SEC Division of Trading and Markets no-action letter: Securities Industry and Financial Markets Association

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
DIVISION OF
MARKET December 29,2006 REGULATION
Vice President and Associate General Counsel
The Securities Industry and Financial Markets Association 1425 K Street, NW Washington, DC 20005-3500 RE: Request for Temporary No-Action Relief from Exchange Act ~ules'17a-3. 17a￾25, and 17a-5 Relative to NASDAQ's Commencement of Operation as an Exchange. Dear Ms. Vlcek:
This letter is written in response to your letter, dated December 29,2006, in which the Securities Industry and Financial Markets Association (or "SIFMA') requests both an extension of the No Action relief granted by the staff of the Division of Market Regulation (the "Division") on July 3 1,2006, as well as certain additional relief as described below, regarding the NASDAQ Stock Market LLC's ("NASDAQ') operation as a national securities exchange.
I. Background
On July 3 1,2006, the staff of the Division confirmed to the Securities Industry Association (now SIFMA) by letter that it would not recommend to the Commission enforcement action under Rules 17a-3 or 17a-25 of the Securities Exchange Act of 1934 ("Exchange Act") if a broker-dealer reflects 1) NASDAQ as an over-the-counter ("OTC") market instead of an exchange market, 2) NASDAQ securities as OTC securities instead of exchange-listed securities, andlor 3) a broker-dealer as a member of NASD rather than as a member of NASDAQ (or vice versa) on required books and records and securities transaction information submitted to the commission.' This relief was extended with respect to NASDAQ UTP Plan ~ecurities,~ and is due to expire on December 3 1,2006. 1 See Securities Industry Association, 2006 SEC No-Act. LEXIS 582 (Jul. 31,2006). Hereinafter, "securities transaction information submitted to the Commission" may also be referred to as "transaction reports." 2 Transactions are reported pursuant to two national market system plans: Nasdaq-listed securities are reported to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (referred to either as "UTP Plan securities" or "NASDAQ-listed securities"); securities listed on other national securities exchanges (i.e., the New York Stock Exchange and the American Stock Exchange) are reported to the Consolidated Transaction Association Plan (referred to as "CTA Plan securities" or "non-NASDAQ-listed securities").

SIFMA
December 29,2006
At the time the relief was requested, NASDAQ believed that it would become a national securities exchange for trading both UTP Plan and CTA Plan securities and would have completed the integration of its systems to its Single Book execution system platform for both UTP Plan and CTA Plan securities prior to December 3 1,2006. However, NASDAQ has since run into some obstacles to meeting that target. At this point NASDAQ is operating as an exchange market for NASDAQ-listed securities and it has integrated its systems to its Single Book execution system platform for those securities. However, NASDAQ is not presently operating as an exchange market for non-NASDAQ-listed securities and it has not integrated its systems to its Single Book execution system platform for non-NASDAQ-listed securities. NASDAQ presently believes that it will begin operating as an exchange market for non-NASDAQ￾listed securities and will integrate its systems to its Single Book execution system platform for those securities on the same day.
11. Requested Relief

1. Extension of Prior Relief for NASDAQ-listed Securities
   SIFMA believes that some broker-dealers may not have planned to be able to distinguish between NASDAQ-listed securities and non-NASDAQ-listed securities after December 31,2006 because they were relying on all NASDAQ trades being exchange￾listed after that date and, therefore, they may need additional time to make programming changes. Consequently, SFMA is requesting that the staff of the Division of Market Regulation extend the relief it granted to broker-dealers last July 31,2006 relating to NASDAQ-listed securities fi-om December 3 1,2006 to sixty days following the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities.
2. Request for Relief Regarding Non-NASDAQ-listed Securities
   A. Broker-dealers that have Already Programmed Systems Changes Some broker-dealers have already updated their systems so that, after December 3 1,2006, their required books and records and transaction reports will reflect, for transactions in non-NASDAQ-listed securities 1) NASDAQ as an exchange market instead of an OTC market, and 2) the transaction as having occurred on an exchange market rather than an OTC market, andlor 3) a broker-dealer as a member of the NASDAQ rather than as a member of the NASD. As a result of NASDAQ's delay, these broker-dealers7 required books and records and transaction reports will be incorrect until the NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and

