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EXECUTIVE SUMMARY
The SEC approved April 19 an NASD rule change adopting new Schedule I (PORTAL Rules) to the NASD By-Laws. The Schedule establishes a marketplace for primary distributions and secondary trading of private placements. The PORTAL Rules meet the requirements of simultaneously approved SEC Rule 144A under the Securities Act of 1933. The PORTAL Market is based on full clearing and settlement of domestic and foreign debt and equity securities that are immobilized within a dedicated custodial network. The network provides appropriate record keeping and controls to provide for multi-currency settlements. It also controls the exit of the unregistered securities into the domestic U.S. retail market. The text of the PORTAL Rules follows this notice.
BACKGROUND
The SEC on April 19, 1990, adopted Rule 144A, which provides a safe harbor from its registration requirements under Section 5 of the Securities Act of 1933 ("Securities Act") for resales of securities that comply with the new rule. Rule 144A aims to maximize the potential of the private placement market for capital formation. These private offerings are playing an increasing role, as shown by the rise of private placements from 22 percent to 43 percent of total new corporate financing in the U.S. between 1980 and 1988.The primary market in private placements is currently about $171 billion a year, and the potential secondary market is much larger.
The rule seeks to further develop the secondary market by allowing qualified institutional investors freely to trade privately placed securities among themselves. Previously, such trading was hampered by a variety of regulations governing the original purchase and the period of time a private placement security must be held by the original investor before it could be resold.
The SEC also approved new Schedule I (the PORTALSM Rules) to the NASD By-Laws. The PORTAL Market provides a safe harbor for compliance with Rule 144A since all PORTAL securities and participants are prequalified. The new market, developed by the NASD, systematically allocates and distributes primary offerings as well as facilitates secondary trading. It allows participants access to all quotes and permits flexibility in quotation display by offering both two-sided and one-sided quotations, as well as indications.
Qualified NASD members are able to enter and retrieve quotations from The PORTAL Market's central data bank. All sales are negotiated, and the participants report price and volume details of the transactions to the data base. Qualified investors have access to the information through the dealers in the market.
In addition, The PORTAL Market offers global standardization of clearance and settlement (five days) by electronic book entry in a worldwide clearing and depository system. It is able to settle in multiple currencies and to provide locked-in settlement to reduce currency-exchange risk.
With all these features, The PORTAL Market instantly taps a universe of prequalified buyers and sellers. The increased exposure and visibility result in more favorable pricing in both primary and secondary markets. Because all eligible securities and participants are prequalified, The PORTAL Market also provides peace of mind and saves time and money through reducing back-office requirements and legal procedures.
Settlement in The PORTAL Market occurs much faster than does physical delivery or traditional European clearance and settlement, which may take weeks. And as the only U.S.-located fully automated clearance and settlement mechanism, The PORTAL Market virtually eliminates the previously frequent problem of uncompared transactions.
SUMMARY OF PORTAL RULES
The PORTAL Rules are comprised of eight parts. Part I defines terms used in the Rules. Part II sets forth the requirements applicable to securities in The PORTAL Market. Part III delineates the requirements for NASD members that wish to participate in The PORTAL Market. Part IV provides the requirements applicable to investors wishing to participate in The PORTAL Market. Part V specifies the procedure for handling grievances concerning the designation of a security in The PORTAL Market or the registration of participants. Part VI sets forth requirements for the operation of and transactions in The PORTAL Market. Part VII delineates the applicability of the NASD Rules of Fair Practice to transactions in The PORTAL Market. Part VIII makes available to participants the facilities of the Association's Arbitration Department and Code of Arbitration Procedure to settle disputes arising from PORTAL transactions.
Securities approved pursuant to the requirements of Part II of the PORTAL Rules are considered designated as "PORTAL securities." To be PORTAL securities, they must be eligible to be sold pursuant to SEC Rule 144A. NASD members must meet the requirements of Part III applicable to "PORTAL dealers" or "PORTAL brokers" to participate in The PORTAL market on a principal or agency basis. The distinction between the two categories is that PORTAL dealers must be eligible to purchase securities under Rule 144A, and PORTAL brokers are prohibited from executing a principal transaction in a PORTAL security.
Investors must be designated as "PORTAL qualified" investors pursuant to Part IV to buy and sell PORTAL securities in The PORTAL Market. The major requirement is that the investor be eligible to purchase securities pursuant to SEC Rule 144A. PORTAL qualified investors may execute purchase or sale "transactions" in PORTAL securities only through a PORTAL dealer or a PORTAL broker with another PORTAL qualified investor or in a "qualified exit transaction" to an account outside The PORTAL Market.
A "qualified exit transaction" is one meeting the requirements of Section 18 to Part I of the PORTAL Rules. That section restricts transactions in PORTAL securities with an account outside The PORTAL Market to transactions (1) registered under the Securities Act, (2) exempt from Securities Act registration by reason of compliance with SEC Regulation S (adopted simultaneously with Rule 144A), SEC Rules 144 and 145, or because of repurchase by the issuer, (3) exempt from Securities Act registration by reason of compliance with Rule 144 A, so long as an opinion of counsel is reviewed by the Association prior to the transaction, or (4) exempt from registration and resulting in the purchaser holding freely tradable securities, so long as information concerning the exit is reviewed by the Association prior to the transaction. Furthermore, PORTAL participants are prohibited from transferring PORTAL securities out of The PORTAL Market except in a "qualified exit transfer," which restricts transfers exiting the market to the return of borrowed securities and a transfer to the participant's non-PORTAL account.
PORTAL dealers, PORTAL brokers, and PORTAL qualified investors (together defined as "PORTAL participants") must be members of (or have a relationship providing them access to) a "PORTAL depository system" that is composed of one or more organizations designated by the NASD to perform the functions of a securities depository with respect to PORTAL securities. Currently, the designated PORTAL depositories are Centrale de Livraison de Valeurs Mobilieres S.A. Luxembourg (Cedel) with respect to foreign securities and The Depository Trust Company (DTC) with respect to U.S. securities.
PORTAL dealers and PORTAL brokers (or their agent) must be members of a "PORTAL clearing system," which consists of one or more organizations designated by the Association to perform the clearance and settlement functions with respect to PORTAL securities. The PORTAL clearing organizations designated by the NASD are the International Securities Clearing Corporation (ISSC) with respect to foreign securities and DTC with respect to U.S. securities.
PORTAL participants also are required to participate in a "PORTAL account instruction system," which consists of one or more communications systems designated by the Association to transfer information concerning PORTAL account activities between a PORTAL qualified investor, the agent providing it access to the PORTAL depository system, PORTAL dealers, and PORTAL brokers. The PORTAL account instruction systems designated by the NASD are the International Institutional Delivery System (IID) and the Institutional Delivery System (ID), owned and operated by The Depository Trust Company.
