[Federal Register Volume 75, Number 77 (Thursday, April 22, 2010)]
[Notices]
[Pages 21051-21061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9277]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61919; File No. 4-566]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing and Order Approving and Declaring
Effective an Amendment to the Plan for the Allocation of Regulatory
Responsibilities Among the American Stock Exchange LLC, BATS Exchange,
Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock
Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc., International Securities Exchange,
LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New
York Stock Exchange LLC, NYSE Arca, Inc., NYSE Regulation, Inc., NASDAQ
OMX BX, Inc., and NASDAQ OMX PHLX, Inc. Relating to the Surveillance,
Investigation, and Enforcement of Insider Trading Rules
April 15, 2010.
Notice is hereby given that the Securities and Exchange Commission
(``Commission'') has issued an Order, pursuant to Section 17(d) of the
Securities Exchange Act of 1934 (``Act''),\1\ approving and declaring
effective an amendment to the plan for allocating regulatory
responsibility (``Plan'') filed pursuant to Rule 17d-2 of the Act,\2\
by the American Stock Exchange LLC (``Amex''), BATS Exchange, Inc.
(``BATS''), Boston Stock Exchange, Inc. (n/k/a NASDAQ OMX BX, Inc.)
(``BSE'' or ``BX''), Chicago Board Options Exchange, Incorporated
(``CBOE''), Chicago Stock Exchange, Inc. (``CHX''), EDGA Exchange, Inc.
(``EDGA''), EDGX Exchange, Inc. (``EDGX''), the Financial Industry
Regulatory Authority, Inc. (``FINRA''), International Securities
Exchange, LLC (``ISE''), The NASDAQ Stock Market LLC (``Nasdaq''),
National Stock Exchange, Inc. (``NSX''), New York Stock Exchange LLC
(``NYSE''), NYSE Arca, Inc. (``NYSE Arca''), NYSE Regulation, Inc.
(acting pursuant to authority delegated to it by NYSE) (``NYSE
Regulation''), and the Philadelphia Stock Exchagne, Inc. (n/k/a NASDAQ
OMX PHLX, Inc.) (``Phlx'') (collectively, ``Participating
Organizations'' or ``parties'').
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\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
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I. Introduction
Section 19(g)(1) of the 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) \4\ or Section 19(g)(2) \5\ 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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\3\ 15 U.S.C. 78s(g)(1).
\4\ 15 U.S.C. 78q(d).
\5\ 15 U.S.C. 78s(g)(2).
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Section 17(d)(1) of the Act \6\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication.\7\ 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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\6\ 15 U.S.C. 78q(d)(1).
\7\ 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.\8\ 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.\9\ 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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\8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\9\ 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.\10\ 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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\10\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
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II. The Plan
On September 12, 2008, the Commission declared effective the
Participating Organizations' Plan for allocating regulatory
responsibilities pursuant to Rule 17d-2.\11\ The Plan is designed to
eliminate regulatory duplication by allocating regulatory
responsibility over Common NYSE Members \12\ or Common FINRA
Members,\13\ as applicable, (collectively ``Common Members'') for the
surveillance, investigation, and enforcement of common insider trading
rules (``Common Rules'').\14\ The Plan assigns regulatory
responsibility over Common NYSE Members to NYSE Regulation for
surveillance, investigation, and enforcement of insider trading by
broker-dealers, and
[[Page 21052]]
their associated persons, with respect to NYSE-listed stocks and NYSE
Arca-listed stocks, irrespective of the marketplace(s) maintained by
the Participating Organizations on which the relevant trading may
occur. The Plan assigns regulatory responsibility over Common FINRA
Members to FINRA for surveillance, investigation, and enforcement of
insider trading by broker-dealers, and their associated persons, with
respect to NASDAQ-listed stocks and Amex-listed stocks, as well as any
CHX solely-listed stock, irrespective of the marketplace(s) maintained
by the Participating Organizations on which the relevant trading may
occur.
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\11\ See Securities Exchange Act Release No. 58536 (September
12, 2008), 73 FR 54646 (September 22, 2008) (File No. 4-566).
\12\ Common NYSE Members include members of the NYSE and at
least one of the Participating Organizations.
\13\ Common FINRA Members include members of FINRA and at least
one of the Participating Organizations.
\14\ Common rules are defined as: (i) Federal securities laws
and rules promulgated by the Commission pertaining to insider
trading, and (ii) the rules of the Participating Organizations that
are related to insider trading. See Exhibit A to the Plan.
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III. Proposed Amendment to the Plan
On April 7, 2010, the parties submitted a proposed amendment to the
Plan. The purpose of the amendment is to add EDGA and EDGX as
participants to the Plan. The parties have followed the requisite
procedure as set forth in Paragraph 27 to the Plan regarding the
addition of new SROs to the Plan. The amended agreement replaces the
previous agreement in its entirety. The text of the proposed amended
17d-2 plan is as follows (additions are underlined; deletions are
[bracketed]):
* * * * *
Agreement for the Allocation of Regulatory Responsibility of
Surveillance, Investigation and Enforcement for Insider Trading
pursuant to Sec. 17(d) of the Securities Exchange Act of 1934, 15
U.S.C. Sec. 78q (d), and Rule 17d-2 Thereunder
This agreement (the ``Agreement'') by and among the American Stock
Exchange LLC (``Amex''), BATS Exchange, Inc. (``BATS''), Boston Stock
Exchange, Inc., Chicago Board Options Exchange, Inc. (``CBOE'')\*\,
Chicago Stock Exchange, Inc. (``CHX''), EDGA Exchange, Inc. (``EDGA''),
EDGX Exchange, Inc. (``EDGX''), Financial Industry Regulatory
Authority, Inc. (``FINRA''), International Securities Exchange, LLC
(``ISE'')[dagger], The NASDAQ Stock Market LLC (``NASDAQ''),
National Stock Exchange, Inc., New York Stock Exchange, LLC (``NYSE''),
NYSE Arca Inc. (``NYSE Arca''), NYSE Regulation, Inc. (pursuant to
delegated authority) (``NYSE Regulation''), and Philadelphia Stock
Exchange, Inc. (together, the ``Participating Organizations''), is made
pursuant to Sec. 17(d) of the Securities Exchange Act of 1934 (the
``Act''), 15 U.S.C. Sec. 78q(d), and Securities and Exchange
Commission (``SEC'') Rule 17d-2, which allow for plans to allocate
regulatory responsibility among self-regulatory organizations
(``SROs''). Upon approval by the SEC, this Agreement shall amend and
restate the agreement among the Participating Organizations (except
[BATS and CBOE, the latter of which replaces CBOE] EDGA and EDGX)
approved by the SEC on [September 12] October 17, 2008.