SIFMA
December 29,2006 completes the integration of its systems to its Single Book execution system platform for those securities. Consequently, SIFMA is requesting that the staff of the Division confirm that the Division will not recommend to the Commission enforcement action under Exchange Act Rules 17a-3 and 17a-25 against a broker-dealer that reflects, for transactions in non￾NASDAQ-listed securities 1) NASDAQ as an exchange market instead of an OTC market, and/or 2) the transaction as having occurred on an exchange market rather than an OTC market, and/or 3) a broker-dealer as a member of the NASDAQ rather than as a member of the NASD on its required records and transaction reports &om January 1, 2007 until the date the NASDAQ begins operating as an exchange for non-NASDAQ￾listed securities and completes the integration of its systems to its Single Book execution system platform for those securities. B. Anticipatory Relief for Broker-dealers to Make Systems Changes SIFMA wants to ensure that broker-dealers have sufficient time both to make and to test system changes necessary to provide for the operation of NASDAQ as an exchange market for non-NASDAQ-listed securities and to allow for a smooth integration of NASDAQ's systems to its Single Book execution system platform for those securities. Consequently, SIFMA is requesting that the staff of the Division confirm that the Division will not recommend to the Commission enforcement action under Exchange Act Rules 17a-3 and 17a-25 against a broker-dealer that reflects, for transactions in non￾NASDAQ-listed securities, 1)NASDAQ as an OTC market instead of an exchange market, 2) the transaction as having occurred on an OTC market rather than an exchange market, and/or 3) a broker-dealer as a member of NASD rather than as a member of NASDAQ on required books and records and securities transaction information submitted to the Commission from the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities until sixty days thereafter.
3. Request for Relief from Exchange Act 17a-5
Due to the above-described systems complications, some broker-dealers may incorrectly classify securities commission revenues generated by transactions in NASDAQ-listed and non-NASDAQ-listed securities in the Statement of Income (Loss)
section on FOCUS Reports submitted to the broker-dealers' designated examining
authorities in accordance with Exchange Act Rule 1 7a-5.3 17 CFR 240.17a-5. 3

SIFMA
December 29,2006
Consequently, SIFMA is requesting that the staff of the Division confirm that the Division will not recommend to the Commission enforcement action under Exchange Act Rule 17a-5 before the sixtieth day following the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities if a broker-dealer mis￾allocates securities commission revenues generated by transactions in NASDAQ-listed and non-NASDAQ-listed securities on FOCUS reports submitted to the broker-dealer's designated examining authority.
111. Response
Based on your representations and the facts presented, the Division will not recommend to the Commission enforcement action under Exchange Act Rule 17a-3 if a broker-dealer reflects on books and records required under Exchange Act Rule 17a-3; a) for transactions in NASDAQ-listed securities, 1) NASDAQ as an OTC market instead of an exchange market, 2) NASDAQ securities as OTC securities instead of exchange-listed securities, and/or 3) a broker-dealer as a member of NASD rather than as a member of NASDAQ (or vise versa) until the sixtieth day following the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities; b) for transactions in non-NASDAQ-listed securities by a broker-dealer that has programmed the appropriate systems changes, 1) NASDAQ as an exchange market instead of an OTC market, and/or 2) the transaction as having occurred on an exchange market rather than an OTC market, and/or 3) a broker-dealer as a member of the NASDAQ rather than as a member of the NASD until the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities; and c) for transactions in non-NASDAQ-listed securities by a broker-dealer that has not programmed the appropriate systems changes, 1) NASDAQ as an OTC market instead of an exchange market, 2) the transaction as having occurred on an OTC market rather than an exchange market, andlor 3) a broker-dealer as a member of NASD rather than as a member of NASDAQ from the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities until sixty days thereafter. Broker-dealers either should maintain sufficient additional records to identify that a given transaction was effected on an exchange market or an OTC market, that the security is an exchange-listed security or an OTC security, and/or that the broker-dealer is either a