The normal PORTAL Market hours of operation are between 9:30 a.m. and 4 p.m., Eastern Time. However, Section 1 to Part VI of the PORTAL Rules permits the NASD to establish different hours. The PORTAL Market accepts prices and quotations that are one- or two-sided, and firm or indicative. Transactions in The PORTAL Market settle five business days after the date of transactions, except as otherwise agreed between the parties to the transactions. In addition, the transaction can settle in any currency accepted by the PORTAL clearing organization.
Each PORTAL dealer and PORTAL broker that executes a transaction or effects a qualified exit transfer must enter a PORTAL transaction report in The PORTAL Market that includes necessary information regarding the transaction or transfer. Any modification, correction, or cancellation of the PORTAL transaction report also has to be entered into The PORTAL Market. PORTAL participants must either affirm or reject a PORTAL transaction report in The PORTAL Market to obtain a compared PORTAL transaction report.
"When, as and if trading of a new issue of securities is permitted in The PORTAL Market subsequent to effectiveness of the designation of the securities as PORTAL securities so long as the managing underwriter establishes a settlement date for the securities based on their anticipated availability and enters a corrected PORTAL transaction report designating a substitute settlement date if settlement is delayed.
Short-sale transactions are permissible in The PORTAL Market, and securities may be borrowed from another PORTAL Market account or from outside The PORTAL Market to meet delivery requirements. The requirements applicable to short sales are based on those presently found in the Interpretation of the Board of Governors — Prompt Receipt and Delivery of Securities, Article III, Section 1 of the NASD's Rules of Fair Practice. A provision is also included that gives the NASD authority to adopt additional restrictions regarding short sales and the borrowing and return of securities as the NASD deems necessary to prevent violation of the registration requirements of the Securities Act.
The PORTAL Rules specify that stabilizing bids are permitted in The PORTAL Market. The Rules also incorporate the close-out and buy-in procedures in Sections 15, 59, and 60 of the NASD's Uniform Practice Code, with modifications to reflect the context of transactions in The PORTAL Market. The close-out procedures are not mandatory. The PORTAL Rules also contain provisions setting forth the applicability of the NASD's Rules of Fair Practice to transactions and business activities relating to The PORTAL Market, distinguishing between provisions that are applicable, those applicable with exceptions, those applicable to members regardless of their participation in The PORTAL Market, and those that are not applicable.
The PORTAL Rules also provide that any NASD determination to deny, suspend, or terminate the designation of a PORTAL security or registration of a participant may be reviewed on application by the aggrieved person pursuant to Article IX of the Association's Code of Procedure. A conforming amendment to Article IX of the Code of Procedure also has been approved by the SEC expanding the jurisdiction of the article to cover grievances related to The PORTAL Market. Moreover, as stated above, the facilities of the NASD's Arbitration Department and the procedures of the Code of Arbitration Procedure are available to PORTAL participants to resolve disputes arising from PORTAL transactions or activities related to them.
The PORTAL Rules provide authority for the NASD to impose a fee on PORTAL dealers, PORTAL brokers, or PORTAL qualified investors for PORTAL transactions, or such other fees that the NASD may determine are appropriate. It is not now the NASD's intention to impose a fee with respect to transactions in The PORTAL Market for the first six months of the market's operation.
The PORTAL Rules are scheduled to become effective on publication of the SEC-adopting release in the Federal Register.
Questions regarding the operation of The PORTAL Market may be directed to S. William Broka, Vice President, Business Development, at (212) 480-4231. Questions regarding The PORTAL Market Rules may be directed to Frank J. Wilson, General Counsel, at (202) 728-8319 or Suzanne E. Rothwell, Associate General Counsel, at (202) 728-8247.
THE PORTALSM MARKET RULES
Schedule I to the NASD By-Laws
Part I
DEFINITIONS1
For purposes of Schedule I, unless the context requires otherwise:
Sec. 1 "Association" means the National Association of Securities Dealers, Inc. ("NASD") or its wholly-owned subsidiary, NASD Market Services, Inc., as determined by the NASD.
Sec. 2 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.
Sec. 3 "Execution" means entering into a purchase, sale or transfer of a PORTAL security.
Sec. 4 "PORTAL" or "PORTAL Market" means the Association's market for designated foreign and domestic securities through an automated quotation and communications system that facilitates private offerings, resales, trading, clearance and settlement by PORTAL participants.
Sec. 5 "PORTAL account instruction system" means one or more communications systems designated by the Association to transfer information concerning PORTAL account activities between a PORTAL qualified investor, its agent providing it access to the PORTAL depository system, PORTAL dealers and PORTAL brokers.
Sec. 6 "PORTAL broker" means any member of the Association that is currently registered as a PORTAL broker in the PORTAL Market pursuant to Part III, Section 2 of the PORTAL Rules.
Sec. 7 "PORTAL clearing organization" means a clearing organization that is part of the PORTAL clearing system and is designated by the Association to perform clearance and settlement functions with respect to PORTAL securities.
Sec. 8 "PORTAL clearing system" means the system consisting of one or more organizations designated by the Association to perform clearance and settlement functions with respect to PORTAL securities.
Sec. 9 "PORTAL dealer" means any member of the Association that is currently registered as a PORTAL dealer in the PORTAL Market pursuant to Part III, Section 1 of the PORTAL Rules, and is thereby also registered as a PORTAL qualified investor.
Sec. 10 "PORTAL depository organization" means a depository organization that is part of the PORTAL depository system and is designated by the Association to perform the functions of a securities depository with respect to PORTAL securities.
Sec. 11 "PORTAL depository system" means the system consisting of one or more organizations designated by the Association to perform the functions of a securities depository with respect to PORTAL securities.
Sec. 12 "PORTAL Exit Report" means a report manually or electronically filed with NASD Market Surveillance within one (1) business day after a sale or transfer of a PORTAL security by a PORTAL participant pursuant to Part III, Section 3(b)(5) and Part IV, Section l(b)(ll) of the PORTAL Rules.
Sec. 13 "PORTAL participant" means a PORTAL dealer, a PORTAL broker and a PORTAL qualified investor.
Sec. 14 "PORTAL qualified investor" means any investor that is currently registered as a PORTAL qualified investor in the PORTAL Market pursuant to Part IV of the PORTAL Rules.
Sec. 15 "PORTAL Rules" means the PORTAL Market rules as included in Schedule I to the NASD By-Laws.
Sec. 16 "PORTAL security" means a security which (i) is of a class that is currently designated by the Association for inclusion in the PORTAL Market pursuant to Part II of the PORTAL Rules and (ii) is or will be deposited in the PORTAL depository system pursuant to the requirements of the participating PORTAL depository organization.
Sec. 17 "PORTAL transaction report" means a report entered into the PORTAL Market pursuant to Part VI, Section 5 of the PORTAL Rules.
