Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. Amending Section 4.2 of the NASD Regulation, Inc. Bylaws Relating to the Size of the NASD Regulation, Inc. Board

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, notice is hereby given that on July 21, 2000, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the NASD. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.15 U.S.C. 78s(b)(1)

I. Self-Regulatory Organization's Statements of the Terms of Substance of the Proposed Rule Change

The purpose of the proposed rule change is to change Section 4.2 of the NASD Regulation, Inc. (“NASD Regulation”) By-laws relating to the size of the NASD Regulation Board to conform to a recently approved parallel change to the Nasdaq Stock Market, Inc. (“Nasdaq”) By-laws. Proposed new language is italicized; proposed deletions are bracketed.

ARTICLE IV

BOARD OF DIRECTORS

Number of Directors

Sec. 4.2 The Board shall consist of no fewer than five and no more than ten Directors, the exact number to be determined by resolution adopted by the stockholder of NASD Regulation from time to time. [Notwithstanding the preceding sentence, the number of Directors shall equal the number of directors on the Nasdaq Board.] Any new Director position created as a result of an increase in the size of the Board shall be filled pursuant to Section 4.4.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the NASD included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The NASD has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organizations' Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change is to make a conforming and technical amendment to the NASD Regulation By-Laws relating to the size of the NASD Regulation Board. On June 26, 2000, the Commission approved amendments to the Nasdaq By-Laws to facilitate the Restructuring Plan (“Restructuring”) approved by NASD members on April 14, 2000. The Restructuring involves broadening the ownership of Nasdaq through a two-phase private placement of common stock and warrants to NASD members, Nasdaq issuers, institutional investors, and strategic partners. Among other things, the amendments to the Nasdaq By-Laws deleted a requirement that the number of directors on the Nasdaq Board be equal to the number of directors on the NASD Regulation Board, and added a new requirement authorizing the non-NASD shareholders of Nasdaq to nominate at least four directors of to the Nasdaq Board.

The linkage between the sizes of the NASD Regulation and Nasdaq Boards was first proposed by the NASD and approved by the Commission in 1997. The Board size linkage was part of a broader set of amendments designed to create an interlocking Board structure for the NASD, Nasdaq, and NASD Regulation, and provide for more streamlined corporate governance. At that time, Nasdaq and NASD Regulation were both 100 percent owned by the NASD. The linkage in the Board sizes were not required by the Undertakings entered into by the NASD and the Commission on August 8, 1996.

The purpose of the proposed rule change is to conform a provision of the NASD Regulation By-Laws to a recently approved parallel provision in the Nasdaq By-Laws, which deleted a requirement that the NASD Regulation Board have the same number of directors as the Nasdaq Board. With the Restructuring underway, the equivalence in Board size no longer serves a corporate governance purpose. Furthermore, no purpose would be served by requiring NASD Regulation to increase the size of its Board when the Nasdaq Board adds four new non-NASD directors in the near future. Therefore, the NASD proposes to delete the Board size equivalence requirement from the NASD Regulation By-Laws, thereby making the Nasdaq and NASD Regulation By-Laws consistent on this issue, and completely delinking the Nasdaq and NASD Regulation Board sizes.

2. Statutory Basis

The NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, which requires, among other things, that the Association's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and in general, to protect investors and the public interest. The proposed rule change simply makes the NASD Regulation and Nasdaq By-Laws consistent by not requiring the Boards of each corporation to have the same number of directors.

B. Self-Regulatory Organization's Statement on Burden on Competition

CBOE does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

The NASD has neither solicited nor received written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(i) of the Act and subparagraph (f)(2) of Rule 19b-4 thereunder as a stated policy, practice or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the Exchange.

At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing; including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying at the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. All submissions should refer to File No. SR-NASD-00-43 and should be submitted by August 25, 2000.