[Federal Register Volume 75, Number 87 (Thursday, May 6, 2010)]
[Notices]
[Pages 25004-25005]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10596]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62000; File No. 4-596]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving and Declaring Effective a Plan for the
Allocation of Regulatory Responsibilities Between the International
Securities Exchange, LLC and the Financial Industry Regulatory
Authority, Inc. Concerning Ballista Securities LLC
April 29, 2010.
Notice is hereby given that the Securities and Exchange Commission
(``Commission'') has issued an Order, pursuant to Sections 17(d) \1\
and 11A(a)(3)(B) \2\ of the Securities Exchange Act of 1934 (``Act''),
approving and declaring effective a plan for the allocation of
regulatory responsibilities (``17d-2 Plan'') that was filed pursuant to
Rule 17d-2 \3\ under the Act by the International Securities Exchange,
LLC (``ISE'') and the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (together with ISE, the ``Parties'').
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\1\ 15 U.S.C. 78q(d).
\2\ 15 U.S.C. 78k-1(a)(3)(B).
\3\ 17 CFR 240.17d-2.
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Accordingly, FINRA shall assume, in addition to the regulatory
responsibility it has under the Act, the regulatory responsibilities
allocated to it under the Plan. At the same time, ISE is relieved of
those regulatory responsibilities allocated to FINRA under the Plan.
I. Introduction
Section 19(g)(1) \4\ of the Act, 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) \5\ or 19(g)(2) \6\ of the Act. Section
17(d)(1) \7\ of the Act was intended, in part, to eliminate unnecessary
multiple examinations and regulatory duplication for those broker-
dealers that maintain memberships in more than one SRO (``common
members''). 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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\4\ 15 U.S.C. 78s(g)(1).
\5\ 15 U.S.C. 78q(d).
\6\ 15 U.S.C. 78s(g)(2).
\7\ 15 U.S.C. 78q(d)(1).
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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. Rule 17d-2 \8\ permits SROs to
propose joint plans for the allocation of regulatory responsibilities,
other than financial responsibility rules, 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. Upon effectiveness of a plan filed pursuant
to Rule 17d-2, an SRO is relieved of those regulatory responsibilities
for common members that are allocated by the plan to another SRO.
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\8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
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[[Page 25005]]
II. Ballista Securities LLC
On June 5, 2009, ISE Holdings, Inc. (``ISE Holdings''), the parent
of ISE, entered into a Membership Purchase Agreement with Optifreeze
LLC (``Optifreeze''). ISE Holdings acquired membership interests in
Optifreeze by contributing cash to the capital of Optifreeze. As a
result of the purchase, ISE Holdings has an 8.57% membership interest
in Optifreeze, which wholly-owns and operates an Electronic Access
Member of the ISE, Ballista Securities LLC (``Ballista''). The
ownership interest of ISE Holdings in Ballista is subject to the
conditions set forth in the Commission's approval order relating to ISE
Holdings' purchase of Optifreeze.\9\
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\9\ See Securities Exchange Act Release No. 60598 (September 1,
2009), 74 FR 46280 (September 8, 2009).
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Recognizing that the Commission has previously expressed concern
regarding (1) the potential for conflicts of interest in instances
where an exchange is affiliated with one of its members, and (2) the
potential for informational advantages that could place an affiliated
member of an exchange at a competitive advantage vis-[agrave]-vis the
other non-affiliated members, the ISE submitted a proposed rule change
to amend ISE Rule 312 to permit the proposed affiliation subject to
several conditions and limitations, including that a condition that the
Exchange enter into a plan with a non-affiliated self-regulatory
organization to regulate and oversee the activities of Ballista,
pursuant to Rule 17d-2 under the Act.\10\
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\10\ See Securities Exchange Act Release No. 60382 (July 24,
2009), 74 FR 38068 (July 30, 2009).