Sec. 18 "Qualified exit transaction" means the sale of PORTAL securities to an account outside the PORTAL Market by or through a PORTAL dealer or PORTAL broker:
(a) in a transaction registered with the SEC under Section 5 of the Securities Act;
(b) in a transaction not subject to registration under the
Securities Act by reason of compliance with:
(1) Securities Act Release No. 4708 (July 9, 1964), 29 F.R. 9828 or with Regulation S when adopted, as it may be amended from time to time;
(2) Rules 144 or 145 adopted thereunder, as they may be amended from time to time;
(3) transfer of the securities to the issuer or an affiliate of the issuer; or
(4) Rule 144A adopted thereunder, as determined by the Association, upon the submission of an opinion of counsel prior to the transaction; or
(c) in any other transaction which is exempt from registration under Section 5 of the Securities Act and results in the purchaser acquiring securities that may be freely resold without registration under the Securities Act, as determined by the Association, upon the submission of any information that may be required by the Association prior to the transaction.
Sec. 19 "Qualified exit transfer" means:
(a) the return of borrowed PORTAL securities to an account outside the PORTAL Market from which the securities were borrowed; and
(b) the transfer of PORTAL securities by a PORTAL participant from its PORTAL account to an account of the PORTAL participant outside the PORTAL Market.
Sec. 20 "Restricted securities" means securities that meet the definition of that term contained in Rule 144(a)(3) under the Securities Act.
Sec. 21 "Rule 144A" means Rule 144A adopted under the Securities Act, as amended from time to time.
Sec. 22 "SEC" means the United States Securities and Exchange Commission.
Sec. 23 "Securities Act" means the Securities Act of 1933, as amended from time to time.
Sec. 24 "Short sale" means any sale of a security that meets the definition of that term contained in Rule 3b-3 adopted under the Exchange Act.
Sec. 25 "Transaction" or "trade" means the purchase or sale of a PORTAL security.
Sec. 26 "Transfer" means the movement of a PORTAL security from or to a PORTAL account not related to a purchase or sale transaction, including borrowing, lending, and the receipt or return of borrowed securities.
Sec. 27 "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction.
Part II
REQUIREMENTS APPLICABLE TO PORTAL SECURITIES
Sec. 1 Application for Designation
(a) Application for designation as a PORTAL security shall be in the form required by the Association and shall be filed by a PORTAL participant. Applications may be made with or without the concurrence of the issuer. The application shall demonstrate to the satisfaction of the Association that the security meets or exceeds the qualification requirements set forth in Section 2.
(b) Designation of a security as a PORTAL security shall be declared effective within a reasonable time after determination of qualification. The effective date of designation as a PORTAL security shall be determined by the Association giving due regard to the requirements of the PORTAL Market.
Sec. 2 Qualification Requirements for PORTAL Securities
(a) To qualify for inclusion in the
PORTAL Market, a security shall, at the time application is made:
(l) be eligible to be sold pursuant to Rule 144A under the Securities Act;
(2) be in negotiable form and not subject to any restriction, condition or requirement that would impose an unreasonable burden on any PORTAL participant;
(3) be eligible for deposit into and have been or will be deposited into the PORTAL depository system by the issuer or a PORTAL participant;
(4) in the case of convertible debt, convertible preferred stock, rights, warrants and other derivative products, the underlying or related security shall satisfy the criteria herein; and
(5) satisfy such additional criteria or requirements as the Association may prescribe.
(b) A PORTAL security shall be deposited into the PORTAL depository system no later than the date specified by the relevant PORTAL depository organization.
(c) The application to the
Association with respect to a proposed
PORTAL security shall include information sufficient for the
Association to make a determination that the security is eligible to be sold under
Rule 144A, which may include:
(1) a statement of counsel who:
(i) has demonstrated experience, expertise and familiarity with the United States securities laws, including Rule 144A and the PORTAL Rules;
(ii) is admitted to practice law before the highest court of any state in the United States, the District of Columbia, or any territory or possession of the United States;
(iii) is not an employee or affiliate of the issuer of the security, provided, however, that counsel may be the senior legal counsel to the issuer;
(iv) in providing its statement, has (a) reviewed information detailing the capital structure of the issuer; (b) reviewed other documents and pertinent information obtained by counsel; and (c) has made inquiries of the issuer of the security and received responses if counsel determines that such further review and inquiry are necessary and relevant to determine whether the security is eligible to be sold pursuant to Rule 144A; and
(v) has determined that the security for which designation is requested (and the underlying security, if the security is convertible debt, convertible preferred, rights, warrants or any other derivative product) is eligible to be sold pursuant to Rule 144A; or
(2) a statement of a certified public account ant who:
(i) is permitted to practice before the SEC pursuant to Rule 2-01 of SEC Regulation S-X;
(ii) in providing its statement, has reviewed (a) information detailing the capital structure of the issuer; (b) other documents and pertinent information obtained by the certified public accountant; and (c) made inquiries of the issuer of the security and received responses if the certified public accountant determines that such further review and inquiry are necessary and relevant to determine whether the security is eligible to be sold pursuant to Rule 144A; and
(iii) has determined that the security for which designation is requested (and the underlying security, if the security is convertible debt, convertible preferred, rights, warrants or any other derivative product) is eligible to be sold pursuant to Rule 144A; or
(3) a certification of the Chief Executive Officer of the issuer of the security for which designation is requested that the security (and the underlying security, if the security is convertible debt, convertible preferred, rights, warrants or any other derivative product) is eligible to be sold pursuant to Rule 144A; and
(4) any other information that the Association, in its discretion, may require to be submitted to the Association.
Sec. 3 Exceptions
The Association may make exceptions to the criteria contained in Part II, Subsections 2(a)(2) and (4) of the PORTAL Rules as it deems appropriate. The fact that a security meets the applicable criteria in Part II, Section 2 of the PORTAL Rules does not necessarily mean that an application for designation as a PORTAL security will be approved.
Sec. 4 Suspension or Termination of a PORTAL Security Designation
(a) The
Association may, in its discretion, suspend or terminate designation as a
PORTAL security if it determines that:
(1) the security is not in compliance with the requirements of the PORTAL Rules;
(2) a holder or prospective purchaser that requested issuer information pursuant to Rule 144A(d)(4) did not receive the information;
(3) any application or other document relative to such securities submitted to the Association contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; or
(4) failure to withdraw designation of such securities would for any reason be detrimental to the interests and welfare of PORTAL participants or the Association.
(b) The Association will promptly notify PORTAL participants and the PORTAL clearing system and PORTAL depository system of the suspension or termination of a security's designation as a PORTAL security. Such notification may be made through the facilities of the PORTAL Market. Suspension or termination shall become effective in accordance with the terms of notice by the Association.
(c) Notwithstanding the suspension or termination of designation as a PORTAL security, any security within the PORTAL Market shall remain subject to all rules of the Association applicable to the PORTAL Market until the security is sold in a qualified exit transaction or is dealt with in accordance with the terms of notice by the Association of the suspension or termination.
