership, trust [or other enterprise, ], enterprise, or non-profit
entity, including service with respect to employee benefit plans, was
or is a party, or is threatened to be made a party to any action or
proceeding described [above] in subsection (a).
[(c)](d) [The Corporation] Nasdaq may, in its discretion, pay the
expenses (including attorneys' fees and disbursements) reasonably and
actually incurred by an agent in defending any action, suit, or
proceeding in advance of its final disposition[,]; provided, however,
that the payment of expenses incurred by [a director, officer, or
employee] such person in advance of the final disposition of the matter
shall be conditioned upon receipt of a written undertaking by [the
officer, director, or employee] that person to repay all amounts
advanced if it should be ultimately determined that [such] the person
is not entitled to be indemnified under this Section [5.1 or otherwise]
or otherwise.
(e) Notwithstanding the foregoing or any other provision of these
By-Laws, no advance shall be made by Nasdaq to an agent or non-officer
employee if a determination is reasonably and promptly made by the
Board by a majority vote of those Directors who have not been named
parties to the action, even though less than a quorum, or, if there are
no such Directors or if such Directors so direct, by independent legal
counsel, that, based upon the facts known to the Board or such counsel
at the time such determination is made: (1) The person seeking
advancement of expenses (i) acted in bad faith, or (ii) did not act in
a manner that he or she reasonably believed to be in or not opposed to
the best interests of Nasdaq; (2) with respect to any criminal
proceeding, such person believed or had reasonable cause to believe
that his or her conduct was unlawful; or (3) such person deliberately
breached his or her duty to Nasdaq.
[(d)] (f) The indemnification provided by this [section] Section
in a specific case shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled [under any by-
law, agreement, vote of stockholders or disinterested directors or
otherwise], both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a [director] Director,
officer, National Listing and Hearing Review Council or committee
member, employee, or agent and shall inure to the benefit of [his or
her] such person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to subsection (j),
Nasdaq shall be required to indemnify any person identified in
subsection (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
[(e)] (h) [The Corporation's] Nasdaq's obligation, if any, to
indemnify or advance expenses to any person who is or was serving at
its request as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust [or other], enterprise,
or non-profit entity shall be reduced by any amount such person may
collect as indemnification or advancement from such other corporation,
partnership, joint venture, trust, [or other] enterprise, or non-profit
entity.
[(f)](i) Any repeal or modification of the foregoing provisions of
this Section [5.1] shall not adversely affect any right or protection
hereunder of any person respecting any act or omission occurring prior
to the time of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article is not paid in full within 60 days after a written claim
therefor by an indemnified person has been received by Nasdaq, the
indemnified person may file suit to recover the unpaid amount of such
claim and, if successful in whole or in part, shall be entitled to be
paid the expense of prosecuting such claim. In any such action, Nasdaq
shall have the burden of proving that the indemnified person is not
entitled to the requested indemnification or advancement of expenses
under Delaware law.
Indemnification Insurance
Sec. [5.2]8.2 [The Corporation] Nasdaq shall have power to
purchase and maintain insurance on behalf of any person who is or was a
[director] Director, officer, National Listing and Hearing Review
Council or committee member, employee, or agent of [the Corporation]
Nasdaq, or is or was serving at the request of [the Corporation] Nasdaq
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust [or other], enterprise, or non-profit
entity against any liability asserted against [him or her] such person
and incurred by [him or her] such person in any such capacity, or
arising out of [his or her] such person's status as such, whether or
not [the Corporation] Nasdaq would have the power to indemnify [him or
her] such person against such liability [under the provisions of this
section] hereunder.
Article [VI] IX
Capital Stock
Sole Stockholder
Sec. 9.1 The NASD shall be the sole stockholder of the capital
stock of Nasdaq.
Certificates
Sec. [6.1]9.2 [Each] The stockholder [in the Corporation] shall be
entitled to a certificate or certificates in such form as shall be
approved by the Board [of Directors], certifying the number of shares
of capital stock in [the Corporation] Nasdaq owned by [such] the
stockholder.
[[Page 53117]]
Signatures
Sec. [6.2]9.3 (a) Certificates for shares of capital stock of [the
Corporation] Nasdaq shall be signed in the name of [the Corporation]
Nasdaq by two officers with one being the Chair of the Board, the
President, or a Vice President, and the other being the Secretary, the
Treasurer, or such other officer that may be authorized by the Board
[of Directors]. Such certificates may be sealed with the corporate
[Seal] seal of [the Corporation] Nasdaq or a facsimile thereof.
(b) If any such certificates are countersigned by a transfer agent
other than [the Corporation] Nasdaq or its employee, or by a registrar
other than [the Corporation] Nasdaq or its employee, any other
signature on the certificate may be a facsimile. In [case] the event
that any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall [have
ceased] cease to be such officer, transfer agent, or registrar before
such certificate is issued, such certificate may be issued by [the
Corporation] Nasdaq with the same effect as if such person were such
officer, transfer agent, or registrar at the date of issue.
Stock Ledger
Sec. [6.3]9.4 (a) A record of all certificates for capital stock
issued by [the Corporation] Nasdaq shall be kept by the Secretary or
any other officer, employee, or agent designated by the Board [of
Directors]. Such record shall show the name and address of the person,
firm, or corporation in which certificates for capital stock are
registered, the number of shares represented by each such certificate,
the date of each such certificate, and in the case of certificates
which have been canceled, the date of cancellation thereof.
(b) [The Corporation] Nasdaq shall be entitled to treat the holder
of record of shares of capital stock as shown on the stock ledger as
the owner thereof and as the person entitled to vote such shares and to
receive notice of meetings, and for all other purposes. [The
Corporation] Nasdaq shall not be bound to recognize any equitable or
other claim to or interest in any share of capital stock on the part of
any other person, whether or not [the Corporation] Nasdaq shall have
express or other notice thereof.
Transfers of Stock
Sec. [6.4]9.5 (a) The Board [of Directors] may make such rules and
regulations as it may deem expedient, not inconsistent with law, the
Restated Certificate of Incorporation, or these By-Laws, concerning the
issuance, transfer, and registration of certificates for [share] shares
of capital stock of [the Corporation] Nasdaq. The Board [of Directors]
may appoint, or authorize any principal officer to appoint, one or more
transfer agents or one or more transfer clerks and one or more
registrars and may require all certificates for capital stock to bear
the signature or signatures of any of them.
(b) Transfers of capital stock shall be made on the books of [the
Corporation] Nasdaq only upon delivery to [the Corporation] Nasdaq or
its transfer agent of: (i) a written direction of the registered holder
named in the certificate or such holder's attorney lawfully constituted
in writing[,]; (ii) the certificate for the shares of capital stock
being transferred[,]; and (iii) a written assignment of the shares of
capital stock evidenced thereby.
Cancellation
Sec. [6.5]9.6 Each certificate for capital stock surrendered to
[the Corporation] Nasdaq for exchange or transfer shall be canceled and
no new certificate or certificates shall be issued in exchange for any
existing certificate other than pursuant to [Sec. 6.6. of these By-
Laws] Section 9.7 until such existing certificate shall have been
canceled.
Lost, Stolen, Destroyed, and Mutilated Certificates
Sec. [6.6]9.7 In the event that any certificate for shares of
capital stock of [the Corporation] Nasdaq shall be mutilated, [the
Corporation] Nasdaq shall issue a new certificate in place of such
mutilated certificate. In [case] the event that any such certificate
shall be lost, stolen, or destroyed [the Corporation], Nasdaq may, in
the discretion of the Board [of Directors] or a committee [designated]
appointed thereby with power so to act, issue a new certificate for
capital stock in the place of any such lost, stolen, or destroyed
certificate. The applicant for any substituted certificate or
certificates shall surrender any mutilated certificate or, in the case
of any lost, stolen, or destroyed certificate, furnish satisfactory
proof of such loss, theft, or destruction of such certificate and of
the ownership thereof. The Board [of Directors] or such committee may,
in its discretion, require the owner of a lost or destroyed
certificate, or [his] the owner's representatives, to furnish to [the
Corporation] Nasdaq a bond with an acceptable surety or sureties and in
such sum as will be sufficient to indemnify [the Corporation] Nasdaq
against any claim that may be made against it on account of the lost,
stolen, or destroyed certificate or the issuance of such new
certificate. A new certificate may be issued without requiring a bond
when, in the judgment of the Board [of Directors], it is proper to do
so.
Fixing of Record [Dates] Date
Sec. [6.7]9.8 The Board may fix a record date in accordance with
Delaware law. [(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent or
dissent to corporate action in writing without a meeting, or to
exercise any rights with respect to any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more
than sixty nor less than ten days before the date of any meeting of
stockholders, nor more than sixty days prior to any other action. Only
such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to notice of and to vote at such meeting or any
adjournment thereof, or to give such consent or dissent, or to exercise
such rights with respect to any such change, conversion or exchange of
stock, or to participate in any such action, notwithstanding the
transfer of any stock on the books of the Corporation after any record
date so fixed.]
[(b) If no record date is fixed by the Board of Directors:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the date on which notice is given,
or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held;
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be at the
close of business on the day on which the first written consent is
expressed; and
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.]
[(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
[[Page 53118]]
Directors may fix a new record date for the adjourned meeting.]
Article [VII] X
Miscellaneous Provisions
Corporate Seal
Sec. [7.1]10.1 The seal of [the Corporation] Nasdaq shall be
circular in form and shall bear, in addition to any other emblem or
device approved by the Board [of Directors], the name of [the
Corporation] Nasdaq, the year of its incorporation, and the words
``Corporate Seal'' and ``Delaware[''].'' The seal may be used by
causing it to be affixed or impressed, or a facsimile thereof may be
reproduced or otherwise used in such manner as the Board [of Directors]
may determine.
