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95-101 Mail Vote—NASD Solicits Member Vote On Amendments To The NASD By-Laws To Reconfigure The NASD Board And Establish A National Nominating Committee;
Last Voting Date: January 12, 1996
The NASD® invites members to vote to approve amendments to Articles VII and X and to delete Article V of the NASD By-Laws. The last voting date is January 12, 1996. The text of the proposed amendments follows this Notice.
The proposed amendments to Articles VII and X and the deletion of Article V of the NASD By-Laws will permit the NASD to begin the restructuring necessary to implement the principles articulated in the report of The Select Committee on Structure and Governance (the Select Committee). The NASD, Inc., Board of Governors has adopted the Select Committee proposal that the NASD, Inc., create a new subsidiary responsible for regulation and the provision of member and constituent services, with the NASD, Inc., retaining responsibility for general oversight over the effectiveness of the self-regulatory and business operations of the NASD and its major subsidiaries, The Nasdaq Stock MarketSM and NASD Regulation, Inc. (NASDR), and final policymaking authority for the Association as a whole. The Board also adopted Select Committee proposals to restructure and reduce the size of the NASD, Inc., Board, and implement policies that will ensure a balance of non-industry and industry representation on The Nasdaq Stock Market and NASDR Boards. The governing board of the NASD, Inc., is proposed to be restructured to have a majority of non-industry members.
Briefly, the changes to the By-Laws, which are described in more detail below, will:
- Create a national nominating committee comprising the Chief Executive Officer (CEO) of the NASD, Inc., and an equal number of industry and non-industry persons. This committee will identify and nominate, for election by the NASD, Inc., Board, industry and non-industry persons to serve on the NASD, Inc., Board. The committee will also nominate industry and non-industry persons to serve on the subsidiary boards, to provide adequate representation of the various constituencies served by the Association.
- Reconstitute the Board as a majority non-industry board comprising the CEO and "Industry" and "Non-Industry" Governors, and reduces the minimum size of the Board from 25 to 5. The term "Industry Governors" means persons associated with an NASD, Inc., member. The term "Non-Industry Governors" means persons representing investors, issuers, and other constituents, pursuant to criteria that will be adopted by the NASD, Inc., Board. The implementation plan adopted by the Board at its November 1995 meeting specified a 1996 NASD, Inc., board of nine persons— the CEO, three Industry, and five Non-Industry Governors.
- Delete Article V to remove an unnecessary reference to the affiliation of other Registered Securities Associations with the NASD. Such affiliations remain authorized by Section 15A of the Securities Exchange Act of 1934.
- Amend Article X to replace the term "President" with the term "Chief Executive Officer," to make clear that this person is the most-senior executive of the Association. Additional changes clarify the procedures for the resignation, removal, and replacement of officers.
Article VII Amendments
The following is a description of the proposed amendments to Article VII of the By-Laws:
Section 1—Powers And Authority Of Board Of Governors
There are numerous references, beginning in this section, to the "restated" Certificate of Incorporation. The NASD's Certificate of Incorporation will be amended to be consistent with the changes proposed for the By-Laws.
Section 2—Authority To Suspend For Failure To Submit Required Information
There are numerous references to the "Chief Executive Officer." This term replaces the term "President," to make clear that this person is the most senior executive of the Association.
Section 3—Authority To Take Action Under Emergency Or Extraordinary Market Conditions
These changes eliminate the special, small committee that has authority to take action in case of emergencies or extraordinary market conditions, when the Board is not available. This special committee is necessary today, when the NASD Board and the Executive Committee are large and, under emergency conditions, difficult to assemble. The new, smaller Board and the correspondingly small Executive Committee will make this special committee unnecessary.
Section 4—Composition And Qualifications Of The Board
These changes reconstitute the NASD Board as a smaller, majority Non-Industry Board, comprising the CEO, Industry, and Non-Industry Governors. The Board shall have at least five persons and will have the flexibility to determine the size that is most efficient, but must maintain a Non-Industry majority.