(d) No PORTAL participant shall trade through the PORTAL Market a PORTAL security as to which designation in the PORTAL Market has been suspended or terminated unless such transaction is a qualified exit transaction or is in accordance with the terms of notice of the Association of the suspension or termination.
Part III
REQUIREMENTS APPLICABLE TO PORTAL DEALERS AND PORTAL BROKERS
Sec. 1 Registration Requirements of PORTAL Dealers
(a) No member of the Association shall participate in a principal transaction in the PORTAL Market unless the Association has approved its registration as a PORTAL dealer and such registration has not been suspended or terminated. A member of the Association that registers as a PORTAL dealer shall also be registered as a PORTAL qualified investor.
(b) To register as a
PORTAL dealer, a member shall apply to the
Association in the form required by the
Association and shall demonstrate to the satisfaction of the
Association that it:
(1) is eligible to purchase securities under Rule 144A as it applies to a dealer registered under Section 15 of the Exchange Act, and shall submit the member's most recent Audited Financial Statements filed with the SEC pursuant to Rule 17a-5(d) under the Exchange Act, with the supporting schedules required pursuant to sub-paragraph (3) thereof, and any other information that the Association, in its discretion, may require to be submitted to the Association;
(2) is a member of the Association and qualified to do business as a general securities firm;
(3) agrees to maintain an account for PORTAL transactions at its agent (providing it access to the services of a PORTAL depository organization) that is segregated from all other accounts it may have at the agent, if applicable;
(4) is a participant in (or its agent, providing it access to the services of the PORTAL depository system, is a participant in) the PORTAL account instruction system, as necessary;
(5) is a member of, or its agent is a member of, a PORTAL clearing organization and a PORTAL depository organization and, with respect to the PORTAL depository organization, has directed that its account or accounts therein for PORTAL securities be segregated from all other accounts it may have at the depository;
(6) agrees to deposit and maintain all PORTAL securities in its segregated PORTAL account at the PORTAL depository organization and at its agent, if applicable, until the PORTAL securities are (i) sold or transferred to a PORTAL account in a transaction or transfer in the PORTAL Market or (ii) sold or transferred to a non-PORTAL account in compliance with the restrictions on qualified exit transactions and qualified exit transfers;
(7) has authorized and directed both the relevant PORTAL clearing organization and PORTAL depository organization (or has authorized its agent to authorize and direct the PORTAL clearing organization and PORTAL depository organization) to release information in respect of its PORTAL account activity to the Association or its designee and, with respect to the PORTAL clearing organization, to submit data to the PORTAL account instruction system on behalf of the PORTAL dealer, as may be required;
(8) has established supervisory procedures reasonably designed to achieve compliance with the restrictions on qualified exit transactions and qualified exit transfers, including (i) preserving information demonstrating compliance with respect to each exit transaction and exit transfer pursuant to Rule 17a-4(a) under the Exchange Act and (ii) filing a PORTAL Exit Report with NASD Market Surveillance within one (1) business day after the execution of the transaction or transfer;
(9) agrees to comply with the requirements of the PORTAL Rules, including the filing of such documents and the payment of such fees as may be required by the Association; and
(10) agrees to purchase PORTAL securities only for PORTAL qualified investors or for their own account.
Sec. 2 Registration Requirements for PORTAL Brokers
(a) No member of the Association shall participate in an agency transaction in a PORTAL security in the PORTAL Market unless the Association has approved its registration as a PORTAL dealer or as a PORTAL broker, and such registration has not been suspended or terminated.
(b) To register as a PORTAL broker, a member shall apply to the Association in the form required by the Association and shall demonstrate to the satisfaction of the Association that it meets or exceeds the criteria in Part III, Sections l(b)(2) through l(b)(9) of the PORTAL Rules and agrees to purchase PORTAL securities only for PORTAL qualified investors.
Sec. 3 Continuing Requirements for PORTAL Dealers and Brokers
(a) No PORTAL broker shall execute a principal transaction in a PORTAL security, provided, however, that for purposes of compliance with the PORTAL Rules a PORTAL broker may participate in an underwriting of PORTAL securities on a "best-efforts" basis.
(b) No
PORTAL dealer or
PORTAL broker shall:
(1) execute a transaction or a transfer in a PORTAL security except through the PORTAL Market or in a qualified exit transaction or qualified exit transfer;
(2) execute a transaction or a transfer in a PORTAL security through the PORTAL Market with any party other than a PORTAL participant, except in a qualified exit transaction or a qualified exit transfer;
(3) execute a transaction in a PORTAL security as to which designation in the PORTAL Market has been suspended or terminated, unless the transaction is a qualified exit transaction or in accordance with the terms of notice by the Association of the suspension or termination;
(4) accept a PORTAL qualified investor's purchase order for any PORTAL security, except an order for less than a single unit of trading, unless it has first ascertained that the PORTAL qualified investor placing the order, or its agent, agrees to receive securities in an amount equal to any execution, even though such an execution may represent the purchase of only a part of a larger order; or
(5) sell or transfer a PORTAL security to an account outside the PORTAL Market unless (i) the transaction or transfer is in compliance with the restrictions on qualified exit transactions or qualified exit transfers, (ii) information demonstrating such compliance is preserved pursuant to Rule 17a-4(a) under the Exchange Act, and (iii) a PORTAL Exit Report is filed with NASD Market Surveillance within one (1) business day after the execution of the sale or transfer.
(c) For a PORTAL dealer to continue to be eligible to participate as a PORTAL dealer in the PORTAL Market, the PORTAL dealer shall annually (or more frequently if required by Rule 144A) demonstrate to the satisfaction of the Association that it continues to be eligible to purchase securities under Rule 144A as it applies to a dealer registered under Section 15 of the Exchange Act.
(d) For a
PORTAL dealer or
PORTAL broker to continue to be eligible to participate in the
PORTAL Market, the
PORTAL dealer or
PORTAL broker shall notify the
Association2 on a timely basis of any change in:
(1) its PORTAL depository organization, PORTAL clearing organization or PORTAL account instruction system;
(2) the account numbers identifying its segregated PORTAL accounts in its PORTAL depository organization or PORTAL clearing organization; and
(3) any change in the supervisory procedure accepted by the Association pursuant to Part III, Subsection l(b)(7) of the PORTAL Rules.
(e) The
Association shall suspend or terminate the registration of a
PORTAL dealer or
PORTAL broker if it:
(1) fails to maintain membership for purposes of maintaining segregated PORTAL accounts in the PORTAL depository system or the PORTAL clearing system, or membership in the PORTAL account instruction system, as necessary;
(2) fails to maintain its account or accounts in the PORTAL depository system for PORTAL securities segregated from all other accounts the PORTAL dealer or PORTAL broker may have at the depository; or
(3) rescinds its authorization to the PORTAL clearing organization or PORTAL depository organization of which the PORTAL dealer or PORTAL broker is a member to release information in respect of its activities in its PORTAL account to the Association or its designee.
