[Federal Register Volume 72, Number 242 (Tuesday, December 18, 2007)]
[Notices]
[Pages 71723-71725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-24467]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56941; File No. 4-551]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving and Declaring Effective a Plan for the
Allocation of Regulatory Responsibilities Among the American Stock
Exchange LLC, the Boston Stock Exchange, Inc., the Chicago Board
Options Exchange, Incorporated, the International Securities Exchange,
LLC, Financial Industry Regulatory Authority, Inc., NYSE Arca, Inc.,
and the Philadelphia Stock Exchange, Inc.
December 11, 2007
On October 30, 2007, the American Stock Exchange LLC (``Amex''),
the Boston Stock Exchange, Inc. (``BSE''), the Chicago Board Options
Exchange, Incorporated (``CBOE''), the International Securities
Exchange, LLC (``ISE''), Financial Industry Regulatory Authority, Inc.
(``FINRA''), NYSE Arca, Inc. (``NYSE Arca''), and the Philadelphia
Stock Exchange, Inc. (``Phlx'') (collectively, ``Participants'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 17(d) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 17d-2 thereunder,\2\ a proposed plan for the allocation of
regulatory responsibilities (``Plan'').\3\ The Plan was published for
comment on November 9, 2007.\4\ The Commission received no comments on
the Plan. This order approves and declares effective the Plan.
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\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
\3\ See infra Section II (describing the proposed Plan).
\4\ See Securities Exchange Act Release No. 56731 (November 1,
2007), 72 FR 63637 (File No. 4-551) (``Notice'').
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I. Introduction
Section 19(g)(1) of the Act,\5\ among other things, requires every
self-regulatory organization (``SRO'') registered as either a national
securities exchange or registered securities association to examine
for, and enforce compliance by, its members and persons associated with
its members with the Act, the rules and regulations thereunder, and the
SRO's own rules, unless the SRO is relieved of this responsibility
pursuant to Section 17(d) \6\ or Section 19(g)(2) \7\ of the Act.
Without this relief, the statutory obligation of each individual SRO
could result in a pattern of multiple examinations of broker-dealers
that maintain memberships in more than one SRO (``common members'').
Such regulatory duplication would add unnecessary expenses for common
members and their SROs.
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\5\ 15 U.S.C. 78s(g)(1).
\6\ 15 U.S.C. 78q(d).
\7\ 15 U.S.C. 78s(g)(2).
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Section 17(d)(1) of the Act \8\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication.\9\ With
respect to a common member, Section 17(d)(1) authorizes the Commission,
by rule or order, to relieve an SRO of the responsibility to receive
regulatory reports, to examine for and enforce compliance with
applicable statutes, rules, and regulations, or to perform other
specified regulatory functions.
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\8\ 15 U.S.C. 78q(d)(1).
\9\ See Securities Act Amendments of 1975, Report of the Senate
Committee on Banking, Housing, and Urban Affairs to Accompany S.
249, S. Rep. No. 94-75, 94th Cong., 1st Session 32 (1975).
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To implement Section 17(d)(1), the Commission adopted two rules:
Rule 17d-1 and Rule 17d-2 under the Act.\10\ Rule 17d-1 authorizes the
Commission to name a single SRO as the designated examining authority
(``DEA'') to examine common members for compliance with the financial
responsibility requirements imposed by the Act, or by Commission or SRO
rules.\11\ When an SRO has been named as a common member's DEA, all
other SROs to which the common member belongs are relieved of the
responsibility to examine the firm for compliance with the applicable
financial responsibility rules. On its face, Rule 17d-1 deals only with
an SRO's obligations to enforce member compliance with financial
responsibility requirements. Rule 17d-1 does not relieve an SRO from
its obligation to examine a common member for compliance with its own
rules and provisions of the federal securities laws governing matters
other than financial responsibility, including sales practices and
trading activities and practices.
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\10\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\11\ See Securities Exchange Act Release No. 12352 (April 20,
1976), 41 FR 18808 (May 7, 1976).
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To address regulatory duplication in these and other areas, the
Commission adopted Rule 17d-2 under the Act.\12\ Rule 17d-2 permits
SROs to propose joint plans for the allocation of regulatory
responsibilities with respect to their common members. Under paragraph
(c) of Rule 17d-2, the Commission may declare such a plan effective if,
after providing for notice and comment, it determines that the plan is
necessary or appropriate in the public interest and for the protection
of investors, to foster cooperation and coordination among the SROs, to
remove impediments to, and foster the development of, a national market
system and a national clearance and settlement system, and is in
conformity with the factors set forth in Section 17(d) of the Act.
Commission approval of a plan filed pursuant to Rule 17d-2 relieves an
SRO of those regulatory responsibilities allocated by the plan to
another SRO.
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\12\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
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II. The Plan
The Plan is intended to reduce regulatory duplication for common
members by allocating regulatory responsibility for certain options-
related market surveillance matters among the Participants.\13\ Under
the Plan, a Participant will serve as the Designated Options
Surveillance Regulator (``DOSR'') for each common member assigned to it
and will assume regulatory responsibility with respect to that common
member's compliance with applicable common rules for certain accounts.
As proposed, the Plan currently is limited to the review of expiring
exercise declarations pursuant to the common rules listed in proposed
Exhibit A to the Plan. When an SRO has been named as a common member's
DOSR, all other SROs to which the common member belongs will be
relieved of regulatory responsibility for that common member, pursuant
to the terms of the Plan, with respect to the applicable common rules
specified in Exhibit A to the Plan. The full text of the proposed Plan
and Exhibit A thereto can be found in the Notice.