Section 5—Term Of Office Of Governors
These changes alter the Governors' term of office from a three-year fixed term to a term not to exceed three years. This change will enhance the effectiveness of the Board by providing the flexibility to attract the services of individuals able to make a valuable contribution to the Association, who may not be able to commit to a three-year term but who may be able to commit to a fixed term of one or two years. Successive terms will be permitted.
Section 6—Filling Of Vacancies
At present, the By-Laws provide that, in case of an in-term vacancy, a Governor elected from a District will be replaced by a successor from that District. This newly named section provides that all vacancies occurring during a term of office will be filled by a vote of the remaining Governors. This change is necessary because, under the amended By-Laws, Governors of the NASD, Inc., will not be elected from NASD administrative Districts. Pursuant to the implementation plan adopted by the Board, the NASDR Board will include representatives of member firms elected by NASD Districts.
Section 7—Election Of Board Members
This section establishes a National Nominating Committee of seven or more persons, comprising the CEO, at least three persons associated with NASD members, and an equal number of non-industry persons. New Governors will be selected by the Board from among persons nominated by this committee. This will ensure that the nominating process includes a balance of industry and public interest. This committee is also empowered to nominate persons to serve as directors of The Nasdaq Stock Market, Inc., and NASDR Boards.
Section 8—Meeting Of Board; Quorum; Required Vote, And Section 9—Action By Written Consent Of Governors
The amendments to these sections clarify that the Board and any Committee may act when a majority is present at a meeting, and that a meeting includes any event at which persons may interact, including telephone and video conferences. Committee or Board action may be taken in the absence of a meeting only by unanimous consent.
Section 10—Offices Of The Corporation
This section is being deleted as unnecessary. It restates what is true by operation of law.
Request For Vote
The NASD Board of Governors believes the proposed amendments will facilitate implementation of the Select Committee's recommendations. Please mark the attached ballot according to your convictions and mail it in the enclosed, stamped envelope to The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware, 19801. Ballots must be postmarked no later than January 12, 1996.
Questions about this Notice may be directed to Phillip A. Rosen, Associate General Counsel, at (202) 728-8446.
Text Of Amendments To The NASD By-Laws
(Note: New text is underlined; deletions are bracketed.)
Only those provisions containing proposed amendments are printed below. The full text of the NASD By-Laws appear in the NASD Manual at pp. 1001–1695.
Additional note: The following Article entitled "Affiliates" is proposed to be deleted in its entirety.
Qualifications for Affiliation
Sec. 1. Any association of brokers or dealers, registered with the Commission as an affiliated securities association under the provisions of Section 15A of the Act, may become an affiliate of the Corporation as hereinafter provided in this Article.
Application for Admission as Affiliate
Sec. 2. Application for admission as an affiliate shall be made to the Board of Governors in writing, in such form as the Board of Governors may prescribe, and shall contain a certified copy of the application to the Commission for registration as an affiliated securities association, a certified copy of the order of the Commission granting such registration, and such other reasonable information as the Board of Governors may require.
Agreement of Affiliate
Sec. 3. No applicant may become an affiliate of the Corporation unless it agrees:
Conditions of Affiliation
Sec. 4. No applicant may become an affiliate of the Corporation unless it appears to the Board of Governors:
Approval of Admission as an Affiliate
Sec. 5. If it appears to the Board of Governors that the foregoing requirements of this Article are met by the applicant, it shall approve such applicant's admission as an affiliate; otherwise, after appropriate notice and opportunity for hearing, it shall disapprove such application in writing and shall set forth therein the specific grounds upon which such disapproval is based.
Suspension or Cancellation of Affiliation
Sec. 6. The Board of Governors may at any time suspend or cancel the affiliation of an affiliate with the Corporation if the Board of Governors finds that the affiliate has ceased to be of such character as to be able to or has failed to carry out its purposes or the purposes of the Act, or has failed to carry out any of the conditions of affiliation. In any proceeding, however, under this Section to determine whether the affiliation of an affiliate should be suspended or canceled, specific charges shall be brought; such affiliate shall be notified of, and be given an opportunity to defend against such charges; a record shall be kept; and any determination that the affiliation of an affiliate shall be suspended or canceled shall be in writing and shall set forth therein the specific grounds upon which such determination is based. Such suspension or expulsion shall take effect upon the 60th day after the filing with the Commission of notice thereof and a copy of the record of the proceedings before the Board of Governors, unless within thirty days after such filing such suspensions or cancellation is disapproved by the Commission.