(f) The
Association may suspend or terminate the registration of a
PORTAL dealer or
PORTAL broker if:
(1) it fails to comply with any requirement of the PORTAL Rules with respect to any PORTAL security;
(2) any application or other document submitted by or on behalf of it contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein not misleading; or
(3) it fails to file any documents or to pay any fee as may be required by the Association.
(g) Nothing in paragraphs (e) and (f) shall prohibit the Association from taking such other action as it deems necessary under the circumstances against a PORTAL dealer or a PORTAL broker for violations of the requirements of the PORTAL Rules, any other rule or regulation of the Association, or any rule or regulation of the SEC.
(h) Notwithstanding the suspension or termination of a
PORTAL dealer, such dealer shall:
(1) remain subject to all rules of the Association applicable to the PORTAL Market in respect of any PORTAL securities in the dealer's PORTAL trading and PORTAL proprietary account; and
(2) only engage in transactions in PORTAL securities in the dealer's PORTAL trading and PORTAL proprietary account in accordance with the terms of notice by the Association of the PORTAL dealer's suspension or termination.
Part IV
REQUIREMENTS APPLICABLE TO PORTAL QUALIFIED INVESTORS
Sec. 1 Registration Requirements for PORTAL Qualified Investors
(a) No investor shall participate in a transaction in a PORTAL security in the PORTAL Market unless the Association has approved its registration as a PORTAL qualified investor and such registration remains in effect.
(b) To register as a
PORTAL qualified investor in the
PORTAL Market, an investor shall apply in the form required by the
Association and shall demonstrate to the satisfaction of the
Association that:
(1) it is eligible to purchase securities in accordance with Rule 144A;
(2) the purchase or sale by it of PORTAL securities would be exempt from the securities registration and broker-dealer registration requirements of applicable state securities laws;
(3) it is a member of, or its agent is a member of, a PORTAL depository organization which will maintain PORTAL securities in an account segregated from all other accounts the investor or its agent may have at the depository;
(4) it agrees to maintain an account for PORTAL transactions at its agent (providing it access to the services of a PORTAL depository organization) that is segregated from all other accounts it may have at the agent, if applicable;
(5) it has authorized and directed the PORTAL depository system (or has authorized and directed its agent providing it access to the services of the PORTAL depository system to authorize and direct the PORTAL depository system) to release information in respect of its PORTAL account activities to the Association or its designee;
(6) it is (and its agent, providing it access to the services of the PORTAL depository system, is) a participant in the PORTAL account instruction system, as necessary;
(7) it understands that it may purchase a PORTAL security from a PORTAL qualified investor who may rely on an exemption from the provisions of Section 5 of the Securities Act pursuant to Rule 144A;
(8) it agrees to deposit and maintain all PORTAL securities in its segregated PORTAL account at the PORTAL depository organization and at its agent, if applicable, until the PORTAL securities are (i) sold or transferred to a PORTAL account in a transaction or transfer in the PORTAL Market or (ii) sold or transferred to a non-PORTAL account in compliance with the restrictions on qualified exit transactions and qualified exit transfers;
(9) it agrees it will only transfer ownership of a PORTAL security in a transaction or transfer through the PORTAL Market, except that (i) transfers between accounts managed by the investor and among investment companies registered under the Investment Company Act of 1940 constituting part of a family of investment companies are permitted so long as the investor is eligible to purchase securities on behalf of the managed accounts or investment companies under Rule 144A and (ii) qualified exit transactions and qualified exit transfers will be permitted;
(10) it agrees to purchase PORTAL securities for its own account or for an account that the investor is eligible to make purchases for under Rule 144A;
(11) it agrees that it will not sell or transfer PORTAL securities to an account outside the PORTAL Market except in qualified exit transactions and qualified exit transfers and will file a PORTAL Exit Report with NASD Market Surveillance within one (1) business day after the execution of a transfer not executed through a PORTAL dealer or PORTAL broker; and
(12) it agrees to provide the Association, upon its request and at its discretion, with any information or document necessary to verify compliance with the restrictions on exit transactions and exit transfers in the PORTAL Rules.
(c) The Association may classify PORTAL qualified investors in such manner as it deems advisable for the purpose of conforming with Rule 144A.
(d) The investor's application to the
Association, other than an investor that is a dealer registered under Section 15 of the Exchange
Act, shall include information regarding the securities investments of the investor that is sufficient for the
Association to make a determination that the investor is eligible to purchase securities under
Rule 144A which may include:
(1) information that is publicly available as permitted by Rule 144A(d)(l)(i) and (ii), except that material filed with a foreign governmental agency or foreign self-regulatory organization must be in or translated into English and financial information must be expressed in U.S. dollars; or
(2) information that is contained in a statement of the investor's securities and is accompanied by an accountant's report, as defined in Rule 1-02 of SEC Regulation S-X, that is prepared in compliance with Rule 2-02 of SEC Regulation S-X by a certified public accountant permitted to practice before the SEC pursuant to Rule 2-01 of SEC Regulation S-X; or
(3) statement of counsel who:
(a) has demonstrated experience, expertise and familiarity with the United States securities laws, including Rule 144A and the PORTAL Rules;
(b) is admitted to practice law before the highest court of any state in the United States, the District of Columbia, or any territory or possession of the United States;
(c) is not an employee or an affiliate of the investor;
(d) in providing its statement, has reviewed information detailing the securities investments of the investor and has requested and reviewed other documents and pertinent information and made inquiries of the investor and received responses, if counsel determines that such further review and inquiry are necessary and relevant to determine whether the investor is eligible to purchase securities in accordance with Rule 144A; and
(e) has determined that the investor is eligible to purchase securities in accordance with Rule 144A; and
(4) any other information that the Association, in its discretion, may require to be submitted to the Association.
(e) The PORTAL qualified investor's application to the Association of a dealer registered under Section 15 of the Exchange Act shall include the dealer's most recent Audited Financial Statements filed with the SEC pursuant to Rule 17a-5(d) under the Exchange Act, with the supporting schedules required pursuant to subparagraph (3) thereof, and any other information that the Association, in its discretion, may require to be submitted to the Association.
Sec. 2 Continuing Requirements for PORTAL Qualified Investors
(a) For an investor to continue to be eligible to participate as a
PORTAL qualified investor in the
PORTAL Market, the investor shall:
(1) annually (or more frequently if required by Rule 144A) demonstrate to the satisfaction of the Association that the investor is eligible to purchase securities in accordance with Rule 144A; and
(2) advise the Association3 on a timely basis of any change in its agent, PORTAL depository organization or PORTAL account instruction system or its PORTAL account numbers therein.
(b)
Transactions in
PORTAL securities, including
transactions to a non-
PORTAL account, by
PORTAL qualified investors shall be executed:
(1) through a PORTAL dealer or a PORTAL broker; and
(2) through the PORTAL Market or in a qualified exit transaction.
