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October 7, 2005
TO: EQUITY MARKETS ADVISORY COMMITTEE No. 35-05
SEC RULES MEMBERS No. 109-05
RE: NASDAQ AMENDED APPLICATION FOR REGISTRATION AS A NATIONAL
SECURITIES EXCHANGE
The SEC has published for comment Nasdaq’s amended application for registration as a
national securities exchange.1 The most significant changes made by Nasdaq in the amended
application are summarized below.
The amended application addresses several concerns raised by Nasdaq’s initial
exchange application. Specifically, the amendment limits the scope of Nasdaq’s proposed
exchange to those transactions that occur in the Nasdaq Market Center, formerly known as
SuperMontage, and Brut. Nasdaq also has proposed that all transactions on the Nasdaq Market
Center be executed in price/time priority. Trades that are executed in the internal systems of
NASD members would be reported under NASD rules to NASD’s Alternative Display Facility
(“ADF”) or a proposed new NASD facility.
To oversee the performance of its regulatory obligations, Nasdaq has proposed to create
a fully-independent committee of its Board of Directors, the Regulatory Oversight Committee
(“ROC”). The ROC would, among other things, be responsible for monitoring the adequacy
and effectiveness of Nasdaq’s regulatory program and would oversee Nasdaq’s Chief
Regulatory Officer (“CRO”). The Release requests comment on whether Nasdaq’s proposed
regulatory structure, including the ROC and CRO, is consistent with the Exchange Act and,
specifically, whether it insulates its regulatory function from its market and other commercial
operations so that it may carry out its regulatory obligations under the Exchange Act.
Finally, Nasdaq proposes to require its members to comply with the NASD’s Order
Audit Trail (“OATS”) requirements. The Release states that because Nasdaq will require its
members to report order information to OATS, Nasdaq will have access to certain OATS data
for regulatory purposes. The Release requests comment on the extent to which Nasdaq should
be able to use OATS data for non-regulatory purposes and whether Nasdaq should have access
1 Securities Exchange Act Release No. 52559 (October 4, 2005) (“Release”). The amended exchange application can be
found on the SEC’s website at http://www.sec.gov/rules/other/34-52559.htm. Comments on the amended
application are due to the SEC no later than 30 days from the date of publication in the Federal Register.
2
to OATS data regarding: (1) all orders its members receive, including those orders that are
routed to markets other than Nasdaq; and (2) reports of executions by its members that are
reported to the new NASD trade reporting facility.
Ari Burstein
Associate Counsel