Exclusion of Territory Covered by Affiliated Association
Sec. 7. The Board of Governors shall, if it deems such action to be in the interest of efficient and economical administration and desirable in carrying out the purposes of the Act, recommend appropriate changes in the By-Laws to exclude the territory covered by an affiliate association from the geographical area covered by the Corporation.]
BOARD OF GOVERNORS
Powers and Authority of Board of Governors
Sec. 1(a)(1) through Sec. 1(a)(9). No change.
Sec. 1(b). No change.
Authority to Suspend for Failure to Submit Required Information
Authority to Take Action Under Emergency or Extraordinary Market Conditions
Composition and Qualifications of the Board
Term of Office of Governors
Sec. 5. Each Governor, except as otherwise provided by [these By-Laws or the] the Restated Certificate of Incorporation or these By-Laws, shall hold office for a term of [three years, and] not more than three years, such term to be fixed by the Board at the time of the election of such Governor, or until his successor is elected and qualified, or until his death, resignation [or removal. The President], disqualification or removal. Governors may be elected to successive terms of office. 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 [or removal.], disqualification or removal.
[Succession to Office] Filling of Vacancies
Election of Board Members
Sec. 7. The Governors elected by the Board under [subsection (b) of] Section 4 of this Article shall be [chosen as follows:] nominated by the Nominating Committee as provided in this Section 7.
[Procedure for Nominations by Nominating Committees]
The Nominating Committee
[Nomination of Additional Candidates]
Procedure for Nomination of Governors
[Filling of Vacancies on Board]
[Sec. 8. All vacancies in the Board other than those caused by the expiration of a Governor's term of office, shall be filled as follows:]
Meetings of Board; Quorum; Required Vote
[Sec. 9.] Sec. 8. Meetings of the Board of Governors 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 quorum of the Board of Governors shall consist of a majority of the [members] total number of Governors of the Corporation, and 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. [Meetings] Members of the Board of Governors [may be held by mail, telephone or telegraph, in which case any action taken by a majority vote of] , or any committee designated by the Board of Governors [shall constitute the action of the Board. Any action taken by telephonic vote shall be confirmed in writing at a regular meeting of the Board of Governors] or any other committee of the Corporation, may participate in a meeting thereof by means of communications facilities that ensure all persons participating in the meeting can hear and speak to each other, 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 shall vote by proxy at any meeting of the Board.
[Offices of Corporation] Action by Written Consent of Governors
[Sec. 10. The Corporation shall maintain such offices as]
Sec. 9. Unless otherwise restricted by the Restated Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Governors [may from time to time deem necessary or appropriate], or of any committee of the Board or any committee of the Corporation, may be taken without a meeting if all members of the Board of Governors 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 Governors or such committee.
OFFICERS AND EMPLOYEES
Election of Officers of the Board
Sec. 1. No change.
Officers of the Corporation
Sec. 2. The Board of Governors shall select a [chief executive officer, to be designated President of the Corporation] Chief Executive Officer, who shall be responsible for the management and administration of its affairs and shall be the official representative of the Corporation in all public matters and who shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Governors. The Chief Executive Officer shall be ex-officio a member of any committee authorized by the Board of Governors. The Board may provide for such other executive or administrative officers as it shall deem necessary or advisable, including, but not limited to, President, Executive Vice-President, Senior Vice-President, Vice-President, General Counsel, Secretary and Treasurer of the Corporation. 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.
[The terms of office of such officers shall be at the pleasure of the Board of Governors, which by affirmative vote of a majority of the members, may remove any such] Each such officer shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. 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 [President]
Sec. 3. In the case of the absence or inability to act of the [President] Chief Executive Officer of the Corporation, or in case of a vacancy in such office, the Board of Governors may appoint its Chairman 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.
Sec. 4 through Sec. 6. No change.
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