(c) The
Association shall suspend or terminate the registration of a
PORTAL qualified investor if:
(1) the investor sells or transfers a PORTAL security to an account outside the PORTAL Market in a manner not in compliance with the restrictions on qualified exit transactions or qualified exit transfers;
(2) any application or document submitted by or on behalf of the PORTAL qualified investor contained an untrue statement of material fact or omitted to state a material fact necessary to make the statements therein not misleading;
(3) the investor fails to comply with any requirements of the PORTAL Rules, or to file any documents or to pay any fee as may be required by the Association; or
(4) the investor rescinds its authorization to its PORTAL depository organization to release information in respect of its or its agent's PORTAL account activity to the Association or its designee.
(d) Nothing in paragraph (c) shall prohibit the Association from taking such action as it deems necessary under the circumstances against a PORTAL qualified investor that is also a member of the Association for violations of the requirements of the PORTAL Rules, any other rule or regulation of the Association, or any rule or regulation of the SEC.
(e) Notwithstanding the suspension or termination of a
PORTAL qualified investor, such investor shall:
(1) remain subject to all rules of the Association applicable to the PORTAL Market with respect to any PORTAL securities owned by such investor; and
(2) engage in transactions in PORTAL securities owned by such investor only in accordance with the terms of notice by the Association of the suspension or termination.
PartV
DENIAL, SUSPENSION OR TERMINATION PROCEDURES
A determination by the Association to deny, suspend or terminate the designation of a PORTAL security or registration of a PORTAL participant may be reviewed upon application by the aggrieved person pursuant to the provisions of Article IX of the Code of Procedure.
Part VI
PORTAL MARKET TRANSACTIONS
Sec. 1 Normal PORTAL Market Hours Of Operation
The PORTAL Market shall be open for business from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time, or as otherwise determined by the Association.
Sec. 2 PORTAL Quotations
The PORTAL Market will accept prices and quotations from PORTAL dealers and PORTAL brokers that are one- or two-sided, firm or indicative.
Sec. 3 Deposit of PORTAL Securities
PORTAL securities that are deposited into the PORTAL depository system shall remain in the depository system until such time as the depository receives appropriate settlement instructions from a PORTAL dealer or PORTAL broker to deliver such securities out of the depository system in connection with a qualified exit transaction or qualified exit transfer.
Sec. 4 PORTAL Settlement
(a) Transactions in the PORTAL Market will settle five (5) business days after the date of the execution of the transaction, except as otherwise agreed between the PORTAL participants, in any currency accepted by the PORTAL depository organization.
(b) PORTAL securities and funds will be transferred on the books of the PORTAL depository system upon receipt from the PORTAL clearing system of the necessary settlement instructions from the appropriate PORTAL dealer or PORTAL broker and subject to the purchaser meeting the requirements of the relevant PORTAL depository organization concerning deposit and availability of funds in accordance with the depository organization's procedures.
Sec. 5 PORTAL Transaction Reports
(a) Each PORTAL dealer or PORTAL broker that executes a transaction or a qualified exit transfer in a PORTAL security shall enter in the PORTAL Market a PORTAL transaction report that includes, as applicable, the identity of the PORTAL participants in whose accounts the transaction will settle (or, in the case of a qualified exit transaction or qualified exit transfer, the contra-party and delivery destination for the securities on settlement date), whether the transaction is on an agency or principal basis, whether the transaction is a purchase or sale, whether a sale is a "short" sale, the settlement date if different from the standard five-day settlement, the quantity of the security, the price of the security expressed in the currency in which the security was quoted in the PORTAL Market, the currency in which the transaction will settle, the total value of the transaction in the currency in which the transaction will settle, whether the settlement is "free" or "against payment", and such additional information as the Association may require.
(b) Modification, correction or cancellation of a PORTAL transaction report must be entered in the PORTAL Market.
(c) PORTAL transaction reports shall be entered in the PORTAL Market the same business day of the execution of the transaction. If a transaction is executed during hours that the PORTAL Market does not accept PORTAL transaction reports, the PORTAL transaction report shall be entered when the PORTAL Market is next open, with the trade date of the date of execution of the transaction. The Association, in its discretion, will establish hours for and time limitations on the entry of PORTAL transaction reports.
Sec. 6 Comparison of PORTAL Transaction Reports
(a) Each PORTAL qualified investor shall affirm or reject the PORTAL transaction report entered by the PORTAL qualified investor's executing PORTAL dealer or PORTAL broker.
(b) Each
PORTAL dealer and
PORTAL broker that
executes a
transaction in a
PORTAL security shall:
(1) accept a PORTAL transaction report entered by the contra-party by entering in the PORTAL Market a matching PORTAL transaction report with the same terms as the first PORTAL transaction report;
(2) reject a PORTAL transaction report entered by the contra-party by entering a second PORTAL transaction report with different terms than included in the first PORTAL transaction report; or
(3) enter an affirmation or rejection with respect to the PORTAL transaction report entered by the contra-party.
Sec. 7 PORTAL Contracts
The existence and terms of each PORTAL contract shall be conclusively established by the compared PORTAL transaction report pertaining to the underlying transaction in a PORTAL security. Notwithstanding the foregoing, the parties to any PORTAL contract may modify or correct the terms of any transaction in a PORTAL security in a manner consistent with the rules of the PORTAL Market.
Sec. 8 PORTAL Fees
PORTAL participants shall pay to the Association a fee for PORTAL transactions or such other fees as determined by the Association. The Board of Governors shall have the power to impose, alter, or amend such fees from time to time pursuant to Article VI, Section 1 of the By-Laws.
Sec. 9 "When, As and If Issued" Trading
PORTAL securities that are of a new issue of securities, primary or secondary, may trade "when, as and if issued" in the PORTAL Market subsequent to effectiveness of the designation of the securities as PORTAL securities, provided, however, that the lead manager shall:
(a) establish a settlement date for the securities based on their anticipated availability; and
(b) in event of any subsequent delay in the established settlement date, shall enter in the PORTAL Market a corrected PORTAL transaction report designating a substitute date for settlement and cancel the existing PORTAL transaction report.
Sec. 10 Transfers of PORTAL Securities
PORTAL securities deposited in the PORTAL depository system may not be transferred to an account outside the PORTAL Market, provided, however, that this section shall not prohibit a qualified exit transaction and a qualified exit transfer.
Sec. 11 "Short" Sales
(a) "Short" sale transactions in PORTAL securities may be entered in the PORTAL Market. "Short" sale transactions shall be identified as such in the PORTAL transaction report.
(b) The settlement date for "short" sales in PORTAL securities shall be negotiated by the parties.
(c) Securities obtained from outside the PORTAL Market may be used to cover the "short" position if they are promptly deposited into the PORTAL depository system.