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\*\ CBOE's allocation of certain regulatory responsibilities to
NYSE/FINRA under this Agreement is limited to the activities of the
CBOE Stock Exchange, LLC, a facility of CBOE.
\[dagger]\ ISE's allocation of certain regulatory
responsibilities to NYSE/FINRA under this Agreement is limited to
the activities of the ISE Stock Exchange, LLC, a facility of ISE.
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Whereas, NYSE delegates to NYSE Regulation the regulation of
trading by members in its market, and NYSE Regulation is a subsidiary
of NYSE, all references to NYSE Regulation in this Agreement shall be
read as references to both entities;
Whereas, the Participating Organizations desire to: (a) Foster
cooperation and coordination among the SROs; (b) remove impediments to,
and foster the development of, a national market system; (c) strive to
protect the interest of investors; and (d) eliminate duplication in
their regulatory surveillance, investigation and enforcement of insider
trading;
Whereas, the Participating Organizations are interested in
allocating to NYSE Regulation, Inc. (``NYSE Regulation'') regulatory
responsibility for Common NYSE Members for surveillance, investigation
and enforcement of Insider Trading (as defined below) in NYSE Listed
Stocks (as defined below) irrespective of the marketplace(s) maintained
by the Participating Organizations on which the relevant trading may
occur in violation of Common Insider Trading Rules;
Whereas, the Participating Organizations are interested in
allocating to FINRA regulatory responsibility for Common FINRA Members
for surveillance, investigation and enforcement of Insider Trading in
NASDAQ Listed Stocks, Amex Listed Stocks, and CHX Solely Listed Stocks
irrespective of the marketplace(s) maintained by the Participating
Organizations on which the relevant trading may occur in violation of
Common Insider Trading Rules;
Whereas, the Participating Organizations will request regulatory
allocation of these regulatory responsibilities by executing and filing
with the SEC a plan for the above stated purposes (this Agreement, also
known herein as the ``Plan'') pursuant to the provisions of Sec. 17(d)
of the Act, and SEC Rule 17d-2 thereunder, as described below; and
Whereas, the Participating Organizations will also enter into
certain Regulatory Services Agreements (the ``Insider Trading RSAs''),
of even date herewith, to provide for the investigation and enforcement
of suspected Insider Trading against broker-dealers, and their
associated persons, that (i) are not Common NYSE Members (as defined
below) in the case of Insider Trading in NYSE Listed Stocks, and (ii)
are not Common FINRA Members (as defined below) in the case of Insider
Trading in NASDAQ Listed Stocks, Amex Listed Stocks, and CHX Solely
Listed Stocks.
Now, therefore, in consideration of the mutual covenants contained
hereafter, and other valuable consideration to be mutually exchanged,
the Participating Organizations hereby agree as follows:
1. Definitions. Unless otherwise defined in this Agreement, or the
context otherwise requires, the terms used in this Agreement will have
the same meaning they have under the Act, and the rules and regulations
thereunder. As used in this Agreement, the following terms will have
the following meanings:
a. ``Rule'' of an ``exchange'' or an ``association'' shall have the
meaning defined in Section 3(a)(27) of the Act.
b. ``Common NYSE Members'' shall mean members of the NYSE and at
least one of the Participating Organizations.
c. ``Common FINRA Members'' shall mean members of FINRA and at
least one of the Participating Organizations.
d. ``Common Insider Trading Rules'' shall mean (i) the federal
securities laws and rules thereunder promulgated by the SEC pertaining
to insider trading, and (ii) the rules of the Participating
Organizations that are related to insider trading, as provided on
Exhibit A to this Agreement.
e. ``Effective Date'' shall have the meaning set forth in paragraph
28.
f. ``Insider Trading'' shall mean any conduct or action taken by a
natural person or entity related in any way to the trading of
securities by an insider or a related party based on or on the basis of
material non-public information obtained during the performance of the
insider's duties at the corporation, or otherwise misappropriated, that
could be deemed a violation of the Common Insider Trading Rules.
g. ``Intellectual Property'' will mean any: (1) processes,
methodologies, procedures, or technology, whether or not patentable;
(2) trademarks, copyrights, literary works or other works of
authorship, service marks and
[[Page 21053]]
trade secrets; or (3) software, systems, machine-readable texts and
files and related documentation.
h. ``Plan'' shall mean this Agreement, which is submitted as a Plan
for the allocation of regulatory responsibilities of surveillance for
insider trading pursuant to Sec. 17(d) of the Securities and Exchange
Act of 1934, 15 U.S.C. Sec. 78q(d), and SEC Rule 17d-2.
i. ``NYSE Listed Stock'' shall mean an equity security that is
listed on the NYSE, or NYSE Arca.
j. ``NASDAQ Listed Stock'' shall mean an equity security that is
listed on the NASDAQ.
k. ``Amex Listed Stock'' shall mean an equity security that is
listed on the Amex.
l. ``CHX Solely Listed Stock'' shall mean an equity security that
is listed only in the Chicago Stock Exchange.
m. ``Listing Market'' shall mean Amex, Nasdaq, NYSE, or NYSE Arca,
but not CHX.