Fiscal Year
Sec. [7.2]10.2 The fiscal year of [the Corporation] Nasdaq shall
begin the 1st day of January in each year, or such other month as the
Board [of Directors] may determine by resolution.
Waiver of Notice
Sec. [7.3]10.3 (a) Whenever notice is required to be given by law,
the Restated Certificate of Incorporation, or these By-Laws, a written
waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the
[stockholders, directors] stockholder, Directors, or members of a
committee of [directors] Directors need be specified in any written
waiver of notice.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully
called or convened.
Execution of Instruments, Contracts, Etc.
Sec. [7.4.]10.4 (a) All checks, drafts, bills of exchange, notes,
or other obligations or orders for the payment of money shall be signed
in the name of [the Corporation] Nasdaq by such officer or officers or
person or persons[,] as the Board [of Directors], or a duly authorized
committee thereof, may from time to time designate. Except as otherwise
provided by law, the Board [of Directors], any committee given specific
authority in the premises by the Board [of Directors], or any committee
given authority to exercise generally the powers of the Board [of
Directors] during intervals between meetings of the Board [of
Directors], may authorize any officer, employee, or agent, in the name
of and on behalf of [the Corporation] Nasdaq, to enter into or execute
and deliver deeds, bonds, mortgages, contracts, and other obligations
or instruments, and such authority may be general or confined to
specific instances.
(b) All applications, written instruments, and papers required by
any department of the United States Government or by any state, county,
municipal, or other governmental authority, may be executed in the name
of [the Corporation] Nasdaq by any principal officer or subordinate
officer of [the Corporation] Nasdaq, or, to the extent designated for
such purpose from time to time by the Board [of Directors], by an
employee or agent of [the Corporation] Nasdaq. Such designation may
contain the power to substitute, in the discretion of the person named,
one or more other persons.
Form of Records
Sec. [7.5]10.5 Any records maintained by [the Corporation] Nasdaq
in the regular course of business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of,
magnetic tape, computer disk, or any other information storage device,
provided that the records so kept can be converted into clearly legible
form within a reasonable time.
Article [VIII] XI
Amendments; Emergency By-Laws
By [Stockholders] Stockholder
Sec. [8.1]11.1 These By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any meeting of [stockholders by the
vote of the holders of not less than a majority of the outstanding
shares of stock entitled to vote thereat] the stockholder, provided
that, in the case of a special meeting, notice that an amendment is to
be considered and acted upon shall be inserted in the notice or waiver
of notice of said meeting.
By Directors
Sec. [8.2]11.2 To the extent permitted by the Restated Certificate
of Incorporation, these By-Laws may be altered, amended, or repealed,
or new By-Laws may be adopted, at any regular or special meeting of the
Board [of Directors] by a resolution adopted by a vote of a majority of
the whole Board [of Directors].
Emergency By-Laws
Sec. [8.3]11.3 The Board [of Directors] may adopt emergency By-
Laws subject to repeal or change by action of the [stockholders]
stockholder which shall, notwithstanding any different provision of
law, the Restated Certificate of Incorporation, or these By-Laws, be
operative during any emergency resulting from any nuclear or atomic
disaster, an attack on the United States or on a locality in which [the
Corporation] Nasdaq conducts its business or customarily holds meetings
of the Board [of Directors or stockholders] or the stockholder, any
catastrophe, or other emergency condition, as a result of which a
quorum of the Board [of Directors] or a committee thereof cannot
readily be convened for action. Such emergency By-Laws may make any
provision that may be practicable and necessary [for] under the
circumstances of the emergency.
* * * * *
Plan of Allocation and Delegation of Functions by NASD to Subsidiaries
I. NASD, Inc.
The NASD, Inc. (referenced as ``NASD''), the Registered Section 15A
Association, is the parent company of the wholly-owned Subsidiaries
NASD Regulation, Inc. (referenced individually as ``[NASDR] NASD
Regulation'') and The Nasdaq Stock Market, Inc. (referenced
individually as ``Nasdaq'') (referenced collectively as the
``Subsidiaries''). The term ``Association'' shall refer to the NASD and
the Subsidiaries collectively.
A. Governors, Directors and Committee Members The terms ``Industry
Governors,'' ``Non-Industry Governors,'' ``Public Governors,''
``Industry Directors,'' ``Non-Industry Directors,'' ``Public
Directors,'' ``Industry committee members,'' ``Non-Industry committee
members,'' and ``Public committee members,'' as used herein, shall have
the meanings set forth in the By-Laws of the NASD, NASD Regulation and
Nasdaq, as applicable.
[The following definitions are applicable to Governors of the NASD,
Directors of the Subsidiaries, and Members of Committees of the NASD
and the Subsidiaries.]
[1. ``Industry'' Governors, Directors or Committee Members shall
include (a) officers, directors and employees of brokers and dealers
and persons who have been employed in any such capacity at any time
within the prior three years; and (b) persons who have consulting or
employment relationships with or provided professional services
[[Page 53119]]
to the Association and persons who have had any such relationship or
provided any such services at any time within the prior three years.]
[2. ``Non-industry'' Governors, Directors or Committee Members
shall be (a) Public Governors; (b) officers and employees of issuers of
securities listed on The Nasdaq Stock Market or traded in the over-the-
counter market; (c) persons affiliated with brokers and dealers that
operate solely to assist the securities-related activities of the
business of non-member affiliates (such as a broker or dealer
established to:
(i) Distribute an affiliate's securities which are issued on a
continuous or regular basis, or (ii) process the limited buy and sell
orders of the shares of employee owners of the affiliate); (d)
employees of an entity that is affiliated with a broker or dealer that
does not account for a material portion of the revenues of the
consolidated entity, and who are primarily engaged in the business of
the non-member entity; and (e) other individuals who would not be
Industry Governors, Directors or Committee Members.]
[3. ``Public'' Governors, Directors or Committee Members shall be
non-industry persons who have no material business relationship with a
broker, dealer or the Association.]
B. Functions and Authority of the NASD--The NASD shall have
ultimate responsibility for the rules and regulations of the
Association and its operation and administration. As set forth below in
Sections II.A. and III.A., the NASD has delegated certain authority and
functions to its [subsidiaries] Subsidiaries. Actions taken pursuant to
delegated authority, however, remain subject to review, ratification or
rejection by the NASD Board in accordance with procedures established
by that Board. Any function or responsibility as a registered
securities association under the Securities Exchange Act of 1934
(``Act''), or as set forth in the [articles of incorporation] Restated
Certificate of Incorporation or the by-laws is hereby reserved, except
as expressly delegated to the [subsidiaries] Subsidiaries. In addition,
the NASD expressly retains the following authority and functions:
1. To exercise overall responsibility for ensuring that the
Association's statutory and self-regulatory obligations and functions
are fulfilled.
2. To delegate authority to the Subsidiaries to take actions on
behalf of the NASD.
3. To elect the Subsidiary Boards of Directors.
4. To review the rulemaking and disciplinary decisions of the
Subsidiaries (See Sections [II.C.] II.B. and [III.C] III.B. below).
5. To coordinate actions of the Subsidiary Boards as necessary.
6. To resolve any disputes between the Subsidiaries.
7. To administer common overhead and technology of the
Subsidiaries.
8. To administer the Office of Internal Review as provided in
[Section I.D.4 below] the NASD By-Laws.
9. To manage external Association relations on major policy issues.
10. To direct the Subsidiaries to take action necessary to
effectuate the purposes and functions of the Association.
11. To take action ab initio in an area of responsibility delegated
to NASD Regulation in Section II or to Nasdaq in Section III.
[C. Board of Governors
1. Composition: The NASD Board of Governors (``NASD Board'') shall
be composed of at least Nine (9) and no more than Thirteen (13)
Governors, a majority of whom shall be Non-industry (including at least
Two (2) Public Governors). The Chief Executive Officer (``CEO'') of
NASD shall be a Governor. In the event that the NASD Board shall
consist of Eleven (11) or more Governors, at least Three (3) shall be
Public Governors.]
[2. Election Procedures
a. Commencing with the selection of Governors to take office in
April of 1997, Governors (except the CEO of NASD) shall be elected by a
majority vote of those members of the NASD casting ballots on a slate
of nominees presented to the NASD membership by the National Nominating
Committee for election by secret ballot.
b. National Nominating Committee
(1) The National Nominating Committee shall be composed of at least
Six (6) and not more than Nine (9) members, equally balanced between
Industry and Non-industry Committee Members (including at least Two (2)
Public Committee Members). In the event that the Nominating Committee
shall consist of Seven (7) or more members at least Three (3) shall be
Public Committee Members. If at any time there shall be an odd number
of members of the National Nominating Committee, Non-industry Committee
Members shall be in the majority. No officer or employee of the
Association shall serve as a member of the National Nominating
Committee in any voting or non-voting capacity. Two members of the
National Nominating Committee shall be selected by each of the
Subsidiaries and the NASD. No more than three of the Committee Members
and no more than two of the Industry Committee Members shall be current
members of the NASD Board or of the Board of Directors of one of the
Subsidiaries (collectively the ``Association Boards''). Any member of
the National Nominating Committee who is a current member of any
Association Board shall be in his/her final year of service on any
Association Board.
(2) Members of the National Nominating Committee shall be appointed
annually by the NASD Board and may be removed for cause by a majority
vote of the NASD Board.
(3) The National Nominating Committee shall propose to the NASD
Board one or more nominees for each vacant or new Governor position,
and for each Director position on the Boards of Directors of the
Subsidiaries.]