--
SIFMA
December 29,2006 member of NASDAQ or NASD, or may rely on the NASDAQ to access and obtain this information until the end of the no-action relief period.4 In addition, the Division will not recommend to the Commission enforcement action under Exchange Act Rule 17a-25 if a broker-dealer reflects in securities transaction information submitted to the Commission pursuant to Exchange Act Rule 17a-25; a) for transactions in NASDAQ-listed securities, NASDAQ as an OTC market instead of an exchange market and NASDAQ securities as OTC securities instead of exchange-listed securities until the sixtieth day following the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities; b) for transactions in non-NASDAQ-listed securities by a broker-dealer that has programmed the appropriate systems changes, NASDAQ as an exchange market instead of an OTC market, andfor the transaction as having occurred on an exchange market rather than an OTC market until the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities; and c) for transactions in non-NASDAQ-listed securities by a broker-dealer that has not programmed the appropriate systems changes, NASDAQ as an OTC market instead of an exchange market, andlor the transaction as having occurred on an OTC market rather than an exchange market fi-om the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities until sixty days thereafter. Finally, the Division will not recommend to the Commission enforcement action under Exchange Act Rule 17a-5 if a broker-dealer incorrectly classifies securities commission revenues generated by transactions in NASDAQ-listed and non-NASDAQ￾listed securities on FOCUS reports submitted to the broker-dealer's designated examining authority until the sixtieth day following the date NASDAQ begins operating as an exchange for non-NASDAQ-listed securities and completes the integration of its systems to its Single Book execution system platform for those securities. This position concerns enforcement action only and does not represent a legal conclusion with respect to the applicability of statutory or regulatory provisions of the federal securities laws. Moreover, this position is based on the facts you have presented Letter from Mary Revell, Associate Vice President, The NASDAQ Stock Market, to Michael A. Maccharoli, Associate Director, Division of Market Regulation, SEC (August 4,2006), telephone conversation on November 15,2006, and Letter from Mary Revell, Associate Vice President, The NASDAQ Stock Market, to Michael A. Macchiaroli, Associate Director, Division of Market Regulation, SEC (December 29,2006).
4

SIFMA
December 29,2006 and the representations you have made, and any different facts or conditions may require a different response. Ths position is subject to modification or revocation if at any time the Commission or the Division determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. The Division expresses no view with respect to any other questions that the proposed activities may raise, including the applicability of other federal or state laws or self-regulatory organization rules to those activities. Sincerely, Michael A. Macchiaroli Associate Director

SIFMA
Soaurillee Induelry and
Flnancldl Markets Aseoclatlon
December 29,2006
Michael A. Maccliaroli
Associate Director
Division of Market Regulation
Securities and Exchange Commission
100F Street, NE
Washington, DC 20549
Re: Reaucst for Temgorar~ No-Action Relief from Exch.anneAct Rules 17a-3, 17a-25.,_and17a-5 Relative to NASDAQ's Commencement of Overation as an Bxchanpc Deat Mr. Macchiaxoli, The NASDAQ Exchaugc Working Group of thc Securities Industry and Financial. Mwkets ~ssociatioh' ("SIPMA"), Formerly thc Securities hdustry Association or SIA, appreciates the Sectuities and Exchmge Colmnission ("SEC" or "Commission") Division of Markel:Regulation ("Division") sWl's grant of no-action relief to brokcr-dealers until becembcr 31,2006 in connection with thc comrnencexllent of NASDAQ's operation as a national securities exchange for NASDAQ-listed securities and concerning certain books and records reqitirements undd Kule 17a-3 of the Securities Exchange Act of 1934 ("Exchange Act") aad certain securities t~ansaction information required to be submitted to thc Commission pursuant to Rile 17a-25 of the Excl~ange ~ct.' Becausc of the unanticipated delay in NASDAQ's cornpletioi~ afits systcms intcgratioil for securities listed on other national securities exchanges and reported to the I The Securities Industry and Finnncial Matkets Association brings togclhcr thc shwed interests of mora an 650 secivities fums, baks and asset managers. SIFMA'smlssion is to pronlote policies and practices that workto expand and perrcct markcis, Foster the development of new products and services and crcatc oficicncics Tar mcmbcr rums, while presetving and enhancing lhc public's lrust and confidence in ihe markets and the indudy. SFMA works to represenl its rncmbels' Interests locally and globalty. It bps offices ln New York, Washington D.C., and London and its ossocinted firm, tl~e Asia Securities lndustry and Finnncial Markets Association, is based in Hong Kollg. 2 Letter %om Micl~aelA. Ma~thiaroli,Associacc Dirccior, SEC bivisio~i of Market Regulation. to Atin Vlcck, Vicr! Prcsidont and Associalo Clenernl Co~ulsel,SIA (July 31,2006) ('No-Action Letter"), which is svailnble at hl~t~:Nww.sec.~ov/divl~io11s/ma1~keC.r_e~/n1r-110~~Li0n/~it1073 1OG.pdf along wilh SIA's Letter l-equestlng thlg rellef from Ann Vlcek to Michael Macchiaroll, dated July 28,2006 ("SIA Letter"). Waslllngt~n New Yo& London HOng Kong 142U KBlrent, NW. 7th Floor Waohlnglnn. DC 20008-3500 P: 202.218.2000 F:202.218.2110 = www.SIFMA.urg 3U 330 VIS PZ:SI (ItIdI.90 ,6Z- '33U