(d)
"Short" sale transactions in the
PORTAL Market are subject to the following requirements:
(1) No PORTAL dealer or PORTAL broker shall accept a "short" sale order for any PORTAL qualified investor in any PORTAL security unless the dealer or broker makes an affirmative determination that it will receive delivery of the security from the PORTAL qualified investor or that it can borrow the security on behalf of the PORTAL qualified investor for delivery by settlement date.
(2) No PORTAL dealer shall effect a "short" sale for its own account in any security unless the PORTAL dealer makes an affirmative determination that it can borrow the securities or otherwise provide for delivery of the securities by settlement date. This requirement will not apply to any transaction by a PORTAL dealer which (a) is a bona fide market making transaction where the PORTAL dealer is publishing a two-sided quotation in the PORTAL Market or (b) results in fully hedged or arbitraged positions.
(3) A PORTAL dealer or PORTAL broker shall indicate on the memorandum for the sale of any security whether the order is "short."
(4) The Association may adopt such restrictions on "short" sales, and the borrowing and return of securities, as it may deem necessary to prevent violation of the registration requirements of the Securities Act in connection with transactions in the PORTAL Market.
Sec. 12 Stabilizing Bids
(a) A PORTAL dealer may enter a stabilizing bid in the PORTAL Market subject to compliance with Rules 10b-6 and 10b-7 under the Exchange Act, which bid shall be identified in the PORTAL Market. When a stabilizing bid is entered, it shall be available for all outstanding securities in the PORTAL Market of the same class being offered.
(b) A
PORTAL dealer shall notify the
Association4 in writing prior to the first day in which the stabilizing bid is to appear in the
PORTAL Market. The notice shall include:
(1) the name of the security and its PORTAL symbol;
(2) the date on which the distribution of the security will commence; and
(3) a copy of any offering document related to the distribution. The PORTAL dealer shall contact the Association4 for authorization on the day that the dealer wishes to enter the stabilizing bid.
(c) A PORTAL dealer shall not enter a stabilizing bid at the same time it is quoting any other bid or offer in the issue.
Sec. 13 Partial Delivery
A PORTAL qualified investor is required to accept a partial delivery on any PORTAL contract due, provided the portion remaining undelivered is not an amount that includes an odd-lot which was not part of the original transaction.
Sec. 14 Close-out Procedures - "Buying-In"
A PORTAL contract which has not been completed by the seller according to its terms may be closed by the buyer not sooner than the third business day following the date delivery was due, in accordance with the following procedure:
(a) Notice of "Buy-In"
(1) Written notice of "buy-in" shall be delivered to the seller at the seller's office not later than 12 noon, the seller's local time, two business days preceding the execution of the proposed "buy-in."
(2) For purposes of this provision, written notice shall include an electronic notice through a medium that provides for an immediate return receipt capability. Such electronic media shall include but not be limited to facsimile transmission and a computerized network facility.
(b) Information Contained in the "Buy-In" Notice
(1) Every notice of "buy-in" shall state the date of the PORTAL contract to be closed, the quantity and contract price of the PORTAL securities covered by said contract, the settlement date of said PORTAL contract and any other information deemed necessary to properly identify the PORTAL contract to be closed. Such notice shall state further that unless delivery is effected at or before a certain specified time, which may not be prior to 2:30 p.m. Eastern Standard Time, the PORTAL security may be "bought-in" on the date specified for the account of the seller.
(2) Notice may be redelivered immediately to another PORTAL dealer or PORTAL broker from whom the securities involved are due in the form of a re-transmitted notice ("re-transmit"). Re-transmitted notice of buy-in must be delivered to subsequent PORTAL dealers or PORTAL brokers not later than one business day preceding the time and date of execution of the proposed buy-in.
(c) Seller's Failure to Deliver After Receipt of Notice
On failure of the seller to effect delivery in accordance with the "buy-in" notice, or to obtain a stay as hereinafter provided, the buyer may close the PORTAL contract by purchasing all or part of the PORTAL securities necessary to satisfy the amount requested in the "buy-in" notice. Securities delivered subsequent to the receipt of the "buy-in" notice should be considered as delivered pursuant to the "buy-in" notice. Delivery of the requisite amount of securities as stated in the "buy-in" notice or execution will also operate to close-out all PORTAL contracts covered under retransmitted notices of buy-in issued pursuant to the original notice of buy-in. A "buy-in" may be executed by a PORTAL dealer from its long position and/or from customers' accounts maintained with such PORTAL dealer. In all cases, PORTAL dealers must be prepared to defend the price at which the "buy-in" is executed relative to the current market at the time of the "buy-in".
(d) "Buy-In" Not Completed
In the event that a "buy-in" is not completed pursuant to the provisions of subsection (b) hereof on the day specified in the notice of "buy-in," or as such date may be extended pursuant to the provisions of subsection (f) hereof, said notice shall expire at the close of business on the day specified in the notice of buy-in.
(e) Partial Delivery by Seller
Prior to the closing of a PORTAL contract on which a "buy-in" notice has been given, the buyer shall accept any portion of the PORTAL securities called for by the PORTAL contract, provided the portion remaining undelivered at the time the buyer proposes to execute the "buy-in" is not an amount which includes an odd-lot which was not part of the original transaction.
(f) Securities in Transit
If prior to the closing of a PORTAL contract on which a "buy-in" notice has been given, the buyer receives from the seller written or comparable electronic notice stating that the securities are (1) in transfer; (2) in transit; (3) are being shipped that day; or (4) are due from a depository and giving the certificate numbers, except for those securities due from the depository, then the buyer must extend the execution date of the "buy-in" for a period of seven (7) calendar days from the date delivery was due under the "buy-in."
(g) Notice of Executed "Buy-In"
The party executing the "buy-in" shall immediately upon execution, but not later than the close of business, local time where the seller maintains its office, notify the PORTAL dealer or PORTAL broker for whose account the securities were bought as to the quantity purchased and the price paid. Such notification should be in written or electronic form having immediate receipt capabilities. If this written media is not available, the telephone shall be used for the purpose of same day notification, and written or similar electronic notification having next day receipt capabilities must also be sent out simultaneously. In either case, formal confirmation of purchase along with a billing or payment (depending upon which is applicable) should be forwarded as promptly as possible after the execution of the buy-in. Notification of the execution of a "buy-in" shall be given to succeeding broker/dealers to whom a retransmitted notice was issued pursuant to subsection (b) using the same procedures stated herein. If a re-transmitted "buy-in" is executed, it will operate to close-out all contracts covered under the re-transmitted notices.
(h) "Close-Out" under NASD or Exchange Rulings
(1) When a national securities exchange makes a ruling that all open contracts with a particular member, who is also a PORTAL dealer or PORTAL broker, should be closed-out immediately (or any similar ruling), PORTAL dealers and PORTAL brokers may close-out contracts as directed by the exchange.