[3. Contested Elections
a. A candidate for the NASD Board who has not been nominated
pursuant to Section 2.b(3) above may be nominated by petition, for the
term of office specified by the Board for the vacant governorship, if
the candidate presents duly executed petitions to the National
Nominating Committee demonstrating that such candidate has the support
of Two (2) percent of the members of the NASD.
b. A candidate for the NASD Board may be included on the ballot
only if the Committee certifies that the candidate's petitions are duly
executed by the requisite number of members of the NASD and that the
candidate meets the qualifications for the position to be filled, as
defined in Section I.A. above.]
[4. Term of Office
a. Each Governor shall hold office for a term of not more than
three years, or until a successor is elected and qualified, or until
death, disqualification, resignation, or removal. Except as provided in
paragraphs (b) and (c), Governors may not serve more than two
consecutive terms of office on any Association Board.
b. The CEO of the NASD shall serve as a member of the NASD Board
until a successor is selected and qualified, or until death,
resignation, disqualification, or removal.
c. Where a Governor is appointed to fill a term of less than one
year, such Governor shall not be precluded from serving two additional
terms of office.]
[5. Vacancies
a. If a Governor position becomes vacant before the expiration of
the Governor's term of office, the National Nominating Committee shall
recommend, and the NASD Board shall
[[Page 53120]]
elect by majority vote of the remaining Governors, a person satisfying
the criteria for a Governor position of the type (Industry, Non-
industry or Public), vacated as defined in Section I.A. above, unless
such Governor has a remaining term of office of no more than six
months, in which case no replacement will be required.
b. If a Governor no longer satisfies the criteria for the category
in which he or she was elected (Industry, Non-industry or Public) and
has a remaining term of office of more than six months, such Governor
shall be automatically removed from office unless the remaining members
of the NASD Board determine otherwise by a majority vote and the
failure to remove the Governor does not affect the proportional
representation set forth in Section I.C.1. above.]
[D. Audit Committee
1. The Audit Committee shall be a committee of the NASD Board and
shall include the following functions:
a. To ensure the existence of adequate controls and the integrity
of the financial reporting process of the Association.
b. To recommend to the NASD Board, and to monitor the independence
and performance of, the certified public accountants retained as
outside auditors by the NASD.
c. To direct and oversee all the activities of the Association's
internal review function, including but not limited to management's
responses to the internal review function.]
[2. Composition: The Audit Committee shall be composed of Four (4)
or Five (5) members of the NASD Board, none of whom are officers or
employees of the Association. The Committee shall include at least one
Public Committee Member who shall serve as Chairperson of the
Committee. The Committee shall have no more than two Industry Committee
Members. If the Committee shall have Four (4) members it shall have not
more than One (1) Industry Committee Member. In the event that the size
of the NASD Board shall at any time consist of Eleven (11) or more
members, the Audit Committee shall include Two (2) Public Committee
Members. In addition, each Subsidiary shall designate a Public Member
of its Board as a liaison to the Audit Committee. The Audit Committee
may consult with that person on issues relating to the functions of the
Subsidiary, but neither the liaison nor any officer or employee of the
Association shall serve on the Audit Committee in any voting or non-
voting capacity.]
[3. No member of the Audit Committee shall participate in the
consideration or decision of any matter relating to a particular NASD
member, company or individual if he or she has a material interest in,
or a professional, business or personal relationship with, that member,
company or individual or if such participation shall create an
appearance of impropriety. Committee members shall consult with the
General Counsel of NASD to determine if recusal is necessary. In the
event that a member of the Committee is recused from consideration of a
matter, any decision on the matter shall be by a vote of a majority of
the remaining members of the Committee.]
[4. Office of Internal Review: The Audit Committee shall have
exclusive authority: (a) To hire or terminate the Director of Internal
Review, (b) to determine the compensation of the Director of Internal
Review, and (c) to determine the budget for the Office of Internal
Review. The Office of Internal Review shall report directly to the
Audit Committee. The Audit Committee may, in its discretion, direct
that the Office of Internal Review also report to senior management of
the NASD on matters it deems appropriate and may request that senior
NASD management perform such operational oversight as necessary and
proper, consistent with preservation of the independence of the
internal review function.]
[E.]C. Management Compensation Committee
1. The Management Compensation Committee shall be a Committee of
the NASD Board and shall have the following functions: To consider and
recommend compensation policies, programs, and practices for employees
of the Association.
2. Composition: The Management Compensation Committee shall [be
composed] consist of no fewer than [Four (4)] four and no more than
seven [or more Members of the NASD Board, equally balanced between
Industry and Non-industry]Governors. [If at any time there shall be an
odd number of members of the Management Compensation Committee, Non-
industry Committee Members shall be in the majority.] The number of
Non-Industry committee members shall equal or exceed the number of
Industry committee members. The Chief Executive Officer shall be an ex-
officio, non-voting member of the Management Compensation Committee.
Each member shall serve a term of office of one year.
3. Quorum: At all meetings of the Management Compensation
Committee, a quorum for the transaction of business shall consist of a
majority of the Management Compensation Committee, including not less
than 50 percent of the Non-Industry committee members. In the absence
of a quorum, a majority of the committee members present may adjourn
the meeting until a quorum is present.
[F.] D. Access to and Status of Officers, Directors, Employees, Books,
Records, and Premises of Subsidiaries
Notwithstanding the delegation of authority to the Subsidiaries, as
set forth in Sections II.A. and III.A. below, the staff, books,
records, and premises of the Subsidiaries are the staff, books,
records, and premises of the NASD subject to oversight pursuant to the
[Securities Exchange Act of 1934 (``Act'')] Act, and all officers,
directors, employees, and agents of the Subsidiaries are officers
[and], directors, employees, and agents of the NASD for purposes of the
Act.
II. NASD Regulation, Inc. (``[NASDR] NASD Regulation'')
A. Delegation of Functions and Authority:
1. Subject to Section I.B.11, [The] the NASD hereby delegates to
[the NASDR and the NASDR] NASD Regulation and NASD Regulation assumes
the following responsibilities and functions as a registered securities
association:
a. To establish and interpret rules and regulations and provide
exemptions for NASD members including, but not limited to fees [and],
membership requirements [and the Code of Arbitration and Mediation
Procedure], and arbitration procedures.
b. To determine Association policy, including developing and
adopting necessary or appropriate rule changes, relating to the
business and sales practices of NASD members and associated persons
with respect to, but not limited to, (i) arbitration of disputes among
and between NASD members, associated persons and customers, (ii) public
and private sale or distribution of securities including underwriting
arrangements and compensation, (iii) financial responsibility, (iv)
qualifications for NASD membership and association with NASD members,
(v) clearance and settlement of securities transactions and other
financial responsibility and operational matters affecting members in
general and securities listed on The Nasdaq Stock Market and on other
markets operated by The Nasdaq Stock Market, (vi) NASD member
advertising practices, (vii) administration, interpretation, and
enforcement of Association rules, (viii) administration
[[Page 53121]]
and enforcement of Municipal Securities Rulemaking Board (``MSRB'')
rules, the federal securities laws, and other laws, rules and
regulations that the Association has the authority to administer or
enforce, and (ix) standards of proof for violations and sanctions
imposed on NASD members and associated persons in connection with
disciplinary actions.
c. To take necessary or appropriate action to assure compliance
with Association policy, Association and MSRB rules, the federal
securities laws, and other laws, rules and regulations that the
Association has the authority to administer or enforce, through
examination, surveillance, investigation, enforcement, disciplinary,
and other programs.
d. To administer programs and systems for the surveillance and
enforcement of rules governing NASD members' conduct and trading
activities in The Nasdaq Stock Market, other markets operated by The
Nasdaq Stock Market, the third market for securities listed on a
registered exchange, and the over-the-counter market.
e. To examine and investigate NASD members and associated persons
to determine if they have violated Association or MSRB rules, the
federal securities laws, and other laws, rules, and regulations that
the Association has the authority to administer, interpret, or enforce.
f. To administer Association enforcement and disciplinary programs,
including investigation, adjudication of cases and the imposition of
fines and other sanctions.
g. To administer the Association's office of professional hearing
officers.
h. To conduct arbitrations, mediations, and other dispute
resolution programs.
i. To conduct qualification examinations and continuing education
programs.
j. To operate the Central Registration Depository [(``CRD'')].
k. To determine whether applicants for NASD membership have met the
requirements for membership established by the Association.
l. To place restrictions on the business activities of NASD members
consistent with the public interest, the protection of investors, and
the federal securities laws.
m. To determine whether persons seeking to register as associated
persons of NASD members have met such qualifications for registration
as may be established by the Association, including whether statutorily
disqualified persons will be permitted to associate with particular
NASD members and the conditions of such association.
n. To oversee all District Office activities.
o. To establish the annual budget and business plan for [NASDR]
NASD Regulation.
p. To determine allocation of [NASDR] NASD Regulation resources.
q. To establish and assess fees and other charges on NASD members,
persons associated with NASD members, and others using the services or
facilities of [NASDR] NASD Regulation.
r. To manage external relations on enforcement, regulatory, and
other policy issues with Congress, the Securities and Exchange
Commission [(``SEC'')] (``Commission''), state regulators, other self-
regulatory organizations, business groups, and the public.
s. To establish internal procedures for considering complaints by
members, associated persons, and members of the public who request an
investigation or disciplinary action by the Association.
t. To operate Stockwatch in conjunction with Nasdaq pursuant to
Section IV.
2. All action taken pursuant to authority delegated pursuant to (1)
shall be subject to the review, ratification, or rejection by the NASD
Board in accordance with procedures established by the NASD Board.