2. Assumption of Regulatory Responsibilities.
a. NYSE Regulation: Assumption of Regulatory Responsibilities. On
the Effective Date of the Plan, NYSE Regulation will assume regulatory
responsibilities for surveillance, investigation and enforcement of
Insider Trading by broker-dealers, and their associated persons, for
Common NYSE Members with respect to NYSE Listed Stocks irrespective of
the marketplace(s) maintained by the Participant Organizations on which
the relevant trading may occur in violation of the Common Insider
Trading Rules (``NYSE's Regulatory Responsibility'').
b. FINRA: Assumption of Regulatory Responsibilities. On the
Effective Date of the Plan, FINRA will assume regulatory
responsibilities for surveillance, investigation and enforcement of
Insider Trading by broker-dealers, and their associated persons, for
Common FINRA Members with respect to NASDAQ and Amex Listed Stocks, as
well as any CHX Solely Listed equity security, irrespective of the
marketplace(s) maintained by the Participant Organizations on which the
relevant trading may occur in violation of the Common Insider Trading
Rules (``FINRA's Regulatory Responsibility'').
c. Change in Control. In the event of a change of control of a
Listing Market, the Listing Market will have the discretion to transfer
the regulatory responsibility for its listed stocks from NYSE
Regulation to FINRA or from FINRA to NYSE Regulation, provided the SRO
assuming regulatory responsibility consents to such transfer.
3. Certification of Insider Trading Rules.
a. Initial Certification. By signing this Agreement, the
Participating Organizations, other than NYSE Regulation and FINRA,
hereby certify to NYSE Regulation and FINRA that their respective lists
of Common Insider Trading Rules contained in Attachment A hereto are
correct, and NYSE Regulation and FINRA hereby confirm that such rules
are Common Insider Trading Rules as defined in this Agreement.
b. Yearly Certification. Each year following the commencement of
operation of this Agreement, or more frequently if required by changes
in the rules of the Participating Organizations, each Participating
Organization shall submit a certified and updated list of Common
Insider Trading Rules to NYSE Regulation and FINRA for review, which
shall (i) add Participating Organization rules not included in the
then-current list of Common Insider Trading Rules that qualify as
Common Rules as defined in this Agreement; (ii) delete Participating
Organization rules included in the current list of Common Insider
Trading Rules that no longer qualify as Common Insider Trading Rules as
defined in this Agreement; and (iii) confirm that the remaining rules
on the current list of Common Insider Trading Rules continue to be
Participating Organization rules that qualify as Common Insider Trading
Rules as defined in this Agreement. NYSE Regulation and FINRA shall
review each Participating Organization's annual certification and
confirm whether NYSE Regulation and FINRA agree with the submitted
certified and updated list of Common Insider Rules by each of the
Participating Organizations.
4. No Retention of Regulatory Responsibility. The Participating
Organizations do not contemplate the retention of any responsibilities
with respect to the regulatory activities being assumed by NYSE
Regulation and FINRA, respectively, under the terms of this Agreement.
Nothing in this Agreement will be interpreted to prevent NYSE
Regulation or FINRA from entering into Regulatory Services Agreement(s)
to perform their Regulatory Responsibilities.
5. Dually Listed Stocks. Stocks that are listed on more than one
Participating Organization shall be designated as a NYSE Listed Stock,
a NASDAQ Listed Stock, or an Amex Listed Stock based on the applicable
transaction reporting plan for the equity security as set forth in
paragraph 1.b. of Exhibit B.
6. Fees. NYSE Regulation and FINRA shall charge Participating
Organizations for performing their respective Regulatory
Responsibilities, as set forth in the Schedule of Fees, attached as
Exhibit B.
7. Applicability of Certain Laws, Rules, Regulations or Orders.
Notwithstanding any provision hereof, this Agreement shall be subject
to any statute, or any rule or order of the SEC. To the extent such
statute, rule, or order is inconsistent with one or more provisions of
this Agreement, the statute, rule, or order shall supersede the
provision(s) hereof to the extent necessary to be properly effectuated
and the provision(s) hereof in that respect shall be null and void.
8. Exchange Committee; Reports.
a. Exchange Committee. The Participating Organizations shall form a
committee (the ``Exchange Committee''), which shall act on behalf of
all of Participating Organizations in receiving copies of the reports
described below and in reviewing issues that arise under this
Agreement. Each Participating Organization shall appoint a
representative to the Exchange Committee. The Exchange Committee
representatives shall report to their respective executive management
bodies regarding status or issues under the Agreement. The
Participating Organizations agree that the Exchange Committee will meet
regularly up to four (4) times a year, with no more than one meeting
per calendar quarter. At these meetings, the Exchange Committee will
discuss the conduct of the Regulatory Responsibilities and identify
issues or concerns with respect to this Agreement, including matters
related to the calculation of the cost formula and accuracy of fees
charged and provision of information related to the same. The SEC shall
be permitted to attend the meetings as an observer.
b. Reports. NYSE Regulation and FINRA shall provide the reports set
forth in Exhibit C hereto and any additional reports related to the
Agreement reasonably requested by a majority vote of all
representatives to the Exchange Committee at each Exchange Committee
meeting, or more often as the Participating Organizations deem
appropriate, but no more often than once every quarterly billing
period.
9. Customer Complaints.
a. If a Participating Organization receives a copy of a customer
complaint relating to Insider Trading or other activity or conduct that
is within the NYSE's Regulatory Responsibilities as set forth in this
Agreement, the Participating Organization shall promptly forward to
NYSE Regulation, as applicable, a copy of such customer complaint.
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b. If a Participating Organization receives a copy of a customer
complaint relating to Insider Trading or other activity or conduct that
is within FINRA's Regulatory Responsibilities as set forth in this
Agreement, the Participating Organization shall promptly forward to
FINRA, as applicable, a copy of such customer complaint.
10. Parties to Make Personnel Available as Witnesses. Each
Participating Organization shall make its personnel available to NYSE
Regulation or FINRA to serve as testimonial or non-testimonial
witnesses as necessary to assist NYSE Regulation and FINRA in
fulfilling the Regulatory Responsibilities allocated under this
Agreement. FINRA and NYSE Regulation shall provide reasonable advance
notice when practicable and shall work with a Participating
Organization to accommodate reasonable scheduling conflicts within the
context and demands as the entities with ultimate regulatory
responsibility. The Participating Organization shall pay all reasonable
travel and other expenses incurred by its employees to the extent that
NYSE Regulation or FINRA require such employees to serve as witnesses,
and provide information or other assistance pursuant to this Agreement.
