[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Notices]
[Pages 76758-76759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30946]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63430; File No. 4-618]
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 BATS Exchange, Inc.,
BATS Y-Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago
Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc.,
Financial Industry Regulatory Authority, Inc., The NASDAQ Stock Market
LLC, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, National Stock Exchange,
Inc., New York Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc.
Relating to Regulation NMS Rules
December 3, 2010.
On October 15, 2010, BATS Exchange, Inc. (``BATS''), BATS Y-
Exchange, Inc. (``BATS Y''), Chicago Board Options Exchange, Inc.
(``CBOE''),\1\ Chicago Stock Exchange, Inc. (``CHX''), EDGA Exchange,
Inc. (``EDGA''), EDGX Exchange, Inc. (``EDGX''), Financial Industry
Regulatory Authority, Inc. (``FINRA''), The NASDAQ Stock Market LLC
(``NASDAQ''), NASDAQ OMX BX, Inc. (``BX''), NASDAQ OMX PHLX LLC
(``PHLX''), National Stock Exchange, Inc. (``NSX''), New York Stock
Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSE Amex''), and NYSE Arca,
Inc. (``NYSE Arca'') (together, the ``Participating Organizations'' or
the ``Parties'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a plan for the allocation of regulatory
responsibilities with respect to certain Regulation NMS Rules (``17d-2
Plan'' or the ``Plan''). The Plan was published for comment on November
8, 2010.\2\ The Commission received no comments on the Plan. This order
approves and declares effective the Plan.
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\1\ CBOE's allocation of certain regulatory responsibilities
under this Agreement is limited to the activities of the CBOE Stock
Exchange, LLC, a facility of CBOE.
\2\ See Securities Exchange Act Release No. 63230 (November 2,
2010), 75 FR 68632.
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I. Introduction
Section 19(g)(1) of the Securities Exchange Act of 1934
(``Act''),\3\ among other things, requires every self-regulatory
organization (``SRO'') registered as either a national securities
exchange or national 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) or Section 19(g)(2) of the Act.\4\ 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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\3\ 15 U.S.C. 78s(g)(1).
\4\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
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Section 17(d)(1) of the Act \5\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication.\6\ With
respect to a common member, Section 17(d)(1) authorizes the Commission,
by rule or order, to relieve an SRO of the
[[Page 76759]]
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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\5\ 15 U.S.C. 78q(d)(1).
\6\ 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.\7\ 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.\8\ 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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\7\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\8\ 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.\9\ 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 appropriate 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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\9\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Plan
The proposed 17d-2 Plan is intended to reduce regulatory
duplication for firms that are members of more than one Party to the
proposed 17d-2 Plan. Pursuant to the proposed 17d-2 Plan, the
Designated Regulation NMS Examining Authority (``DREA'') would assume
examination and enforcement responsibilities for broker-dealers that
are members of more than one Participating Organization (``Common
Members'') with respect to certain applicable laws, rules, and
regulations. FINRA would serve as the DREA for Common Members that are
members of FINRA. The DEA would serve as the DREA for Common Members
that are not members of FINRA.
The text of the Plan delineates the proposed regulatory
responsibilities with respect to the Parties. Included in the proposed
Plan is an exhibit (the ``Covered Regulation NMS Rules'') that lists
the Federal securities laws, rules, and regulations, for which the DREA
would bear responsibility under the Plan for overseeing and enforcing
with respect to Common Members.
Specifically, under the 17d-2 Plan, the DREA would assume
examination and enforcement responsibility relating to compliance by
Common Members with the Covered Regulation NMS Rules. Under the Plan,
each Participating Organization would retain full responsibility for
examination, surveillance and enforcement with respect to trading
activities or practices involving its own marketplace, unless otherwise
allocated pursuant to a separate Rule 17d-2 agreement.\10\
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\10\ See Paragraph 1 of the proposed 17d-2 Plan; see e.g.,
Securities Exchange Act Release No. 58350 (August 13, 2008), 73 FR
48247 (August 18, 2008) (File No. 4-566) (notice of filing of
proposed insider trading plan) and Securities Exchange Act Release
No. 58536 (September 12, 2008) (File No. 4-566) (order approving and
declaring effective the plan).
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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 \11\ and Rule 17d-2(c)
thereunder \12\ 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. In particular,
the Commission believes that the proposed Plan should reduce
unnecessary regulatory duplication by allocating to the DREA certain
examination and enforcement responsibilities for Common Members that
would otherwise be performed by each Party.\13\ Accordingly, the
proposed Plan promotes efficiency by reducing costs to Common Members.
Furthermore, because the Parties will coordinate their regulatory
functions in accordance with the proposed Plan, the Plan should promote
investor protection.\14\
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\11\ 15 U.S.C. 78q(d).
\12\ 17 CFR 240.17d-2(c).
\13\ Paragraph 1 of the Plan provides that whenever a Common
Member ceases to be a member of its DREA, the DREA shall promptly
inform the Common Member's DEA, which will become such Common
Member's DEA.
\14\ See, e.g., Paragraph 7 of the Plan (Sharing of Work Papers,
Data and Related Information) and Paragraph 5 (sharing of customer
complaints).
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The Commission is hereby declaring effective a plan that allocates
regulatory responsibility for certain provisions of the federal
securities laws, rules, and regulations as set forth in Exhibit A to
the Plan. The Commission notes that any amendment to the Plan must be
approved by the relevant Parties as set forth in Paragraph 22 of the
Plan and must be filed with and approved by the Commission before it
may become effective.\15\
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\15\ See Paragraph 22 of the Plan.
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IV. Conclusion
This Order gives effect to the Plan filed with the Commission in
File No. 4-618. The Parties 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, that
the Plan in File No. 4-618 is hereby approved and declared effective.
It is further ordered that the Parties who are not the DREA as to a
particular Common Member are relieved of those regulatory
responsibilities allocated to the Common Member's DREA under the Plan
to the extent of such allocation.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30946 Filed 12-8-10; 8:45 am]
BILLING CODE 8011-01-P