[B. Board of Directors
1. Subsequent to January of 1997, the NASDR Board of Directors
(``NASDR Board'') shall be composed of at least Twenty-one (21) and no
more than Twenty-five (25) Directors. The President of NASDR shall be a
member of the NASDR Board and the remaining members shall be equally
balanced between Industry and Non-industry Directors. If at any time
there shall be an odd number of Directors, excluding the President, a
majority of the Directors other than the President shall be Non-
industry. The NASDR Board shall include Seven (7) representatives of
NASD members representing geographical regions defined by the NASDR
Board, and at least Three (3) at-large industry representatives. The
NASDR Board shall include at least Ten (10) Non-industry Directors,
including at least Three (3) Public Directors. In the event that the
NASDR Board shall consist of more than Twenty-two (22) Members, at
least Four (4) shall be Public Directors. The NASDR Board shall include
representatives of an issuer of investment company shares or an
affiliate of such an issuer and an insurance company or an affiliated
NASD member. The CEO of NASD shall be an ex-officio non-voting member
of the NASDR Board.]
[2. Election Procedures
a. The National Nominating Committee shall propose to the NASD
Board nominees for each position on the NASDR Board.
b. The Seven (7) Industry Members of the NASDR Board shall be
nominated by Regional Nominating Committees for consideration by the
National Nominating Committee. A Regional Nominating Committee shall
consist of equal numbers of members from each district comprising the
regions and members shall be selected by the District Committee for
that District.
c. Any officer, director or employee of an NASD member who has not
otherwise been nominated by the Regional Nominating Committee may seek
nomination if the candidate presents duly executed petitions to the
Regional Nominating Committee for the appropriate geographical region
demonstrating that such candidate has the support of at least ten (10)
percent of the NASD members in that region. The Regional Nominating
Committee shall submit the names of its nominees and of all the
candidates presenting qualifying petitions to the members in that
region for nomination by secret ballot. The Regional Nominating
Committee shall nominate to the National Nominating Committee the
candidate receiving the most votes.
d. Terms of Office and Vacancies: The terms of office of Directors
and the procedures for the filling of vacancies shall be the same as
those set forth under Section I.C.4. and 5. above.]
[C]B. [NASDR] NASD Regulation Board Procedures
[1. Disciplinary Actions--Any disciplinary decision of the
Association, including dismissals, may be appealed or called for review
pursuant to the Rules of the Association.]
[2. Statutory Disqualification Decisions--Any decision of the NBCC
with respect to statutory disqualification may be called for review
pursuant to the Rules of the Association.]
[3]1. Rule Filings--[Any rule change adopted by the NASDR Board
that imposes fees or other charges on persons or entities other than
NASD members or that the NASDR Board refers to the NASD Board because
in the view of the NASDR Board it raises significant policy issues
shall be reviewed and ratified by the NASD Board before becoming the
final action of the Association.] The NASD Board shall review and
ratify a rule change adopted by the NASD Regulation Board
[[Page 53122]]
before the rule change becomes the final action of the Association if
the rule change: (a) Imposes fees or other charges on persons or
entities other than NASD members; (b) raises significant policy issues
in the view of the NASD Regulation Board, and the NASD Regulation Board
refers the rule change to the NASD Board; or (c) is materially
inconsistent with a recommendation of the National Adjudicatory
Council. If the [NASDR] NASD Regulation Board does not refer a rule
change to the NASD Board for review, the [NASDR] NASD Regulation Board
action [will] shall become the final action of the Association unless
called for review by any member of the NASD Board not later than the
NASD Board [its] meeting next following the [NASDR] NASD Regulation
Board's action [but which is 15 calendar days or more following the
action of the [NASDR Board]. During the process of developing rule
proposals, [NASDR] NASD Regulation staff shall consult with and seek
the advice of Nasdaq staff before presenting any rule proposal to the
[NASDR] NASD Regulation Board.
[4. Notwithstanding the requirements set forth in paragraph 3 of
this Section, the NASD Board may determine it is advisable to call or
not call for review any rule change within the 15 calendar day period
following the decision of the NASDR Board.]
2. Petitions for Reconsideration
a. If the NASD Regulation Board or NASD Board takes action on a
rule change relating to the business and sales practices of NASD
members or associated persons or enforcement policies, including
policies with respect to fines and other sanctions, and such action is
materially inconsistent with the recommendation of the National
Adjudicatory Council, the NASD Regulation Board or the NASD Board, as
applicable, shall provide written notice of its action to the National
Adjudicatory Council within one calendar day.
b. Within two calendar days after receipt of such notice, the
National Adjudicatory Council, by majority vote, may petition the NASD
Board for reconsideration. Such petition shall be in writing and
include a statement explaining in detail why the National Adjudicatory
Council believes that the NASD Regulation Board's or NASD Board's
action should be set aside.
c. The NASD Executive Committee shall act on a timely and complete
petition for reconsideration within three calendar days after its
receipt. If the NASD Executive Committee grants reconsideration, the
matter shall be added to the agenda of the next regularly scheduled
meeting of the NASD Board. If the NASD Executive Committee denies
reconsideration, the NASD Regulation Board's or NASD Board's previous
action on the rule shall be final, and staff shall submit the necessary
rule filing to the SEC.
[D.] C. Supplemental Delegation Regarding [the Formation of Committees]
Committees
[1. The NASDR board may designate one or more committees and
delegate to such committees such powers and authority, as necessary and
appropriate, to act on behalf of the NASDR Board in carrying out the
functions and authority delegated to the NASDR by the NASD. Such
delegations shall be in conformance with law, the charter and the by-
laws and the requirements as set forth below as part of this Plan of
Allocation and Delegation. Any action taken by a committee pursuant to
delegated authority shall be subject to review, ratification or
rejection by the NASDR Board in accordance with procedures established
by the NASDR Board.]
[(a) National Business Conduct Committee--A National Business
Conduct Committee may be created for the purpose of:
(i) Hearing and deciding appeals of initial disciplinary decisions
of the Association.
(ii) Considering and recommending to the NASDR Board policy and
rule changes relating to the business and sales practices of NASD
members and associated persons.
(iii) Considering and recommending Association enforcement
policies, including policies with respect to fines and other
sanctions.]
[(b) The NBCC shall be composed of at least Eight (8) members of
the NASDR Board equally balanced between Industry and Non-industry
Committee Members (including at least one Public Member). If at any
time there shall be an odd number of Committee Members, a majority of
the Members shall be Non-industry. Each NBCC Member shall be elected to
serve a one-year term.]
1. Market Regulation Committee
a. The Market Regulation Committee shall advise the NASD Regulation
Board on regulatory proposals and industry initiatives relating to
quotations, execution, trade reporting, and trading practices; advise
the NASD Regulation Board in its administration of programs and systems
for the surveillance and enforcement of rules governing NASD members'
conduct and trading activities in The Nasdaq Stock Market, other
markets operated by The Nasdaq Stock Market, the third market for
securities listed on a registered exchange, and the over-the-counter
market; provide a pool of panelists for those hearing panels that the
Chief Hearing Officer or his or her designee determines should include
a member of the Market Regulation Committee pursuant to the Rules of
the Association; participate in the training of hearing panelists on
issues relating to quotations, executions, trade reporting, and trading
practices; and review and recommend to the National Adjudicatory
Council changes to the Association's Sanction Guidelines.
b. The NASD Regulation Board shall appoint the Market Regulation
Committee by resolution. The members of the Market Regulation Committee
shall be balanced between Industry and Non-Industry committee members.
c. At all meetings of the Market Regulation Committee, a quorum for
the transaction of business shall consist of a majority of the Market
Regulation Committee, including not less than 50 percent of the Non-
Industry committee members. If at least 50 percent of the Non-Industry
committee members are (i) present at or (ii) have filed a waiver of
attendance for a meeting after receiving an agenda prior to such
meeting, the requirement that not less than 50 percent of the Non-
Industry committee members be present to constitute the quorum shall be
waived.
[2. Other Committees--With respect to any other committees that may
be formed pursuant to this Section D for purposes other than those set
forth in (1) above, such committee shall be created in accordance with
the by-laws by resolution or resolutions adopted by a majority of the
whole NASDR Board.]
2. National Arbitration and Mediation Committee
a. The National Arbitration and Mediation Committee shall have the
powers and authority pursuant to the Rules of the Association to advise
the NASD Regulation Board on the development and maintenance of an
equitable and efficient system of dispute resolution that will equally
serve the needs of public investors and Association members, to monitor
rules and procedures governing the conduct of dispute resolution, and
to have such other powers and authority as is necessary to effectuate
the purposes of the Rules of the Association.
b. The NASD Regulation Board shall appoint the National Arbitration
and Mediation Committee by resolution. The National Arbitration and
Mediation Committee shall consist of no fewer than ten and no more than
25 members. The members of the National
[[Page 53123]]
Arbitration and Mediation Committee shall be equally balanced between
Industry and Non-Industry committee members.
c. At all meetings of the National Arbitration and Mediation
Committee, a quorum for the transaction of business shall consist of a
majority of the National Arbitration and Mediation Committee, including
not less than 50 percent of the Non-Industry committee members. If at
least 50 percent of the Non-Industry committee members are (i) present
at or (ii) have filed a waiver of attendance for a meeting after
receiving an agenda prior to such meeting, the requirement that not
less than 50 percent of the Non-Industry committee members be present
to constitute the quorum shall be waived.
3. Operations Committee
a. The Operations Committee shall have the following functions:
i. to issue interpretations or rulings with respect to the Uniform
Practice Code (``UPC'');
ii. to advise the NASD Regulation Board and, where applicable, the
Nasdaq Listing and Hearing Review Council, with respect to the
clearance and settlement of securities transactions and other financial
responsibility and operational matters that may require modifications
to the UPC or other Rules of the Association; and
iii. to maintain a Nasdaq Liaison Subcommittee to provide advice to
Nasdaq staff on policy making related to the UPC and financial
responsibility issues related to The Nasdaq Stock Market or other
markets operated by The Nasdaq Stock Market and to issue
interpretations or rulings with respect to the application of the UPC
to cancellations of new issues, due bills, and similar situations that
arise with respect to securities listed on The Nasdaq Stock Market or
traded on other markets operated by The Nasdaq Stock Market.
b. The NASD Regulation Board shall appoint the Operations Committee
by resolution. The Operations Committee shall have not more than 50
percent of its members directly engaged in market-making activity or
employed by a member firm whose revenues from market-making activity
exceed ten percent of its total revenues.