11. Market Data; Sharing of Work-Papers, Data and Related
Information.
a. Market Data. FINRA and NYSE Regulation shall obtain raw market
data necessary to the performance of regulation under this Agreement
from (a) the Consolidated Tape Association (``CTA'') as the exclusive
securities information processor (``SIP'') for all NYSE-listed, AMEX-
listed securities, and CHX solely listed securities and (b) the NASDAQ
Unlisted Trading Privileges Plan as the exclusive SIP for NASDAQ-listed
securities.
b. Sharing. A Participating Organization shall make available to
each of NYSE Regulation and FINRA information necessary to assist NYSE
Regulation or FINRA in fulfilling the regulatory responsibilities
assumed under the terms of this Agreement. Such information shall
include any information collected by an exchange or association in the
course of performing its regulatory obligations under the Act,
including information relating to an on-going disciplinary
investigation or action against a member, the amount of a fine imposed
on a member, financial information, or information regarding
proprietary trading systems gained in the course of examining a member
(``Regulatory Information''). This Regulatory Information shall be used
by NYSE Regulation and FINRA solely for the purposes of fulfilling
their respective regulatory responsibilities.
c. No Waiver of Privilege. The sharing of documents or information
between the parties pursuant to this Agreement shall not be deemed a
waiver as against third parties of regulatory or other privileges
relating to the discovery of documents or information.
d. Intellectual Property.
(i) Existing Intellectual Property. Each of NYSE Regulation and
FINRA, respectively, is and will remain the owner of all right, title
and interest in and to the proprietary Intellectual Property it employs
in the provision of regulation hereunder (including the SONAR and Stock
Watch systems), and any derivative works thereof. To the extent certain
elements of either of these parties' systems, or portions thereof, may
be licensed or leased from third parties, all such third party elements
shall remain the property of such third parties, as applicable.
Likewise, any other Participating Organization is and will remain the
owner of all right, title and interest in and to its own existing
proprietary Intellectual Property.
(ii) Enhancements to Existing Intellectual Property or New
Developments of NYSE Regulation or FINRA. In the event NYSE Regulation
or FINRA (a) makes any changes, modifications or enhancements to its
respective Intellectual Property for any reason, or (b) creates any
newly developed Intellectual Property for any reason, including as a
result of requested enhancements or new development by the Exchange
Committee (collectively, the ``New IP''), the Participating
Organizations acknowledge and agree that each of NYSE Regulation and
FINRA shall be deemed the owner of the New IP created by each of them,
respectively (and any derivative works thereof), and shall retain all
right, title and interest therein and thereto, and each other
Participating Organization hereby irrevocably assigns, transfers and
conveys to each of NYSE Regulation and FINRA, as applicable, without
further consideration all of its right, title and interest in or to all
such New IP (and any derivative works thereof).
(iii) NYSE Regulation and FINRA will not charge the Participating
Organizations any fees for any New IP created and used by NYSE
Regulation or FINRA, respectively; provided, however, that NYSE
Regulation and FINRA will each be permitted to charge fees for software
maintenance work performed on systems used in the discharge of their
respective duties hereunder.
12. Special or Cause Examinations. Nothing in this Agreement shall
restrict or in any way encumber the right of a party to conduct special
or cause examinations of Common NYSE Members or Common FINRA Members as
any party, in its sole discretion, shall deem appropriate or necessary.
13. Dispute Resolution Under this Agreement.
a. Negotiation. The Parties will attempt to resolve any disputes
through good faith negotiation and discussion, escalating such
discussion up through the appropriate management levels until reaching
the executive management level. In the event a dispute cannot be
settled through these means, the Parties shall refer the dispute to
binding arbitration.
b. Binding Arbitration. All claims, disputes, controversies, and
other matters in question between the Parties to this Agreement arising
out of or relating to this Agreement or the breach thereof that cannot
be resolved by the Parties will be resolved through binding
arbitration. Unless otherwise agreed by the Parties, a dispute
submitted to binding arbitration pursuant to this paragraph shall be
resolved using the following procedures:
(i) The arbitration shall be conducted in the city of New York in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof; and
(ii) There shall be three arbitrators, and the chairperson of the
arbitration panel shall be an attorney.
14. Limitation of Liability. As between the Participating
Organizations, no Participating Organization, including its respective
directors, governors, officers, employees and agents, will be liable to
any other Participating Organization, or its directors, governors,
officers, employees and agents, for any liability, loss or damage
resulting from any delays, inaccuracies, errors or omissions with
respect to its performing or failing to perform regulatory
responsibilities, obligations, or functions, except (a) as otherwise
provided for under the Act, (b) in instances of a Participating
Organization's gross negligence, willful misconduct or reckless
disregard with respect to another Participating Organization, (c) in
instances of a breach of confidentiality obligations owed to another
Participating Organization, or (d) in the case of any Participating
Organization paying fees hereunder, for any payments due. The
Participating Organizations understand and agree that the regulatory
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responsibilities are being performed on a good faith and best effort
basis and no warranties, express or implied, are made by any
Participating Organization to any other Participating Organization with
respect to any of the responsibilities to be performed hereunder. This
paragraph is not intended to create liability of any Participating
Organization to any third party.
15. SEC Approval.
a. The parties agree to file promptly this Agreement with the SEC
for its review and approval. NYSE Regulation and FINRA shall jointly
file this Agreement on behalf, and with the explicit consent, of all
Participating Organizations.
b. If approved by the SEC, the Participating Organizations will
notify their members of the general terms of the Agreement and of its
impact on their members.
16. Subsequent Parties; Limited Relationship. This Agreement shall
inure to the benefit of and shall be binding upon the Participating
Organizations hereto and their respective legal representatives,
successors, and assigns. Nothing in this Agreement, expressed or
implied, is intended or shall: (a) confer on any person other than the
Participating Organizations hereto, or their respective legal
representatives, successors, and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, (b)
constitute the Participating Organizations hereto partners or
participants in a joint venture, or (c) appoint one Participating
Organization the agent of the other.
17. Assignment. No Participating Organization may assign this
Agreement without the prior written consent of all the other
Participating Organizations, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that any
Participating Organization may assign the Agreement to a corporation
controlling, controlled by or under common control with the
Participating Organization without the prior written consent of any
other party.
18. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
19. Termination.
a. Any Participating Organization may cancel its participation in
the Agreement at any time, provided that it has given 180 days written
notice to the other Participating Organizations (or in the case of a
change of control in ownership of a Participating Organization, such
other notice time period as that Participating Organization may
choose), and provided that such termination has been approved by the
SEC. The cancellation of its participation in this Agreement by any
Participating Organization shall not terminate this Agreement as to the
remaining Participating Organizations.
b. The Regulatory Responsibilities assumed under this Agreement by
NYSE Regulation or FINRA (either, an ``Invoicing Party'') may be
terminated by the Invoicing Party against any Participating
Organization as follows. The Participating Organization will have
thirty (30) days from receipt to satisfy the invoice. If the
Participating Organization fails to satisfy the invoice within thirty
(30) days of receipt (``Default''), the Invoicing Party will notify the
Participating Organization of the Default. The Participating
Organization will have thirty (30) days from receipt of the Default
notice to satisfy the invoice.
c. The Invoicing Party will have the right to terminate the
Regulatory Responsibilities assumed under this Agreement if a
Participating Organization has Defaulted in its obligation to pay the
invoice on more than three (3) occasions in any rolling twenty-four
(24) month period.
20. Intermarket Surveillance Group (``ISG''). In order to
participate in this Agreement, all Participating Organizations to this
Agreement must be members of the ISG.
21. General. The Participating Organizations agree to perform all
acts and execute all supplementary instruments or documents that may be
reasonably necessary or desirable to carry out the provisions of this
Agreement.
22. Liaison and Notices. All questions regarding the implementation
of this Agreement shall be directed to the persons identified below, as
applicable. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be
deemed to have been duly given upon (i) actual receipt by the notified
party or (ii) constructive receipt (as of the date marked on the return
receipt) if sent by certified or registered mail, return receipt
requested, to the following addresses:
* * * * *
23. Confidentiality. The parties agree that documents or
information shared shall be held in confidence, and used only for the
purposes of carrying out their respective regulatory obligations under
this Agreement. No party shall assert regulatory or other privileges as
against the other with respect to Regulatory Information that is
required to be shared pursuant to this Agreement, as defined by
paragraph 11, above.
24. Regulatory Responsibility. Pursuant to Section 17(d)(1)(A) of
the Act, and Rule 17d-2 thereunder, the Participating Organizations
jointly and severally request the SEC, upon its approval of this
Agreement, to relieve the Participating Organizations, jointly and
severally, of any and all responsibilities with respect to the matters
allocated to NYSE Regulation and FINRA pursuant to this Agreement for
purposes of Sec. Sec. 17(d) and 19(g) of the Act.
25. Governing Law. This Agreement shall be deemed to have been made
in the State of New York, and shall be construed and enforced in
accordance with the law of the State of New York, without reference to
principles of conflicts of laws thereof. Each of the parties hereby
consents to submit to the jurisdiction of the courts of the State of
New York in connection with any action or proceeding relating to this
Agreement.
26. Survival of Provisions. Provisions intended by their terms or
context to survive and continue notwithstanding delivery of the
regulatory services by NYSE Regulation or FINRA, as applicable, the
payment of the Fees by the Participating Organizations, and any
expiration of this Agreement shall survive and continue.
27. Amendment.
a. This Agreement may be amended to add a new Participating
Organization, provided that such Participating Organization does not
assume regulatory responsibility, solely by an amendment executed by
NYSE Regulation, FINRA and such new Participating Organization. All
other Participating Organizations expressly consent to allow NYSE
Regulation and FINRA to jointly add new Participating Organizations to
the Agreement as provided above. NYSE Regulation and FINRA will
promptly notify all Participating Organizations of any such amendments
to add a new Participating Organization.
b. All other amendments must be made approved by each Participating
Organization. All amendments, including adding a new Participating
Organization, must be filed with and
[[Page 21056]]
approved by the Commission before they become effective.
28. Effective Date. The Effective Date of this Agreement will be
the date the SEC declares this Agreement to be effective pursuant to
authority conferred by Sec. 17(d) of the Act, and SEC Rule 17d-2
thereunder.
29. Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile, each of which will be deemed an
original, but all of which taken together shall constitute one single
agreement between the Parties.
In Witness Whereof, the Parties hereto have each caused this
Agreement for the Allocation of Regulatory Responsibility of
Surveillance, Investigation and Enforcement for Insider Trading
Agreement to be signed and delivered by its duly authorized
representative.
Exhibit A: Common Insider Trading Rules
1. Securities Exchange Act of 1934 Section 10(b), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 10b-5 (as it pertains to insider trading), which
states that:
Rule 10b-5--Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of the
mails or of any facility of any national securities exchange,
a. To employ any device, scheme, or artifice to defraud,
b. To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading, or
c. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
2. Securities Exchange Act of 1934 Section 17(a), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 17a-3 (as it pertains to insider trading).