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\13\ The proposed plan is wholly separate from the multiparty
options agreement made pursuant to Rule 17d-2 by and among Amex,
BSE, CBOE, ISE, NASD (n/k/a FINRA), NYSE, NYSE Arca, and Phlx
involving the allocation of regulatory responsibilities with respect
to common members for compliance with common rules relating to the
conduct of broker-dealers of accounts for listed options or index
warrants entered into on December 1, 2006, and as may be amended
from time to time. See Securities Exchange Act Release Nos. 55145
(January 22, 2007), 72 FR 3882 (January 26, 2007) (File No. S7-966)
and 55532 (March 26, 2007), 72 FR 15729 (April 2, 2007) (File No.
S7-966).
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III. Discussion
The Commission finds that the proposed Plan is consistent with the
factors set forth in Section 17(d) of the Act \14\ and Rule 17d-2(c)
thereunder \15\ in that the proposed Plan is necessary or appropriate
in the public interest and for the protection of investors, fosters
cooperation and coordination among SROs, and removes impediments to and
fosters the development of a national market system. In particular, the
Commission believes that the proposed Plan is an achievement in
cooperation among the Participants and should reduce regulatory
duplication by allocating to the DOSR the responsibility for certain
options-related market surveillance matters that would otherwise be
performed by multiple Participants. Accordingly, the proposed Plan
promotes efficiency by reducing costs to common members. Furthermore,
because the Participants will coordinate their regulatory functions in
accordance with the Plan, the Plan should promote investor protection.
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\14\ 15 U.S.C. 78q(d).
\15\ 17 CFR 240.17d-2(c).
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The Commission notes that the Plan will be administered by a
committee known as the Options Surveillance Group (the ``OSG''). The
Commission further notes that, under the Plan, the Participants will
allocate among themselves certain regulatory responsibilities relating
to compliance by their common members with such options rules of the
Participants as the Participants shall determine are substantially
similar and shall approve from time to time, insofar as such rules
relate to market surveillance (collectively, the ``Common Rules''). The
Common Rules covered by the Plan are specifically listed in Exhibit A
to the Plan, as may be amended by the Participants from time to time
upon unanimous written agreement by the Participants. The Commission
notes that each year, or more frequently if required by changes in the
rules of a Participant, each Participant will submit to the other
Participants, through the Chair of the OSG, an updated list of Common
Rules for review, and each Participant will confirm in writing to the
Chair of the OSG whether that Participant's rules listed in Exhibit A
continue to qualify
[[Page 71725]]
as Common Rules under the Plan. In reviewing the list of Common Rules,
the Participants may add additional rules that qualify as Common Rules,
will delete rules that are no longer identical or substantially similar
to the Common Rules, and will confirm that the remaining rules included
on Exhibit A continue to qualify as Common Rules. The Commission notes
that all amendments to the Plan, excluding certain changes to Exhibits
A and B, must be filed with and approved by the Commission.\16\
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\16\ With respect to this proposed Plan, the Participants may
include an additional rule in the list of Common Rules on Exhibit A
without having to file an amendment to the Plan with the Commission,
as long as such rules of each Participant that are to be included in
Exhibit A meet the definition of Common Rules contained in the Plan
and are otherwise consistent with the allocation of regulatory
responsibility pursuant to the terms of the Plan.
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In addition, no less frequently than every two years, the OSG will
allocate common members that conduct an options business among the
Participants, and the Participant to which a common member is allocated
will serve as the DOSR for that common member. The Plan also permits
the Participants, subject to notice, to terminate the Plan or cancel
their participation in the Plan. The Commission notes that a cancelling
Participant will retain its regulatory responsibilities under the Plan
until such time as the Commission has approved the cancellation or
termination of the Plan.
The Commission also notes that the proposed Plan is wholly separate
from the multiparty options agreement made pursuant to Rule 17d-2 by
and among Amex, BSE, CBOE, ISE, NASD (n/k/a FINRA), NYSE, NYSE Arca,
and Phlx involving the allocation of regulatory responsibilities with
respect to common members for compliance with common rules relating to
the conduct of broker-dealers of accounts for listed options or index
warrants entered into on December 1, 2006, and as may be amended from
time to time.\17\
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\17\ See Securities Exchange Act Release Nos. 55145 (January 22,
2007), 72 FR 3882 (January 26, 2007) (File No. S7-966) (notice) and
55532 (March 26, 2007), 72 FR 15729 (April 2, 2007) (File No. S7-
966) (order).
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IV. Conclusion
This Order gives effect to the Plan filed with the Commission in
File No. 4-551. The Participants shall notify all members affected by
the Plan of their rights and obligations under the Plan.
It is therefore ordered, pursuant to Section 17(d) of the Act,\18\
that the Plan in File No. 4-551 by and between Amex, BSE, CBOE, ISE,
FINRA, NYSE Arca, and Phlx, filed pursuant to Rule 17d-2 under the
Act,\19\ is hereby approved and declared effective.
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\18\ 15 U.S.C. 78q(d).
\19\ 17 CFR 240.17d-2.
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It is further ordered that those SRO Participants that are not the
DOSR as to a particular common member are relieved of those regulatory
responsibilities allocated to the common member's DOSR under the Plan.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-24467 Filed 12-17-07; 8:45 am]
BILLING CODE 8011-01-P