III. Delegation to Nasdaq
A. Delegation of Functions and Authority
1. Subject to Section I.B.11., [The] the NASD hereby delegates to
Nasdaq and Nasdaq assumes the following responsibilities and functions
as a registered securities association:
a. To operate The Nasdaq Stock Market, automated systems supporting
The Nasdaq Stock Market, and other markets or systems for non-Nasdaq
securities.
b. To provide and maintain a telecommunications network
infrastructure linking market participants for the efficient processing
and handling of quotations, orders, transaction reports, and
comparisons of transactions.
c. To collect, process, consolidate, and provide to [NASDR] NASD
Regulation the information requisite to operation of the surveillance
audit trail.
d. To develop and adopt rule changes (i) applicable to the
collection, processing, and dissemination of quotation and transaction
information for securities traded on The Nasdaq Stock Market, on other
markets operated by The Nasdaq Stock Market, in the third market for
securities listed on a registered exchange, and in the over-the-counter
market, (ii) for Nasdaq-operated trading systems for these securities,
and (iii) establishing trading practices with respect to these
securities.
e. To develop and adopt rules, interpretations, policies, and
procedures and provide exemptions to maintain and enhance the
integrity, fairness, efficiency, and competitiveness of The Nasdaq
Stock Market and other markets operated by The Nasdaq Stock Market.
f. To act as a Securities Information Processor for quotations and
transaction information related to securities traded on The Nasdaq
Stock Market and other markets operated by The Nasdaq Stock Market.
g. To act as processor under the Nasdaq/Unlisted Trading Privileges
Plan to collect, consolidate, and disseminate quotation and transaction
reports in eligible securities from all Plan Participants in a fair and
non-discriminatory manner.
h. To administer the Association's involvement in National Market
System Plans related to Nasdaq/Unlisted Trading Privileges or trading
in the third market for securities listed on a registered exchange.
i. To develop, adopt, and administer rules governing listing
standards applicable to securities traded on The Nasdaq Stock Market
and the issuers of those securities.
j. To establish standards for participation in The Nasdaq Stock
Market[,] and other markets or systems operated by Nasdaq, and
determine in accordance with Association and Nasdaq procedures if: (i)
persons seeking to participate in any of such markets and systems have
met the standards established for participants; and (ii) persons
participating in any of the markets or systems continue to meet the
standards established for participants.
k. To establish and assess listing fees upon issuers and fees for
the products and services offered by Nasdaq.
l. To establish the annual budget and business plan for Nasdaq.
m. To determine allocation of Nasdaq resources.
n. To manage external relations on matters related to trading on
and the operation and functions of The Nasdaq Stock Market, other
markets operated by The Nasdaq Stock Market and systems operated by the
Nasdaq Stock Market with Congress, the [SEC] Commission, state
regulators, other self-regulatory organizations, business groups, and
the public.
o. To operate Stockwatch in conjunction with NASD Regulation
pursuant to Section IV.
2. All action taken pursuant to authority delegated pursuant to (1)
shall be subject to the review, ratification, or rejection by the NASD
Board in accordance with procedures established by the NASD Board.
[B. Board of Directors
1. Composition--As of January of 1997 the Nasdaq Board of Directors
(``Nasdaq Board'') shall be composed of at least Eleven (11) and not
more than Fifteen (15) Directors. The President of Nasdaq shall be a
member of the Nasdaq Board and the remaining Members shall be equally
balanced between Industry and Non-industry Directors, including at
least two (2) Public Directors. If at any time there shall be an odd
number of Directors, excluding the President, a majority of the
Directors other than the President shall be Non-industry. In the event
that the Nasdaq Board shall consist of more than Twelve (12) Members,
at least Three (3) shall be Public Directors. The CEO of NASD shall be
an ex-officio non-voting member of the Nasdaq Board.]
[2. Election Procedures
a. The National Nominating Committee shall propose to the NASD
Board nominees for each position on the Nasdaq Board.
b. Terms of Office and Vacancies: The terms of office of Directors
and the procedures for the filling of vacancies shall be the same as
those set forth under I.C.4. and 5. above.]
[C.] B. Nasdaq Board Procedures
1. Listing/Delisting Decisions--Any initial decision of Nasdaq
staff concerning the listing or delisting of securities on The Nasdaq
Stock Market may be appealed to the Nasdaq Listing
[[Page 53124]]
and Hearing Review [Committee] Council (``Listing [Committee]
Council'') within 15 calendar days, or called for review by any member
of the Listing [Committee] Council within 45 days, as set forth in the
[Code of Procedure] Rules of the Association. [A decision of the
Listing Committee may be called for review by any member of the Nasdaq
Board not later than its meeting next following the Listing Committee's
decision.] A decision of the [Nasdaq Board] Listing Council may be
called for review by any member of the NASD Board not later than the
NASD Board [its] meeting next following the [Nasdaq Board's] Listing
Council's decision but which is 15 calendar days or more following the
decision of the Listing [Committee] Council [or the Nasdaq Board].
Notwithstanding the preceding sentence, the NASD Board may determine it
is advisable to call for review any listing/delisting decision with the
15 calendar day period following the decision of the Listing Council.
Any decision not appealed or called for review shall become the final
action of the Association upon expiration of the time allowed for
appeal or call for review. An issuer has the right to appeal a final
action of the Association taken by the Listing [Committee] Council[,
Nasdaq Board] or NASD to the [SEC] Commission.
2. Rule Filings--[Any rule change adopted by the Nasdaq Board that
imposes fees or other charges on persons or entities other than NASD
members or issuers or that the Nasdaq Board determines to refer to the
NASD Board because in the view of the Nasdaq Board it raises
significant policy issues shall be reviewed and ratified by the NASD
Board before becoming the final action of the Association.] The NASD
Board shall review and ratify a rule change adopted by the Nasdaq Board
before the rule change becomes the final action of the Association if
the rule change: (a) Imposes fees or other charges on persons or
entities other than NASD members or issuers; (b) raises significant
policy issues in the view of the Nasdaq Board, and the Nasdaq Board
refers the rule change to the NASD Board; or (c) is materially
inconsistent with a recommendation of the Nasdaq Listing and Hearing
Review Council. If the Nasdaq Board does not refer a rule change to the
NASD Board for review, the Nasdaq Board action [will] shall become the
final action of the Association unless called for review by any member
of the NASD Board not later than the NASD Board [its] meeting next
following the Nasdaq Board's action [but which is 15 calendar days or
more following the action of the Nasdaq Board]. During the process of
developing rule proposals, Nasdaq staff shall consult with and seek the
advice of [NASDR] NASD Regulation staff before presenting any rule
proposal to the Nasdaq Board.
[3. Waiver of 15-day Period--Notwithstanding the requirements set
forth in paragraphs 1 and 2 of this Section, the NASD Board may
determine it is advisable to call for review any listing/delisting
decision or rule change within the 15 calendar day period following the
decision of the Listing Committee or the Nasdaq Board, as applicable.]
3. Petitions for Reconsideration
a. If the Nasdaq Board or NASD Board takes action on a listing-
related rule change, and such action is materially inconsistent with
the recommendation of the Nasdaq Listing and Hearing Review Council,
the Nasdaq Board or the NASD Board, as applicable, shall provide
written notice of its action to the Nasdaq Listing and Hearing Review
Council within one calendar day.
b. Within two calendar days after receipt of such notice, the
Nasdaq Listing and Hearing Review Council, by majority vote, may
petition the NASD Board for reconsideration. Such petition shall be in
writing and include a statement explaining in detail why the Nasdaq
Listing and Hearing Review Council believes that the Nasdaq Board's or
NASD Board's action should be set aside.
c. The NASD Executive Committee shall act on a timely and complete
petition for reconsideration within three calendar days after its
receipt. If the NASD Executive Committee grants reconsideration, the
matter shall be added to the agenda of the next regularly scheduled
meeting of the NASD Board. If the NASD Executive Committee denies
reconsideration, the Nasdaq Board's or NASD Board's previous action on
the rule shall be final, and staff shall submit the necessary rule
filing to the SEC.
[D] C. Supplemental Delegation Regarding [the Formation of Committees]
Committees
[The Nasdaq Board may designate one or more committees and delegate
to such committees such powers and authority, as necessary and
appropriate, to act on behalf of the Nasdaq Board in carrying out the
functions and authority delegated to Nasdaq by the NASD. Such
delegations shall be in conformance with law, the charter and the by-
laws and the requirements as set forth below as part of this Plan of
Allocation and Delegation. Any action taken by a committee pursuant to
delegated authority shall be subject to review, ratification or
rejection by the Nasdaq Board.]
[1. Specific Committees]
[a.] 1. Quality of Markets Committee (``QOMC'')
[(1)](a) The QOMC shall be a committee appointed by the Nasdaq
Board and shall have the following functions:
(i)) To provide advice and guidance to the Nasdaq Board on issues
relating to the fairness, integrity, efficiency, and competitiveness of
the information, order handling, and execution mechanisms of The Nasdaq
Stock Market, other markets operated by The Nasdaq Stock Market, and
systems operated by The Nasdaq Stock Market from the perspective of
investors, both individual and institutional, retail firms, market
making firms, Nasdaq-listed companies, and other participants in The
Nasdaq Stock Market.