Consolidated Tape Association Plan ('hon-NASDAQ Listed securities") and consequent delay in becoming operatiofial as a national securitics exchangc for trading those sccurities,%e ore requesting (1) an extelsion of the Division's previously.gmnted no￾action relief rcgnrding trmlsactions in NASDAQ-listed securilies;(2) similar no-nctiorl relief for broker-dealers regarding hansacdons in 11on-NASDAQ listed sccurities; and (3) no-action relief for certain broker-dealers who may be ready to implement systems changes to nccommodate NASDAQ's operating as a national securities exchange in non￾NASDAQ listed sect~rities before NASDAQ commences doing so. Wc request that thc rellef in the lint instance be sxlcnded from Deccmber 3I, 2006 until n date that is sixty days after the datc NASDAQ begins operation as an exchange for non-NASDAQ listed securities and completes the integration of its systems to its Single Book execution system platform for those sccurities. In the sccond instance, we request that the relief begin on the date NASDAQ begins operating ac an exchange for non-NASDAQ listed securities and completes the integration oE its systems to its Single Book exccution system platform for those securities and extend until a datc sixty days thereafter, In the third insta~lce, we rcquest that the relief begin on January 1,2007 and extend until the date NASDAQ begins operation as an exchange for non-NASDAQ listed securities and completes the integration of its systems to its Single Book exccution system plaffom for those securities, Finally, we request no-action relief from Ex~hange Act Rule 17a-5 for brokcr￾dcdcrs that misallocate certain securities commission revcnucs on their FOCUS reports (as describcd below) until sixty days after the date NASDAQ begins operation as an exchange for non-NASDAQ listed securities and completesthe integration of its systems to its Single Book exccution system platform for tliose secutities. I, Request for Extension of Prcviously-GrantedNo-Action Relicf Regarding NASDAQ-Listed Securltics In light of the delny in NASDAQ's completion of its systcms integration for non￾NASDAQ listed securities and consequelit delny in becoming operational as a national securities exchan~e for trading those securities beyond Decelilber 31,2006, we hereby request Ulat tl~c Division's previously-granted no-action relief regarding NASDAQ-listed securities be extended until a date that is sixty days afier the date NASDAQ begins operatio~las mexcl~ange for noh-NASDAQ listed securitics and completes the htegrtion of its systems to its Single Book execution systcm platform for those securities. Reca~tse fiirns were relying on all NASDAQ trades being exchange-listed trades by December 31,2006, they may not have plm~ed to be ablc to distinguisli between NASDAQ-listed securities md non-NASDAQ listed securities after that date. Therefore, thcse firms may need additional, time to make programming changes. Letter fium May Revell, Associato Vico Prcsidcnt,
The NASDAQ Stock Market, to Michael A. Macehiamti,Associakc Dircclor, Division of Market Regulation, SEC (December 29,2006) ("NASDAQ Dccember 2006 Letter"). 3U 330 VIS P2:ST ( IYd) 90 ,6Z- '39U 3