3. The following SRO Rules as they pertain to violations of insider
trading:
FINRA NASD Rule 2110 (Standards of Commercial Honor and Principles of
Trade)
FINRA NASD Rule 2120 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
FINRA NASD Rule 3010 (Supervision)
FINRA NASD Rule 3110 (a) and (c) (Books and Records; Financial
Condition)
NYSE Rule 401(a) (Business Conduct)
NYSE Rule 476(a) (Disciplinary Proceedings Involving Charges Against
Members, Member Organizations, Allied Members, Approved Persons,
Employees, or Others)
NYSE Rule 440 (Books and Records)
NYSE Rule 342 (Offices--Approval, Supervision and Control)
AMEX Cons. Art. II Sec. 3, Confidential Information
AMEX Cons. Art. V Sec. 4 Suspension or Expulsion (b), (h), (i), (j) and
(r)
AMEX Cons. Art. XI Sec. 4 Controlled Corporations and Associations--
Responsibility for Corporate Subsidiary; Duty to Produce Books
AMEX Rule 3 General Prohibitions and Duty to Report (d), (h) (j) and
(l)
AMEX Rule 3-AEMI General Prohibitions and Duty to Report (d) and (h)
AMEX Rule 16 Business Conduct
AMEX Rule 320 Offices--Approval, Supervision and Control
AMEX Rule 324 Books and Records
NASDAQ Rule 2110 (Standards of Commercial Honor and Principles of
Trade)
NASDAQ Rule 2120 (Use of Manipulative, Deceptive or Other Fraudulent
Devices)
NASDAQ Rule 3010 (Supervision)
NASDAQ Rule 3110 (a) and (c) (Books and Records; Financial Condition)
CHX Article 8, Rule 3 (Fraudulent Acts)
CHX Article 9, Rule 2 (Just & Equitable Trade Principles)
CHX Article 11, Rule 2 (Maintenance of Books and Records)
CHX Article 6, Rule 5 (Supervision of Registered Persons and Branch and
Resident Offices)
ISE RULE 400 (Just and Equitable Principles of Trade)
ISE RULE 405 (Manipulation)
ISE RULE 408 (Prevention of Misuse of Material Nonpublic Information)
CBOE RULE 4.1 (Practices inconsistent with just and equitable
principles)
CBOE RULE 4.2 (adherence to law)
CBOE RULE 4.7 (Manipulation)
CBOE RULE 4.18 (Prevention of the misuse of material non public
information)
PHLX RULE 707 (Conduct Inconsistent with Just and Equitable Principles
of Trade)
PHLX RULE 748 (Supervision)
PHLX RULE 760 (Maintenance, Retention and Furnishing of Books, Records
and Other Information)
PHLX RULE 761 (Supervisory Procedures Relating to ITSFEA and to
Prevention of Misuse or Material Nonpublic Information)
PHLX RULE 782 (Manipulative Operations)
NYSE Arca Rule 6.3 (Prevention of the Misuse of Material, Nonpublic
Information)
NYSE Arca Rule 6.2(b) Prohibited Acts (J&E)
NYSE Arca Rule 6.1 Adherence to Law
NYSE Arca Rule 6.18 Supervision
NYSE Arca Rule 9.1(c) Office Supervision
NYSE Arca Rule 9.2(b) Account Supervision
NYSE Arca Rule 9.2(c) Customer Records
NYSE Arca Rule 9.17 Books and Records
NSX Rule 3.1 Business Conduct of ETP Holders
NSX Rule 3.2. Violations Prohibited
NSX Rule 3.3. Use of Fraudulent Devices
NSX Rule 4.1 Requirements
NSX Rule 5.1. Written Procedures
NSX Rule 5.3 Records
NSX Rule 5.5 Chinese Wall Procedures
BSE Chapter II, Sections 26-28 (Anti-Manipulative Provisions)
BSE Chapter II, Section 37 (ITSFEA Procedures)
BSE Chapter XXIV-C, Section 2 (Securities Accounts and Orders of
Specialists)
BSE Chapter XXXVII, Section 11 (Limitations on Dealings)
BATS Rule 3.1 Business Conduct of ETP Holders
BATS Rule 3.2. Violations Prohibited
BATS Rule 3.3. Use of Fraudulent Devices
BATS Rule 4.1 Requirements
BATS Rule 5.1. Written Procedures
BATS Rule 5.3 Records
BATS Rule 5.5 Chinese Wall Procedures
BATS Rule 12.4 Manipulative Transactions
EDGA 3.1 Business Conduct of Members
EDGA 3.2 Violations Prohibited
EDGA 3.3 Use of Fraudulent Devices
EDGA 4.1 Requirements
EDGA 5.1 Written Procedures
EDGA 5.3 Records
EDGA 5.5 Prevention of misuse of material, nonpublic information
EDGA 12.4 Manipulative Transactions
EDGX 3.1 Business Conduct of Members
EDGX 3.2 Violations Prohibited
EDGX 3.3 Use of Fraudulent Devices
EDGX 4.1 Requirements
EDGX 5.1 Written Procedures
EDGX 5.3 Records
EDGX 5.5 Prevention of misuse of material, nonpublic information
EDGX 12.4 Manipulative Transactions
Exhibit B: Fee Schedule
1. Fees. NYSE Regulation and, separately, FINRA shall charge each
[[Page 21057]]
Participating Organization a Quarterly Fee in arrears for the
performance of NYSE Regulation's and FINRA's respective regulatory
responsibilities under the Plan (each, a ``Quarterly Fee,'', and
together, the ``Fees'').
a. Quarterly Fees.
(1) Quarterly Fees for each Participating Organization will be
charged by NYSE Regulation and FINRA, respectively, according to the
Participating Organization's ``Percentage of Publicly Reported Trades''
occurring over three-month billing periods. The ``Percentage of
Publicly Reported Trades'' shall equal a Participating Organization's
number of reported NYSE-listed trades (when billing originates from
NYSE Regulation) and combined AMEX-listed, NASDAQ-listed, and CHX
solely-listed trades (when billing originates from FINRA) during the
relevant period (the ``Numerator''), divided by the total number of
either all NYSE-listed trades or all combined AMEX-listed, NASDAQ-
listed, and CHX solelylisted trades, respectively, for the same period
(the ``Denominator''). For purposes of clarification, ADF and Trade
Reporting Facility (TRF) activity will be included in the Denominator.
Additionally, with regard to TRFs, TRF trade volume will be charged to
FINRA. Consequently, for purposes of calculating the Quarterly Fees,
the volume for each Participant Organization's TRF will be calculated
separately (that is, TRF volume will be broken out from the
Participating Organization's overall Percentage of Publicly Reported
Trades) and the fees for such will be billed to FINRA in accordance
with paragraph 1(a)(2), rather than to the applicable Participating
Organization.
(2) The Quarterly Fees shall be determined by each of NYSE
Regulation and FINRA, as applicable, in the following manner for each
Participating Organization:
(a) Less than 1.0%: If the Participating Organization's Percentage
of Publicly Reported Trades for NYSE-listed trades (in the case of NYSE
Regulation) or for combined AMEX-listed, NASDAQ-listed, and CHX
solelylisted trades (in the case of FINRA) for the relevant three-month
billing period is less than 1.0%, the Quarterly Fee shall be $3,125,
per quarter (``Static Fee'');
(b) Less than 2.0% but No Less than 1.0%: If the Participating
Organization's Percentage of Publicly Reported Trades for NYSE-listed
trades (in the case of NYSE Regulation) or for combined AMEX-listed,
NASDAQ-listed, and CHX solely-listed trades (in the case of FINRA) for
the relevant three-month billing period is less than 2.0% but no less
than 1.0%, the Quarterly Fee shall be $9,375, per quarter (``Static
Fee'');
(c) 2.0% or Greater: If the Participating Organization's Percentage
of Publicly Reported Trades for NYSE-listed trades (in the case of NYSE
Regulation) or for combined AMEX-listed, NASDAQ-listed, and CHX solely
listed trades (in the case of FINRA) for the relevant three-month
billing period is 2.0% or greater, the Quarterly Fee shall be the
amount equal to the Participating Organization's Percentage of Publicly
Reported Trades multiplied by NYSE Regulation's or FINRA's total charge
(``Total Charge''), respectively, for its performance of Insider
Trading regulatory responsibilities for the relevant three-month
billing period.