(ii)) To advise the Nasdaq Board with respect to national market
systems plans and linkages between the facilities of Nasdaq and
registered exchanges.
[(2)](b) The QOMC will have broad representation that is equally
balanced between [industry] Industry and [non-industry] Non-Industry
committee members. The committee members shall include broad
representation of participants in The Nasdaq Stock Market, including
investors, market makers, integrated retail firms, and order entry
firms.
(c) At all meetings of the QOMC, a quorum for the transaction of
business shall consist of a majority of the QOMC, including not less
than 50 percent of the Non-Industry committee members. If at least 50
percent of the Non-Industry committee members are (i) present at or
(ii) have filed a waiver of attendance for a meeting after receiving an
agenda prior to such meeting, the requirement that not less than 50
percent of the Non-Industry committee members be present to constitute
the quorum shall be waived.
[b] 2. Market Operations Review Committee (``MORC'')
[(1)](a) The MORC shall be a committee appointed by the Nasdaq
Board and shall exercise the functions contained in [Section 70] Rule
11890 of the [Uniform Practice Code (``UPC''),] Rules of the
Association in accordance with the procedures specified therein.
[NASDR] NASD Regulation shall receive weekly reports of all
determinations made by the staff or MORC under [Section 70 of the UPC]
Rule 11890 for regulatory review.
[[Page 53125]]
[(2)](b) The MORC shall be appointed by resolution of the Nasdaq
Board and shall have no more than [Fifty (50)] 50 percent of its
members directly engaged in market making activity or employed by a
member firm whose revenues from market making activity exceed [10 %]
ten percent of its total revenues.
[c. Firm Operations and Clearance Committee (``FOCC'')
(1) The FOCC shall be a committee appointed by the Nasdaq Board and
shall have the following functions:
(i) To issue interpretations or rulings with respect to Sections 4-
10, 12, 46, 67-68 and 71 of the UPC as well as any other provision of
the UPC pertaining to transactions and post execution processing.
(ii) To advise the Nasdaq Board with respect to modifications to
the UPC dealing with the transactions and post execution processing.]
[d. Nasdaq Listing and Hearing Review Committee (``Listing Committee'')
(1) The Listing Committee shall be a committee appointed by the
Nasdaq Board and shall have the following functions:
(i) To advise the Nasdaq Board on the formulation or modification
of initial or maintenance eligibility criteria and fees applicable to
securities listed on The Nasdaq Stock Market or traded on other markets
operated by The Nasdaq Stock Market.
(ii) To exercise the functions set forth in Article IX of the Code
of Procedure, in accordance with the procedures specified therein.
(2) The Listing Committee shall be appointed by resolution of the
Nasdaq Board and shall have no more than Fifty (50) percent of its
members directly engaged in market making activity or employed by a
member firm whose revenues from market making activity exceed 10% of
its total revenues.]
[2. Other Committees
With respect to any other committees that may be formed pursuant to
this Section D for purposes other than those set forth in (1) above,
such committee shall be created in accordance with the By-laws by
resolution or resolutions adopted by a majority of the whole Nasdaq
Board.]
[E.] IV. Stockwatch
The Stockwatch section handles the trading halt functions for The
Nasdaq Stock Market and exchange-listed securities traded in the over-
the-counter market (i.e., the Third Market). Review of all questionable
market activity, possible rule infractions or any other matters that
require any type of investigative or regulatory follow-up will be
referred to and conducted by [NASDR] NASD Regulation, which will assume
sole responsibility for the matter until resolution. This
responsibility will include examinations, investigations, document
requests, and any enforcement actions that [the NASDR] NASD Regulation
may deem necessary. [NASDR] NASD Regulation staff at all times will
have access to all records and files of the Stockwatch function.
* * * * *
Restated Certificate of Incorporation of National Association of
Securities Dealers, Inc.
The present name of the corporation is National Association of
Securities Dealers, Inc. [(the ``Corporation''). The Corporation]
(``NASD''). The NASD was originally incorporated as a nonstock
corporation under the name of Investment Bankers Conference, Inc., and
its original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on September 3, 1936. This Restated
Certificate of Incorporation of the [Corporation] NASD, which both
restates and further amends the provisions of the [Corporation's]
NASD's Certificate of Incorporation as heretofore amended, was duly
adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
Name
First: The name of the [Corporation] corporation is National
Association of Securities Dealers, Inc.
Delaware Office and Agent
Second: The registered office of the [Corporation] NASD in the
State of Delaware is located at 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name and address of its
registered agent is the Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware.
Objects or Purposes
Third: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware, and, without limiting the generality of the
foregoing, the business or purposes to be conducted or promoted shall
include the following:
(1) To promote through cooperative effort the investment banking
and securities business, to standardize its principles and practices,
to promote therein high standards of commercial honor, and to encourage
and promote among members observance of Federal and [State] State
securities laws;
(2) To provide a medium through which its membership may be enabled
to confer, consult, and cooperate with governmental and other agencies
in the solution of problems affecting investors, the public, and the
investment banking and securities business;
(3) To adopt, administer, and enforce rules of fair practice and
rules to prevent fraudulent and manipulative acts and practices, and in
general to promote just and equitable principles of trade for the
protection of investors;
(4) To promote self-discipline among members, and to investigate
and adjust grievances between the public and members and between
members;
(5) To establish, and to register with the Securities and Exchange
Commission as, a national securities association pursuant to Section
15A of the Securities Exchange Act of 1934, as amended, and thereby to
provide a medium for effectuating the purposes of said [section;]
Section; and
(6) To transact business and to purchase, hold, own, lease,
mortgage, sell, and convey any and all property, real and personal,
necessary, convenient, or useful for the purposes of the [Corporation;]
NASD.
The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, not be limited or restricted by
reference to, or inference from, the terms of any other clause in this
[certificate of incorporation] Restated Certificate of Incorporation,
but the objects and purposes specified in each of the foregoing clauses
of this [article] Article shall be regarded as independent objects and
purposes.
Form of Organization
Fourth: [This Corporation] The NASD shall be a membership
corporation and shall have no capital stock. The [Corporation] NASD is
not organized and shall not be conducted for profit, and no part of its
net revenues or earnings shall inure to the benefit of any individual,
subscriber, contributor, or member.
Except as may be otherwise provided by [applicable law] the General
Corporation Law of the State of Delaware or this Restated Certificate
of Incorporation, the members of the [Corporation] NASD shall have no
voting rights. Notwithstanding the foregoing, the members shall be
entitled to vote for the election of Governors and on any amendment to
the By-Laws of the [Corporation] NASD in accordance
[[Page 53126]]
with the procedures for such a vote as provided in the By-Laws.
Except as may be otherwise provided by the General Corporation Law
of the State of Delaware, other applicable law or this Restated
Certificate of Incorporation, the conditions, method of admission,
qualifications and classifications of membership, the limitations,
rights, powers and duties of members, the dues, assessments, and
contributions of members, the method of expulsion from and termination
of membership, and all other matters pertaining to the membership and
the conduct, management, and control of the business, property, and
affairs of the [Corporation] NASD shall be as provided from time to
time in the By-Laws of the [Corporation] NASD and the Rules of the
Association.
Indemnification; Governor Liability
Fifth: (a) [To] The NASD shall indemnify, and hold harmless, to the
fullest extent permitted by [applicable law] the General Corporation
Law of the State of Delaware as it presently exists or may [hereafter
be amended, the Corporation shall indemnify any person who was or is
made] thereafter be amended, any person (and the heirs, executors, and
administrators of such person) who, by reason of the fact that he or
she is or was a Governor, officer, employee or committee member of the
NASD, or is or was a Governor, officer, or employee of the NASD who is
or was serving at the request of the NASD as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, enterprise, or non-profit entity, including service with respect
to employee benefit plans, is or was a party, or is threatened to be
made a party [or is otherwise involved in any] to:
(i) Any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative [or
investigative,], or investigative (other than an action by or in the
right of the NASD) against expenses (including attorneys' fees and
disbursements), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with any
such action, suit, or proceeding; or
(ii) Any threatened, pending, or completed action or suit by or in
the right of the NASD to procure a judgment in its favor against
expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with the defense or
settlement of such action or suit.
[(b) A Governor of the Corporation shall not be liable to the
Corporation or its members for monetary damages for breach of fiduciary
duty as a Governor, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation
Law as the same exists or may hereafter by amended.]
(b) The NASD shall advance expenses (including attorneys' fees and
disbursements) to persons described in Article Fifth (a); provided,
however, that the payment of expenses incurred by such person in
advance of the final disposition of the matter shall be conditioned
upon receipt of a written undertaking by that person to repay all
amounts advanced if it should be ultimately determined that the person
is not entitled to be indemnified under this Article Fifth or
otherwise.
(c) The NASD may, in its discretion, indemnify and hold harmless,
to the fullest extent permitted by the General Corporation Law of the
State of Delaware as it presently exists or may thereafter be amended,
any person (and the heirs, executors, and administrators of such
persons) who, by reason of the fact that he[, or a person for whom he
is the legal representative, is or was a Governor or officer of the
Corporation] or she is or was an agent of the NASD or is or was an
agent of the NASD who is or was serving at the request of the
[Corporation] NASD as a director, officer, employee, or agent of
another corporation [or of a], partnership, [joint venture,] trust,
enterprise, or non-profit entity, including service with respect to
employee benefit plans, [against all expenses, liability, and loss
reasonably incurred or suffered by such person, and the Corporation
shall advance expenses (including attorneys' fees) to such person] was
or is a party, or is threatened to be made a party to any action or
proceeding described in Article Fifth (a).