We tlierdore rcquest that the Division not recommend to the Commission edorcement action mder Exchmge Act Rulc 17a-3 Born December 31,2006 to a date that is sixty days after thc date NASDAQ begins operati011 as nn exchange for non￾NASDAQ listed securities and completes the integration of its systems to its Siiiglc Book execution systcm platfom for those secutities if a broker-dealer reflects, for tTaasdctions in NASDAQ-listed secwities, (1) NASDAQ as an over-the-counter ("OTC") market instead of an exchange market, (2) NASDAQ securities as OTC securities instead of exchange-listed securities, andfor (3) a broker-dealcr as nmembcr of the NASD rather thm as a mcmber o.fNASDAQ (and vicc versa) on books and records required undcr Exchatlge Act Rule 17a-3. In addition, we request that the Division not recommend to the Commission enforcement action under Exchangc Act Rule 17a-25 from December 31,2006 to a date that is sixty days after the date NASDAQ begins opcration as an cxchmge [or aon￾NASDAQ listed securities and completes the htcgration of its systems to its Single Book execution systcm platform for those securities if a broker-dcalcr reflecb NASDAQ as an OTC market illstead of an cxchmge markct and/ur NASDAQ secwities as OTC securities instead of exchange-listed securities in sccurities trnnsaction information regarding NASDAQ-listed sccurities submitted to the Commission pursuant to Exchmge Act Rule 17a-25.
11. Request for No-Action Rellef Regarding Non-NASDAQ Listed
Securitlee
Also because of the delay in NASDAQ's becoming operational as a national securities cxchange for t11e trading of non-NASDAQ listed securities beyond December 31,2006, we hereby reqnest that the Division grant broker-dealers similar no-action relief regarding lmnsactions in non-NASDAQ listed securities. You may recall that we mentioned the possible need Tor his relief in our July 28,2006 letter to you.' Specifically, wc rcquest that tlie Division not recorninend to thc Commission enForccmcnt actio~~ under Exchmgc Act Rule 17n-3 from the date NASDAQ begins operation as an cxchahge for nun-NASDAQ listed sccurities and complctes the integration of its SydtmlS to its Single Book execution system platIom for those sccurities until ndate that is sixty days thereafter ifn broker-dcaler reflects, for transactions in non-NASDAQ listed securities, (1) NASDAQ as rw.OTC markct instead of an axcl~angc market, (2) the tt.ansacdon as having occurred on an OTC matket rather than an cxchauge market, nndor (3) a broker-dealer as a member of the NASD rather than as a inelnbet of NASDAQ on books and records required wdcr Excl~anpe Act Rule 17a-3. See footnote B in SIA Letter, wl~ichstates ihal:"STA mcmber firmsmay require similar no-action relief for CTA Plan securities for N pariod ancr December 3 1,2006 should NASDAQ's opcration as a national sccuri~ioscxchnnge for these securltles be unreasonably dolaycd." 4

In addition, wc request that the Division not recommend to thc Commission enforcement action under Exchange Act Rule 17a-25 from the date NASDAQ begins operatio11 as an excl~ungefor non-NASDAQ listed securities and completes the iniegrtion of ifs systems to its SingleHook execution system platform for tliose sccurities until a date that is sixty days thereafter if a brokcr-dcaler reflects, for tmmsactions in non-NASDAQ listed securities, NASDAQ as an OTC market instead of an cxchmge markct and/or the iransaction as having occurred on an OTC markct rather thm an exchange market in sccurities transaction information submikted to the Commission pursuant to Exchnllge Act Rule 17a-25.
111. Request for No-Action Relief for Those Broker-Dealers Who May Se
Ready to fmplement Changes to Accommodnte NASDAQ's Operating ns an Exchange in Non-NASDAQ Llated Securitierr Prior to NASDAQ's Operation ns an Exchange Iln Such Securities C~nverscly,and notwithstanding the reliefrequcsted above in scction 11, some broker-dealers may be able to implement, in whole or in part, hc necessary programming changes associated with the NASDAQ exchange conversion for non-NASDAQlisted sec~witiesprior to k11e completion of NASDAQ systcms integralion for such securities. Because system changes already may have been scheduled by some broker-dealers to coincide wilh heprcvioufily anticipated cornmellce~nent of NASDAQ's operation as an exchange in such securities in Fall 2006, it may be difficult or imprudent for these brokcr-dealers to reschedulc their implementation plans, particularly during the end-of￾year period when icchnology fieezes and stang issues commonly are present. As a consequcncc, we request that the Division not recommend to the Commission enforcement action under Exchange Act Rulc 17a-3 from January 1,2007 until the date ihat NASDAQ begins operation as an exchmge for non-NASDAQ listed securitiesand completes the integration of its systems to its Single Book execution systcin platform for those securities if a broker-dealer reflects, for transactions in non￾NASDAQ listed secuitics, (1) NASDAQ as an exchange market instead of an OTC market, (2) the transaction as having occurred on an exchmge market rathcr than UI OTC market, and/or (3) a broker-dealer as a mcmber of NASDAQ rather than as a member of NASD on books and records requircd under Exchange Act Rule 17a-3. In addition, we request t11ni: the Divisiofi not rccormnend to the Commission cdorcement action ~~llder Exchange Act Rule 17a-25 from January 1,2007 until the date thak NASDAQ bcgins operation as asl exchmge for non-NASDAQ listed securitiesand complctcs the integratioll of its systemsto its Singlc Book execution system platform for thosc securities ifa broker-dealer reflects, for transactions in non-NASDAQ listed securities, NASDAQ as an exchange market hstead of an OTC market andlor the trimsaction as having occurrcd on an excha~gemarket rather illan an OTC market in sec~viiiestransaction information submirted to the Commission pursuant to Exchange Act Rule 17a-25, 3(1 330 VIS