(3) Increases in Static Fees. NYSE Regulation and FINRA will re-
evaluate the Quarterly Fees on an annual basis during the annual budget
process outlined in paragraph 1.c. below. During each annual re-
evaluation, NYSE Regulation and FINRA will have the discretion to
increase the Static Fees by a percentage no greater than the percentage
increase in the Final Budget over the preceding year's Final Budget.
Any changes to the Static Fees shall not require an amendment to this
Agreement, but rather shall be memorialized through the Budget Process.
(4) Increases in Total Charges. Any change in the Total Charges
(whether a Final Budget increase or any mid year change) shall not
require an amendment to this Agreement, but rather shall be
memorialized through the budget process.
b. Source of Data. For purposes of calculation of the Percentage of
Publicly Reported Trades for each Participating Organization, NYSE
Regulation and FINRA shall use (a) the Consolidated Tape Association
(``CTA'') as the exclusive securities information processor (``SIP'')
for all NYSE Listed Stocks, AMEX Listed Stocks, and CHXSolely Listed
Stocks, and (b) the Unlisted Trading Privileges Plan as the exclusive
SIP for NASDAQ-listed Stocks.
c. Annual Budget Forecast. NYSE Regulation and FINRA will notify
the Participating Organizations of the forecasted costs of their
respective insider trading programs for the following calendar year by
close of business on October 15 of the then-current year (the
``Forecasted Budget''). NYSE Regulation and FINRA shall use best
efforts to provide as accurate a forecast as possible. NYSE Regulation
and FINRA shall then provide a final submission of the costs following
approval of such costs by their respective governing Boards (the
``Final Budget''). Subject to paragraph 1(d) below, in the event of a
difference between the Forecasted Budget and the Final Budget, the
Final Budget will govern.
d. Increases in Fees over Twenty Percent.
(1) In the event that any proposed increase to Fees by NYSE
Regulation or by FINRA for a given calendar year (which increase may
arise either during the annual budgetary forecasting process or through
any mid-year increase) will result in a cumulative increase in such
calendar year's Fees of more than twenty percent (20%) above the
preceding calendar year's Final Budget (a ``Major Increase''), then
senior management of any Participating Organization (a) that is a
Listing Market or (b) for which the Percentage of Publicly Reported
Trades is then currently twenty percent (20%) or greater, shall have
the right to call a meeting with the senior management of NYSE
Regulation or FINRA, respectively, in order to discuss any disagreement
over such proposed Major Increase. By way of example, if NYSE
Regulation provides a Final Budget for 2009 that represents an 8%
increase above the Final Budget for 2008, the terms of this paragraph
1.d.(1) shall not apply; if, however, in April of 2009, NYSE Regulation
notifies the Exchange Committee of an increase in Fees that represents
an additional 14% increase above the Final Budget for 2008, then the
increase shall be deemed a Major Increase, and the terms of this
paragraph 1.d.(1) shall become applicable (i.e., 8% + 14% = a
cumulative increase of 22% above 2008 Final Budget).
(2) In the event that senior management members of the involved
parties are unable to reach an agreement regarding the proposed Major
Increase, then the matter shall be referred back to the Exchange
Committee for final resolution. Prior to the matter being referred back
to the Exchange Committee, nothing shall prohibit the parties from
conferring with the SEC. Resolution shall be reached through a vote of
no fewer than all Participating Organizations seated on the Exchange
Committee, and a simple majority shall be required in order to reject
the proposed Major Increase.
e. Time Tracking. NYSER and FINRA shall track the time spent by
staff on insider trading responsibilities under this Agreement;
however, time tracking will not be used to allocate costs.
2. Invoicing and Payment.
a. NYSE Regulation shall invoice each Participating Organization
for the Quarterly Fee associated with the
[[Page 21058]]
regulatory activities performed pursuant to this Agreement during the
previous three-month billing period within forty five (45) days of the
end of such previous 3-month billing period. A Participating
Organization shall have thirty (30) days from date of invoice to make
payment to NYSE Regulation on such invoice. The invoice will reflect
the Participating Organization's Percentage of Publicly Reported Trades
for that billing period.
b. FINRA shall invoice each Participating Organization for the
Quarterly Fee associated with the regulatory activities performed
pursuant to this Agreement during the previous three-month billing
period within forty five (45) days of the end of such previous 3-month
billing period. A Participating Organization shall have thirty (30)
days from date of invoice to make payment to FINRA on such invoice. The
invoice will reflect the Participating Organization's Percentage of
Publicly Reported Trades for that billing period.
3. Disputed Invoices; Interest. In the event that a Participating
Organization disputes an invoice or a portion of an invoice, the
Participating Organization shall notify in writing either FINRA or NYSE
Regulation (each, an ``Invoicing Party''), as applicable, of the
disputed item(s) within fifteen (15) days of receipt of the invoice. In
its notification to the Invoicing Party of the disputed invoice, the
Participating Organization shall identify the disputed item(s) and
provide a brief explanation of why the Participating Organization
disputes the charges. An Invoicing Party may charge a Participating
Organization interest on any undisputed invoice or the undisputed
portions of a disputed invoice that a Participating Organization fails
to pay within thirty (30) days of its receipt of such invoice. Such
interest shall be assessed monthly. Interest will mean one and one half
percent per month, or the maximum allowable under applicable Law,
whichever is less.