(d) The NASD may, in its discretion, pay the expenses (including
attorneys' fees and disbursements) reasonably and actually incurred by
an agent in defending any action, suit, or proceeding in advance of its
final disposition; provided, however, that the payment of expenses
incurred by such person in advance of the final disposition of the
matter shall be conditioned upon receipt of a written undertaking by
that person to repay all amounts advanced if it should be ultimately
determined that the person is not entitled to be indemnified under this
Article Fifth or otherwise.
(e) Notwithstanding the foregoing [, the Corporation shall be
required to indemnify a person and advance expenses to such person in
connection with a proceeding (or part thereof) commenced by such person
only if the commencement of such proceeding (or part thereof) was
authorized by the Board of Governors. The Board of Governors may
indemnify and/or advance expenses to any employee or agent of the
Corporation to the extent it deems appropriate and to the extent
permitted by applicable law. The rights conferred on any person by this
Article Fifth(a) shall not be] or any other provision of these By-Laws,
no advance shall be made by the NASD to an agent or non-officer
employee if a determination is reasonably and promptly made by the
Board by a majority vote of those Governors who have not been named
parties to the action, even though less than a quorum, or, if there are
no such Governors or if such Governors so direct, by independent legal
counsel, that, based upon the facts known to the Board or such counsel
at the time such determination is made: (1) The person seeking
advancement of expenses (i) acted in bad faith, or (ii) did not act in
a manner that he or she reasonably believed to be in or not opposed to
the best interests of the NASD; (2) with respect to any criminal
proceeding, such person believed or had reasonable cause to believe
that his or her conduct was unlawful; or (3) such person deliberately
breached his or her duty to the NASD.
(f) The indemnification provided by this Article Fifth in a
specific case shall not be deemed exclusive of any other rights [which
such person may have or hereafter acquire under any statute, provision
of this Restated Certificate of Incorporation, By-Law, agreement, vote
of members or disinterested Governors or otherwise] to which a person
seeking indemnification may be entitled, both as to action in his or
her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased
to be a Governor, officer, employee, or agent and shall inure to the
benefit of such person's heirs, executors, and administrators.
(g) Notwithstanding the foregoing, but subject to Article Fifth
(j), the NASD shall be required to indemnify any person identified in
Article Fifth (a) in connection with a proceeding (or part thereof)
initiated by such person only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board.
(h) The NASD's obligation, if any, to indemnify or advance expenses
to any person who is or was serving at its request as a director,
officer, employee, or agent of another corporation,
[[Page 53127]]
partnership, joint venture, trust, enterprise, or non-profit entity
shall be reduced by any amount such person may collect as
indemnification or advancement from such other corporation,
partnership, joint venture, trust, enterprise, or non-profit entity.
(i) Any repeal or modification of the [first sentence] foregoing
provisions of this Article Fifth[(b)] shall not adversely affect any
right or protection [of a Governor of the Corporation existing
hereunder with respect to] hereunder of any person respecting any act
or omission occurring prior to the time of such repeal or modification.
(j) If a claim for indemnification or advancement of expenses under
this Article Fifth is not paid in full within 60 days after a written
claim therefor by an indemnified person has been received by the NASD,
the indemnified person may file suit to recover the unpaid amount of
such claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim. In any such action, the
NASD shall have the burden of proving that the indemnified person is
not entitled to the requested indemnification or advancement of
expenses under the General Corporation Law of the State of Delaware.
(k) The NASD shall have power to purchase and maintain insurance on
behalf of any person who is or was a Governor, officer, employee, or
agent of the NASD, or is or was serving at the request of the NASD as a
director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, enterprise, or non-profit entity
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as
such, whether or not the NASD would have the power to indemnify such
person against such liability hereunder.
(l) A Governor shall not be liable to the NASD or its members for
monetary damages for breach of fiduciary duty as a Governor, except to
the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as
it presently exists or may hereafter be amended.
Perpetual Existence
Sixth: The [Corporation] NASD shall have perpetual existence.
Members' Liability
Seventh: The private property of the members shall not be subject
to the payment of corporate debts to any extent whatever.
Governors
Eighth: To the fullest extent permitted by Sections 141(a), 141(j),
and 215 of the General Corporation Law of the State of Delaware and
other applicable law, the business and affairs of the [Corporation]
NASD shall be managed and the election of Governors shall be conducted
in the manner provided in this Restated Certificate of Incorporation
and the By-Laws of the [Corporation] NASD. To the extent there is any
inconsistency between the provisions of this Restated Certificate of
Incorporation and the By-Laws relating to such matters and the General
Corporation Law, the provisions of this Restated Certificate of
Incorporation and the By-Laws shall govern to the fullest extent
permitted by the General Corporation Law and other applicable law. To
the fullest extent permitted by the General Corporation Law of the
State of Delaware and other applicable law, the Board of Governors may
delegate such powers, authority, and functions as it shall determine
from time to time, in a manner not inconsistent with the ``Plan of
Allocation and Delegation of Functions by NASD to Subsidiaries,''
approved by the Securities and Exchange Commission, as amended from
time to time.
The [Corporation] NASD shall be managed under the direction of a
Board of Governors having such powers and duties as shall be provided
from time to time in this Restated Certificate of Incorporation or the
By-Laws of the [Corporation] NASD. The Board of Governors shall be the
governing body of the [Corporation] NASD. The members of the Board of
Governors shall be elected by a plurality of the votes of the members
of the [Corporation] NASD present in person or represented by proxy at
the annual meeting of the members of the [Corporation] NASD and
entitled to vote thereat. Elections shall be by written ballot. Any
Governor so elected must be nominated by the National Nominating
Committee or certified by the Secretary of the NASD (as provided in the
By-[laws] Laws) and must satisfy the other qualifications for Governors
set forth in the By-Laws or established by resolution of the Board of
Governors from time to time, which qualifications shall be consistent
with the ``Plan of Allocation and Delegation of Functions by NASD to
Subsidiaries[`` as approved by the Securities and Exchange Commission,
as amended from time to time. ].'' The By-Laws may also provide for
such assistants to the Board of Governors, and such officers, agents,
and employees, as may be deemed necessary to administer affairs of the
[Corporation] NASD.
[The Board of Governors shall be divided into three classes. Each
Governor shall hold office for a term of not more than three years,
such term to be fixed by the Board at the time of the nomination of
such Governor, or until his successor is duly elected and qualified, or
until his death, resignation, disqualification, or removal. Except for
the Chief Executive Officer, no Governor may serve more than two
consecutive terms, provided, however, that if a Governor is appointed
to fill a term of less than one year, such Governor may serve up to two
consecutive terms following the expiration of such Governor's current
term. The Chief Executive Officer of the Corporation shall serve as a
member of the Board until his successor is selected and qualified, or
until his death, resignation, disqualification, or removal.]
The Board of Governors shall consist of the Chief Executive Officer
and the Chief Operating Officer of the NASD, the Presidents of NASD
Regulation, Inc. (``NASD Regulation'') and The Nasdaq Stock Market
(``Nasdaq''), the Chair of the National Adjudicatory Council of NASD
Regulation, and Governors elected by the members of the NASD.
The Chief Executive Officer and the Chief Operating Officer of the
NASD and the Presidents of NASD Regulation and Nasdaq shall serve as
Governors until a successor is elected, or until death, resignation, or
removal.
The Chair of the National Adjudicatory Council shall serve as a
Governor for a term of one year, or until a successor is duly elected
and qualified, or until death, resignation, disqualification, or
removal. A Chair of the National Adjudicatory Council may not serve
more than two consecutive terms as a Governor, unless a Chair of the
National Adjudicatory Council is appointed to fill a term of less than
one year for such office. In such case, the Chair may serve an initial
term as Governor and up to two consecutive terms as a Governor
following the expiration of the initial term. After serving as a Chair
of the National Adjudicatory Council, an individual may serve as a
Governor elected by the NASD members.
The Governors elected by the members of the NASD shall be divided
into three classes and shall hold office for a term of not more than
three years, such term to be fixed by the Board at the time of the
nomination or certification of each such Governor, or until a successor
is duly elected and qualified, or until death, resignation,
disqualification, or removal. A Governor
[[Page 53128]]
elected by the members of NASD may not serve more than two consecutive
terms. If a Governor is elected by the Board to fill a term of less
than one year, the Governor may serve up to two consecutive terms
following the expiration of the Governor's initial term.
In furtherance and not in limitation of the powers granted by
[applicable law] the General Corporation Law of the State of Delaware,
the Board of Governors is expressly authorized unless the By-Laws
otherwise provide, to make, alter, or repeal the By-Laws of the
[Corporation] NASD.
In the event of the refusal, failure, neglect, or inability of any
member of the Board of Governors to discharge [his] such member's
duties, or for any cause affecting the best interest of the
[Corporation] NASD the sufficiency of which the Board of Governors
shall be the sole judge, the Board shall have the power, by the
affirmative vote of two-thirds of the Governors then in office, to
remove such member and declare [his] such member's position vacant and
that it shall be filled in accordance with the provisions of the By-
Laws.
The [Corporation] NASD may, in its By-Laws, confer powers upon its
Board of Governors in addition to the foregoing and in addition to the
powers and authorities expressly conferred upon them by [applicable
law] the General Corporation Law of the State of Delaware.
Meetings and Offices
Ninth: Both members and the Board of Governors shall have power, if
the By-Laws so provide, to hold their meetings and to have one or more
offices within or without the State of Delaware and to keep the books
of the [Corporation] NASD (subject to the provision of the statutes),
outside the State of Delaware at such places as may be from time to
time designated by the Board of Governors.
Right to Amend Certificate of Incorporation
Tenth: The [Corporation] NASD reserves the right to amend, alter,
change, or repeal any provisions contained in this [certificate of
incorporation] Restated Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon
members herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the seal of the [Corporation] NASD this __________
day of __________, [1996] 1997.