IV. Request for No-Action Relief Regarding Mi~nllocationof Certain
Securities Cammission Revenues on FOCUSKcports Because of the amount and coinplcxity of the programming ohmges that bxoker￾denlers must make as a result of NASDAQ's conversion to a national securities exchange, compounded by the delay in NASDAQ's completion of its systems integration for non-NASDAQ listed securities and thus in becoming opcrational as an cxchmge for tradine those secuities, broker-dealers may inadvertently misallocnte sccwities commission revenucs generated by ttansacrions in NASDAQ-listed and non-NASDAQ listed securities in the Statement of Incomc (Loss) section ofthe FOCUS Reports that they are required to submit to their designated examining authorities ih accordance with Exchange Act Rule 17a-5. Therefore, we requcst that the Division not recommend to the Commission ei~Forcament action undcr Exchange Act Rule 1'la-5 until sixty days aller NASDAQ begins operation as ah exchange for non-NASDAQ listed securities and completes the integration of its systems to its Single Book cxecution system plaflorm for those securities if a broker-dealer misallocates ccrtain securiiies commission revcnues generated by trntlsactio~lsin NASDAQ-listed and non-NASDAQ listed securities on its FOCUS Reports submitted to its designatcd examining authority. V, Conclusion With respect to all of the relief requested abovc, broker-dealers either should maintain sufficient additional records to identify, as approptiate, that a given transaction was effected on eithcr an OTC market or at1exchange market, that the security is an OTC seciu-ity or an exchange-listed security, audlor that the broker-dealer is either nmember of NASD or NASDAQ (whichever is the case) ox may rely on NASDAQ to access and obtaiix &is information until the cnd of the relevant no-action relief period,' We bclieve that allowing firmsadequate time to ~modiry and test their systems and coding to accwatcly indicate NASDAQ's new status as a national securities exchange, and allowing for the uncertaillty of NASDAQ's coxnpletion &be for its systems integxntion for non-NASDAQ listed securities axld for its operating as an exchange for non-NASDAQ listed securities, are necessary steps inNASDAQ" smooth transition ti-om'beingpart of tlxe OTC market to becoming a national securities excliange. Provision of the DO-action relief requested abovc would greatly facilitate this transition and avoid cxposing Brms to unwatranted exposure for inadvertent inaccuracies in their books and i~cordsor Momation provided to the Commission and/or their designated examining authoi4ty. Letter Born Mary Revell, Associate Vice Prcsidellt,The NASDAQ Stock Market, to Michael A. Macchlatoll, Associate Director, Division of Market Regulalion, SEC (August 4,2006), telephone convtlrsn~io~~ on Novcmber 15,2006, and NASDAQ Dccember 2006 Letter. 5

We very much appxeciatc your considcratio~~of the above requcas for no-action relicf, md would be happy to answer my questions you might have in regard to these requests, Pleuse contact the undersigned at 202.216.2000 should you have fuzther questioxls. Respectfully submitted on behalf of the SFMA NASDAQ Exchmge Workhg Group, Arm vlcck Vice President nnd Associate General Counsel Securities Industry and Financial Matkets Association cc: Chairman Christopl~er Cox, Sccurities ad Exchmge Commission Commissioner Paul 5.Atkins, Securities and Exchange Commission Commissioner Roe1 C.Cmpos, Secutities and Exchange Commission Commissioner Amette L. Nazareth, Securitiesand Bxchmge Cummission Comrnissianer Kathlccn L.Cnsey, Securities and Excha~geCommission Robcrt L,D. Colby, Securitiesand Exchange Commission Elizabeth King, Sccurities atld Exchange Commissiot~ Bonnie L, Gaucli, Securities and Exchmge Commission Karen Peterson, NASDAQ Mary Revcu, NASDAQ POTS 912 ZOZ:193 311 330 VIS SS : S I ( Itld) 90 ,6Z- '39U