(2) When the Association issues notification that all open contracts with the PORTAL dealer or PORTAL broker in question should be closed-out immediately, PORTAL dealers or PORTAL brokers may close-out contracts as directed by the Assocation.
(3) Within the meaning of this section, to close-out immediately shall mean that (i) "buy-ins" may be executed without prior notice of intent to "buy-in" and (ii) "Sell-outs" may be executed without making prior delivery of the securities called for.
(4) All close-outs executed pursuant to the provisions of this subsection shall be executed for the account and liability of the PORTAL dealer or PORTAL broker in question. Notification of all close-outs shall immediately be sent to such PORTAL dealer or PORTAL broker.
(i) Failure to Deliver and Liability Notice Procedures
(1) If a contract is for warrants, rights, convertible securities or other securities which (1) have been called for redemption; or (2) are due to expire by their terms; or (3) are the subject of a tender or exchange offer; or (4) are subject to other expiring events such as the record date for the underlying security and the last day on which the securities must be delivered or surrendered (the "expiration date") is the settlement date of the contract or any later day, the receiving member may deliver a Liability Notice to the delivering member as an alternative to the close-out procedures set forth in paragraphs (a) - (g) of this section. Such Notice must be is sued using written or comparable electronic media having immediate receipt capabilities no later than one business day prior to the latest time and date of the offer or other event in order to obtain the protection provided by this provision.
(2) If the delivering PORTAL dealer or PORTAL broker fails to deliver the securities on the expiration date, the delivering PORTAL dealer or PORTAL broker shall be liable for any damages which may accrue thereby. A Liability Notice delivered in accordance with this provision shall serve as notification by the receiving member of the existence of a claim for damages. All claims for such damages shall be made promptly.
(3) If the above procedures are not utilized, contracts may be "bought-in" without prior notice, after normal delivery hours established in the community where the buyer maintains its office, on the expiration date. Such buy-in execution shall be for the account and risk of the defaulting PORTAL dealer or PORTAL broker.
(j) Information on Notices
Notices of "buy-in" and "re-transmitted buy-in" shall include all information contained in the sample forms prescribed by the Association.
(k) "Buy-In" Desk Required
PORTAL dealers or PORTAL brokers shall have a "buy-in" section or desk adequately staffed to process and research all "buy-ins" during normal business hours.
(l) "Buy-In" of Accrued Securities
Securities in the form of stock, rights or warrants which accrue to a purchaser shall be deemed due and deliverable to the purchaser on the payable date. Any such securities remaining undelivered at that time shall be subject to the "buy-in" procedures as provided in this Section.
Sec. 15 Close-Out Procedures - "Selling-Out"
A contract which has not been completed by the buyer according to its terms may be closed by the seller in accordance with the following procedures:
(a) Conditions Permitting "Sell-Out"
Upon failure of the buyer to accept delivery in accordance with the terms of the contract, and lacking a properly executed Reclamation Form, the seller may, without notice, "sell-out" in the PORTAL Market and for the account and liability of the party in default all or any part of the securities due or deliverable under the contract.
(b) Notice of "Sell-Out"
The party executing a "sell-out" as prescribed above shall, as promptly as possible on the day of execution, by written or comparable electronic notice, notify the PORTAL dealer or PORTAL broker for whose account and risk such securities were sold of the quantity sold and the price received, and shall promptly mail or deliver formal confirmation of such sale.
Part VII
Rules of Fair Practice
(a) The following Rules of Fair Practice and Interpretations and Policies adopted thereunder are specifically applicable to
transactions and business activities relating to the
PORTAL Market:
(1) Article I, Sections 3, 4 and 5;
(2) Article III, Section 1;
(3) Interpretation of the Board of Governors — Forwarding of Proxy and Other Materials, Article III, Section 1;
(4) Article III, Section 2;
(5) Policy of the Board of Governors — Fair Dealing With Customers, Article III, Section 2;
(6) Article III, Section 3 and 4;
(7) Interpretation of the Board of Governors — NASD Mark-Up Policy, Article III, Section 4;
(8) Article III, Section 5 and the Interpretation of the Board of Governors — Manipulative and Deceptive Quotations, Article III, Section 5;
(9) Article III, Section 6 and Policy of the Board of Governors — Policy With Respect to Firmness of Quotations;
(10) Article III, Sections 7, 9, 11-18, 22, 23 and 25;
(11) Interpretation of the Board of Governors — Transactions Between Members and Non-Members, Article III, Section 25;
(12) Article III, Section 27;
(13) Article IV, Sections 1-5; and
(14) Article V, Sections 1-3.
(b) The following Rules of Fair Practice and Interpretations, Policies, and Explanations adopted thereunder are specifically applicable to transactions and business activities relating to the
PORTAL Market, with the exceptions specified below:
(1) Interpretation of the Board of Governors — Execution of Retail Transactions in the Over-the-Counter Market, Article III, Section 1, except for subsection D, which requires that a member obtain quotations from three dealers to determine the best inter-dealer market for the subject security;
(2) Article III, Section 19 and Explanation of the Board of Governors — Explanation of Para graph (d), except for paragraph (d); and
(3) Article III, Section 21, except subsection
(c) The following Rules of Fair Practice are applicable to members and persons associated with members regardless of the member's participation in
transactions in the
PORTAL Market:
(1) Article I, Sections 1 and 2;
(2) Article II, Sections 1 and 2; and
(3) Article III, Section 10, 28, 32, 35, 38-40, and 42.
(d) The following Rules of Fair Practice and Interpretations adopted thereunder are not applicable to
transactions and business activities relating to the
PORTAL Market:
(1) Interpretation of the Board of Governors — Review of Corporate Financing, Article III, Section 1;
(2) Interpretation of the Board of Governors — Prompt Receipt and Delivery of Securities, Article III, Section 15;
(3) Interpretation of the Board of Governors — "Free-Riding and Withholding", Article III, Section 1;
(4) Article III, Sections 8, 20, 24, 26, 29, 30, 31,33, 34, 36, 37, and 41; and
(5) Article VI.
Part VIII
Arbitration
The facilities of the Association's Arbitration Department, and the procedures of the Code of Arbitration Procedure shall be available to PORTAL participants to resolve disputes arising from PORTAL transactions and transfers or activities related thereto.
1The definitions in Part I to the PORTAL Rules shall include the plural form of the term and the past tense and the future tense of the term, as applicable.
2Notification must be provided to NASDAQ Operations, 1735 K Street, NW, Washington, DC 20006-1506, (202) 728-8479.
3Notification must be provided to NASDAQ Operations, 1735 K Street, NW, Washington, DC 20006-1506, (202) 728-8479.
4Notification must be provided to PORTAL Operations, 33 Whitehall Street, New York, NY 10004, (800) 635-6485.
5The applicable provisions of this Interpretation have been incorporated into Part III, Section 3(b)(4) and Part VI, Section 11 of the PORTAL Rules.
PORTAL is a service mark of NASD Market Services, Inc.