* * * * *
Restated Certificate of Incorporation of NASD Regulation, Inc.
The undersigned, Mary Schapiro, President of NASD Regulation, Inc.
(``NASD Regulation''), a Delaware corporation, does hereby certify:
First: That [The] the name of the corporation is NASD Regulation,
Inc. The date of filing of its original Certificate of Incorporation
with the Secretary of State of the State of Delaware was January 25,
1996. The name under which NASD Regulation was originally incorporated
was NASD Regulation, Inc.
Second: [The address of the Corporation's] That the Certificate of
Incorporation of NASD Regulation has been amended and restated in its
entirety as follows:
Article First
The name of the corporation is NASD Regulation, Inc.
Article Second
The address of NASD Regulation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, 19801. The name of [the Corporation's] NASD Regulation's
registered agent at such address is The Corporation Trust Company.
Article Third
[Third:] The purpose of [the Corporation] NASD Regulation is to
engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of
Delaware[.], and, without limiting the generality of the forgoing
business or purposes to be conducted or promoted, shall include the
responsibilities and functions set forth in the ``Plan of Allocation
and Delegation of Functions by NASD to Subsidiaries,'' as approved by
the Securities and Exchange Commission, as amended from time to time.
NASD Regulation [The Corporation] is not organized for profit and no
part of the net earnings of [the Corporation] NASD Regulation shall
inure to the benefit of any private stockholder or individual.
Article Fourth
[Fourth:] The total number of shares of stock which [the
Corporation] NASD Regulation shall have authority to issue is 2,000,
par value $0.01 per share, all of which shall be shares of common
stock.
Article Fifth
[Fifth:] (a) The business and affairs of [the Corporation] NASD
Regulation shall be managed by or under the direction of the Board of
Directors. The qualifications, number, tenure, powers, and duties of
the members of the Board of Directors shall be provided in the By-Laws.
Except as otherwise provided in this Restated Certificate of
Incorporation, the By-Laws shall specify the manner by which directors
of [the Corporation] NASD Regulation shall be nominated and elected.
(b) Unless and except to the extent that the By-Laws of NASD
Regulation [the Corporation] shall so require, the election of
directors of [the Corporation] NASD Regulation need not be by written
ballot.
[Sixth: To the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, the Corporation shall
indemnify any person who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative, by reason of
the fact that he, or a person for whom he is the legal representative,
is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to
employee benefit plans, against all expenses, liability, and loss
reasonably incurred or suffered by such person, and the Corporation
shall advance expenses (including attorneys' fees) to such person.
Notwithstanding the foregoing, the Corporation shall be required to
indemnify a person and advance expenses to such person in connection
with a proceeding (or part thereof) commenced by such person only if
the commencement of such proceeding (or part thereof) was authorized by
the Board of Directors. The rights conferred on any person by this
Article Sixth shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of
this Certificate of Incorporation, By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.]
Article Sixth
[Seventh:] A director of [the Corporation] NASD Regulation shall
not be liable to [the Corporation] NASD Regulation or its
[stockholders] stockholder for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation
Law as the same exists or may hereafter be amended. Any repeal
[[Page 53129]]
or modification of the first sentence of this Article [Seventh] Sixth
shall not adversely affect any right or protection of a director of
[the Corporation] NASD Regulation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
Article Seventh
[Eighth:] In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors
is expressly authorized and empowered to make, alter, and repeal the
By-Laws of [the Corporation] NASD Regulation, subject to the power of
the [stockholders of the Corporation] stockholder of NASD Regulation to
alter or repeal any By-Law made by the Board of Directors.
Article Eighth
[Ninth: The Corporation] NASD Regulation reserves the right [at any
time, and from time to time,] to amend, alter, change, or repeal any
provision contained in this Restated Certificate of Incorporation, [and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted,] in the manner now or hereafter
prescribed by [law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other
persons whomsoever by and pursuant to this Certificate of Incorporation
in its present form or as hereafter amended] statute, and all rights
conferred herein are granted subject to [the rights reserved in this
Article Ninth] this reservation.
Article Ninth
[Tenth: The Corporation] NASD Regulation shall have perpetual
existence.
[Eleventh: The name and mailing address of the incorporator is
Joseph R. Hardiman, c/o National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.]
[Twelfth: The powers of the Incorporator shall terminate upon the
filing of this Certificate of Incorporation. The names and mailing
addresses of the persons who are to serve as the directors of the
Corporation until the first annual meeting of the stockholders of the
Corporation, or until their successors are elected and qualified are
Joseph R. Hardiman, c/o National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006, Richard G. Ketchum,
c/o National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006 and Mary Schapiro, c/o National
Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.]
Third: That such Restated Certificate of Incorporation has been
duly adopted by the stockholder of NASD Regulation in accordance with
the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
In witness whereof, [I, the undersigned, being the sole
incorporator hereinabove named, hereby acknowledge that the foregoing
Certificate of Incorporation is my act and deed and further certify
that the facts hereinabove stated are truly set forth, and accordingly
I have hereunto set my hand this __________ day of January, 1996] the
undersigned have executed this certificate this day of , 1997.
* * * * *
Restated Certificate of Incorporation of the NASDAQ Stock Market, Inc.
[Adopted in accordance with the provisions of Section 242 and
Section 245 of the General Corporation Law of the State of Delaware]
[The undersigned, Joseph R. Hardiman] The undersigned, Alfred
Berkeley, President of The Nasdaq Stock Market, Inc. (``Nasdaq''), a
Delaware corporation [(the ``Corporation')], does hereby certify:
First: That the name of the [Corporation] corporation is The Nasdaq
Stock Market, Inc. The date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
November 13, 1979. The name under which [the Corporation] Nasdaq was
originally incorporated was ``NASD Market Services, Inc.''
Second: That the Certificate of Incorporation of [the Corporation]
Nasdaq has been amended and restated in its entirety as follows:
Article First
The name of the [Corporation] corporation is The Nasdaq Stock
Market, Inc.
Article Second
The address of [the Corporation's] Nasdaq's registered office in
the State of Delaware is 1209 Orange Street, City of Wilmington,
[Delaware 19801,] County of New Castle, Delaware 19801. The name of
[its] Nasdaq's registered agent at such address is The Corporation
Trust Company.
Article Third
The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of
Delaware, and, without limiting the generality of the foregoing
business or purposes to be conducted or promoted, shall include the
responsibilities and functions set forth in the ``Plan of Allocation
and Delegation of Functions by NASD to Subsidiaries,'' as approved by
the Securities and Exchange Commission, as amended from time to time.
[shall include the following:
(a) To investigate, study, organize, develop, maintain and operate,
and to assist and contract with others for the investigation, study,
organization, development, maintenance and operation of systems for
collecting, processing, and preparing for distribution and publication,
and otherwise assisting, participating in, and coordinating the
distribution and publication of information with respect to
transactions in and quotations for securities by means of an electronic
data processing system or systems, as such may be required or permitted
by federal statute and regulation (in particular the Securities
Exchange Act of 1934 (``Exchange Act'') and the regulations thereunder,
as either may be amended from time to time) on a current and continuing
basis, consistent with the public interest, the protection of
investors, the maintenance of fair and orderly markets in securities,
and the removal if impediments to and perfection of the mechanism of a
national market system;
(b) To organize, develop, operate and maintain securities markets
and related systems that assure: (i) Economically efficient execution,
clearance and settlement of securities transactions; (ii) fair
competition among brokers and dealers, and among exchange markets and
markets other than exchange markets; (iii) the practicability of
broker/dealers executing inventors' orders in the best market; (iv) the
linking of all markets for qualified securities through communications
and data processing facilities; and (v) appropriate regulatory
oversight;
(c) To develop, organize, operate and maintain securities markets
and related systems that will assist the National Association of
Securities Dealers, Inc. in carrying out its regulatory
responsibilities under the Exchange Act, particularly Sections 11A and
15A and all applicable rules promulgated under the Exchange Act;
(d) To establish terms, conditions, rules, regulations, orders, and
schedules for the operation, maintenance, and regulation of methods,
means and
[[Page 53130]]
systems established by the Corporation; and
(e) To offer consulting services respecting the organization,
development, operation, and maintenance of securities market systems
and facilities, including systems and procedures for regulatory
oversight of trading in securities markets.]
Article Fourth
[The Corporation] Nasdaq shall be authorized to issue a total of
2,000 shares of common stock with no par value.
Article Fifth
[The Corporation] Nasdaq shall be governed by the Board of
Directors of such number and having such qualifications, powers, and
duties[,] as shall be provided in the By-Laws. The Board shall be
selected in such manner, and shall serve for such term, as shall be
stated in the By-Laws. The Board of Directors shall have the power to
adopt, alter, or repeal the By-Laws of [the Corporation] Nasdaq at any
meeting at which a quorum is present by the affirmative vote of the
majority of the whole Board of Directors.
A [Director of this Corporation] director of Nasdaq shall not be
liable to [the Corporation] Nasdaq or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of [the
Corporation] Nasdaq existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.
Article Sixth
Nasdaq reserves the right to amend, alter, change, or repeal any
provisions contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights
conferred herein are granted subject to this reservation.
Article Seventh
[The Corporation] Nasdaq shall have perpetual existence.
Third: That such Restated Certificate of Incorporation has been
duly adopted by the [stockholders of the Corporation] stockholder of
Nasdaq in accordance with the applicable provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
In witness whereof, the undersigned have executed this certificate
this [20th] ____ day of [December] ________, [1993] 1997.
[FR Doc. 97-26522 Filed 10-9-97; 8:45 am]
BILLING CODE 8010-01-P