Q THE NPSUAQ STOIZK MARKET NASm 9sm sL4CtimLL
ROCKLfILLE,h.10 SOB50
December 29,2006
Michael A. Macchiaroli
Associate Director, Division of Market Regulation Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: No-Action Relief from SEC Rules 17a-3, 17a-25, and 17a-5 Dear Mr. Macchiaroli:
In connection with the commencement of the operation of The NASDAQ Stock Market LLC ("NASDAQ") as a national securities exchange trading the securities that it lists, the Securities and Exchange Commission ("SEC" or "Commission") has granted no-action relief concerning certain books and records requirements under SEC Rules 17a-3 and 17a-4 and certain securities transaction information required to be submitted to the Commission under SEC Rule 17a-25.' In response to the letter requesting relief,* the relief was granted for a temporary period extending until December 31, 2006. At the time the relief was requested, we believed that we would have become operational as a national securities exchange for trading non-NASDAQ listed securities and would have completed the integration of our systems on the Single Book platform prior to that date. In a letter dated December 29,2006, the NASDAQ Exchange Working Group of the Securities lndustry and Financial Markets Association ("SIFMA, formerly SIA) requested that the relief granted in the No-Action Letter be extended and modified and that the relief be extended until a date that is either sixty days after the date the NASDAQ Exchange begins operation as an exchange for non-NASDAQ exchange-listed securities or the date the NASDAQ Exchange begins such ~peration.~ Letter from Michael A. Macchiaroli, Associate Director, SEC Division of Market Regulation, to Ann Vlcek, Vice President and Associate General Counsel, Securities Industry Association ("SIA) (July 31, 2006) ("No-Action Letter"). Letter from Ann Vlcek, Vice President and Associate General Counsel, SIA, to Michael A. Macchiaroli, Associate Director, Division of Market Regulation, SEC (July 28, 2006). Letter from Ann Vlcek, Vice President and Associate General Counsel, SIFMA, to Michael A. Macchiaroli, Associate Director, Division of Market Regulation, SEC (December 29, 2006).

Michael A. Macchiaroli
December 29,2006
I would like to explain why the extension of that relief is required. While we hoped to complete systems integration by the end of 2006, there were some obstacles to meeting this target. For example, we are rapidly approaching the date when firms lock down their systems for the year. We must ensure that sufficient time is allowed for firms to make and test system changes in order to allow for a smooth implementation of Single Book for non-NASDAQ listed securities. We also must ensure that there is sufficient time to make and test changes to downstream regulatory systems. Because there was not sufficient time to complete systems integration for non-NASDAQ listed securities prior to the firm system lock-down date in mid-December, we announced a target date of mid-January 2007 for commencing the integration. (See Head Trader Alert 2006-028, available at http://www.nasdaqtrader.com~~rader/News/headtraderale~s/hta2006-208.stm.) SlFMA has requested that the relief be extended beyond the date when completion of NASDAQ systems integration is complete in order to allow firms a relatively short period of time to modify and test any necessary system changes following the completion of the integration. We agree with SlFMA that extension of the no-action relief for this additional limited period of time will not frustrate the purposes of SEC Rules 17a-3, 17a-25, and 17a-5. Also, in a letter dated August 4, 2006, NASDAQ stated that broker-dealers may rely on NASDAQ to access and obtain information concerning whether a security is an exchange-listed security and whether a broker-dealer is a NASD or NASDAQ member, should it be required for the purpose of regulatory examinations in the future, until the end of the no-action relief period on December 31, 2006. NASDAQ proposes to extend this reliance until a date that is sixty days after the date the NASDAQ Exchange begins operation as an exchange for non-NASDAQ exchange-listed securities and completes the integration of its systems to the Single Book execution system platform for those securities. As a result, broker-dealers may rely on NASDAQ to access and obtain information to identify that a transaction is effected on an OTC market or an exchange market, that a security is an OTC security or an exchange-listed security, andlor that a broker-dealer is a member of NASD or NASDAQ, until the end of the relevant no-action relief period. If you have any questions about this request, please contact me at 301.978.8265. Sincerely, Mary Revell Associate Vice President