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On March 19, 2010, the Parties submitted the proposed 17d-2 Plan to
the Commission. On April 13, 2010, the Commission published notice of
the Plan filed by ISE and FINRA in the Federal Register.\11\ The
Commission received no comments on the Plan. The text of the Plan
allocates regulatory responsibilities among the Parties with respect to
Ballista, which is a common member. Included in the Plan is an
attachment (the ``ISE Rules Certification for 17d-2 Agreement with
FINRA,'' referred to herein as the ``Certification'') that lists every
ISE rule and federal securities law and rule and regulation thereunder
for which, under the Plan, FINRA would bear responsibility for
examining, and enforcing compliance by, Ballista.
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\11\ See Securities Exchange Act Release No. 61853 (April 6,
2010), 75 FR 18925 (April 13, 2010).
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III. Discussion
The Commission finds that the proposed Plan is consistent with the
factors set forth in Section 17(d) \12\ of the Act and Rule 17d-2(c)
\13\ thereunder 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 the national market system. Among other
things, the Commission believes that the proposed Plan should reduce
unnecessary regulatory duplication by allocating to FINRA certain
responsibilities for Ballista, a common member, that would otherwise be
performed by both ISE and FINRA. Accordingly, the proposed Plan
promotes efficiency by reducing costs to Ballista. Furthermore, because
FINRA will be responsible for regulating Ballista instead of ISE, the
plan should promote investor protection and help avoid any potential
conflicts of interest that could arise if ISE was primarily responsible
for regulating Ballista, with which ISE is affiliated.
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\12\ 15 U.S.C. 78q(d).
\13\ 17 CFR 240.17d-2(c).
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The Commission notes that, under the Plan, FINRA would assume
examination and enforcement responsibility relating to compliance by
Ballista and persons associated therewith, with all applicable rules.
Specifically, FINRA would assume examination and enforcement
responsibility relating to compliance by Ballista and persons
associated therewith, with the rules of ISE that are substantially
similar to the rules of FINRA, as well as any provisions of the federal
securities laws and the rules and regulations thereunder delineated in
the Exhibit 1 to the 17d-2 Plan (``Common Rules''). In addition, under
the Plan, FINRA would assume regulatory responsibility, with respect to
Ballista, for all other ISE rules that do not qualify as Common Rules,
as discussed below, on account of Ballista's status as an ``Inbound
Router Member.''
Under the 17d-2 Plan, ISE would retain full responsibility for
surveillance, examination, investigation, and enforcement with respect
to trading activities or practices involving ISE's own marketplace;
registration pursuant to its unique rules (i.e., registration rules
that are not Common Rules); its duties as a Designated Examining
Authority pursuant to Rule 17d-1 under the Act; and any rules that are
not substantially similar to the rules of FINRA, except for ISE rules
for any ISE member that acts as an inbound router for ISE and is a
member of both ISE and FINRA (``Inbound Router Member'').\14\ For
purposes of the proposed 17d-2 Plan, Ballista would meet the definition
of the term ``Inbound Router Member'' as it is used in the plan.\14a\
The effect of these provisions is that regulatory oversight and
enforcement responsibilities for Ballista would be vested with FINRA.
These provisions should help avoid any potential conflicts of interest
that could arise if ISE was primarily responsible for regulating
Ballista, with which ISE is affiliated.
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\14\ Apparent violations of such ISE rules by any Inbound Router
Member will be processed by, and enforcement proceedings will be
conducted by, FINRA.
\14a\ ISE's other Inbound Router Member, Direct Edge ECN LLC, is
not addressed by this 17d-2 Plan, but is instead addressed in a
similar manner under a separate, stand-alone plan. See Securities
Exchange Act Release No. 59134 (December 22, 2008), 73 FR 79943
(December 30, 2008) (File No. 4-574) (order declaring effective the
17d-2 plan concerning Direct Edge ECN LLC).
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IV. Conclusion
This Order gives effect to the Plan filed with the Commission in
File No. 4-596. The Parties shall notify all members affected by the
Plan of their rights and obligations under the Plan.
It is therefore ordered, pursuant to Sections 17(d) of the Act,
that the Plan in File No. 4-596, between ISE and FINRA, filed pursuant
to Rule 17d-2 under the Act, is approved and declared effective.
It is therefore ordered that ISE is relieved of those
responsibilities allocated to FINRA under the Plan in File No. 4-596.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10596 Filed 5-5-10; 8:45 am]
BILLING CODE 8011-01-P