4. Taxes. In the event any governmental authority deems the
regulatory activities allocated to NYSE Regulation or FINRA to be
taxable activities similar to the provision of services in a commercial
context, the other Participating Organizations agree that they shall
bear full responsibility, on a joint and several basis, for the payment
of any such taxes levied on NYSE Regulation or FINRA, or, if such taxes
are paid by NYSE Regulation or FINRA directly to the governmental
authority, the other Participating Organizations agree that they shall
reimburse NYSE Regulation and/or FINRA, as applicable, for the amount
of any such taxes paid.
5. Audit Right; Record Keeping.
a. Audit Right.
(i) Audit of NYSE Regulation.
(a) Once every rolling twelve (12) month period, NYSE Regulation
shall permit no more than one audit (to be performed by one or more
Participating Organizations) of the Fees charged by NYSE Regulation to
the Participating Organizations hereunder and a detailed cost analysis
supporting such Fees (the ``Audit''). The Participating Organization or
Organizations that conduct this Audit will select a nationally-
recognized independent auditing firm (or may use its regular
independent auditor, providing it is a nationally-recognized auditing
firm) (``Auditing Firm'') to act on its, or their behalf, and will
provide reasonable notice to other Participating Organizations of the
Audit and invite the other Participating Organizations to participate
in the Audit. NYSE Regulation will permit the Auditing Firm reasonable
access during NYSE Regulation's normal business hours, with reasonable
advance notice, to such financial records and supporting documentation
as are necessary to permit review of the accuracy of the calculation of
the Fees charged to the Participating Organizations. The Participating
Organization, or Organizations, as applicable, other than NYSE
Regulation, shall be responsible for the costs of performing any such
audit.
(b) If, through an Audit, the Exchange Committee determines that
NYSE Regulation has inaccurately calculated the Fees for any
Participating Organization, the Exchange Committee will promptly notify
NYSE Regulation in writing of the amount of such difference in the
Fees, and, if applicable, NYSE Regulation shall issue a reimbursement
of the overage amount to the relevant Participating Organization(s),
less any amount owed by the Participating Organization under any
outstanding, undisputed invoice(s). If such an Audit reveals that any
Participating Organization paid less than what was required pursuant to
the Agreement, then that Participating Organization shall promptly pay
NYSE Regulation the difference between what the Participating
Organization owed pursuant to the Agreement and what that Participating
Organization originally paid NYSE Regulation. If NYSE Regulation
disputes the results of an audit regarding the accuracy of the Fees, it
will submit the dispute for resolution pursuant to the dispute
resolution procedures in paragraph 13 hereof.
(c) In the event that through the review of any supporting
documentation provided during the Audit, any one or more Participating
Organizations desire to discuss with NYSE Regulation the supporting
documentation and any questions arising therefrom with regard to the
manner in which regulation was conducted, the Participating
Organization(s) shall call a meeting with NYSE Regulation. NYSE
Regulation shall in turn notify the Exchange Committee of this meeting
in advance, and all Participating Organizations shall be welcome to
attend (the ``Fee Analysis Meeting''). The parties to this Agreement
acknowledge and agree that while NYSE Regulation commits to discuss the
supporting documentation at the Fee Analysis Meeting, NYSE Regulation
shall not be subject, by virtue of the above Audit rights or any
discussions during the Fee Analysis Meeting or otherwise, to any
limitation whatsoever, other than the Increase in Fee provisions set
forth in paragraph 1.d. of this Exhibit, on its discretion as to the
manner and means by which it conducts its regulatory efforts in its
role as the SRO primarily liable for regulatory decisions under this
Agreement. To that end, no disagreement among the Participating
Organizations as to the manner or means by which NYSE Regulation
conducts its regulatory efforts hereunder shall be subject to the
dispute resolution procedures hereunder, and no Participating
Organization shall have the right to compel NYSE Regulation to alter
the manner or means by which it conducts its regulatory efforts.
Further, a Participating Organization shall not have the right to
compel a rebate or reassessment of fees for services rendered, on the
basis that the Participating Organization would have conducted
regulatory efforts in a different manner than NYSE Regulation in its
professional judgment chose to conduct its regulatory efforts.
ii. Audit of FINRA.
(a) Once every rolling twelve (12) month period, FINRA shall permit
no more than one audit (to be performed by one or more Participating
Organizations) of the Fees charged by FINRA to the Participating
Organizations hereunder and a detailed cost analysis supporting such
Fees (the ``Audit''). The Participating Organization or Organizations
that conduct this Audit will select a nationally-recognized independent
auditing firm (or may use its regular independent auditor, providing it
is a nationally-recognized auditing firm) (``Auditing Firm'') to act on
its, or their behalf, and will provide
[[Page 21059]]
reasonable notice to other Participating Organizations of the Audit.
FINRA will permit the Auditing Firm reasonable access during FINRA's
normal business hours, with reasonable advance notice, to such
financial records and supporting documentation as are necessary to
permit review of the accuracy of the calculation of the Fees charged to
the Participating Organizations. The Participating Organization, or
Organizations, as applicable, other than FINRA, shall be responsible
for the costs of performing any such audit.
(b) If, through an Audit, the Exchange Committee determines that
FINRA has inaccurately calculated the Fees for any Participating
Organization, the Exchange Committee will promptly notify FINRA in
writing of the amount of such difference in the Fees, and, if
applicable, FINRA shall issue a reimbursement of the overage amount to
the relevant Participating Organization(s), less any amount owed by the
Participating Organization under any outstanding, undisputed
invoice(s). If such an Audit reveals that any Participating
Organization paid less than what was required pursuant to the
Agreement, then that Participating Organization shall promptly pay
FINRA the difference between what the Participating Organization owed
pursuant to the Agreement and what that Participating Organization
originally paid FINRA. If FINRA disputes the results of an audit
regarding the accuracy of the Fees, it will submit the dispute for
resolution pursuant to the dispute resolution procedures in paragraph
13 hereof.
(c) In the event that through the review of any supporting
documentation provided during the Audit, any one or more Participating
Organizations desire to discuss with FINRA the supporting documentation
and any questions arising therefrom with regard to the manner in which
regulation was conducted, the Participating Organization(s) shall call
a meeting with FINRA. FINRA shall in turn notify the Exchange Committee
of this meeting in advance, and all Participating Organizations shall
be welcome to attend (the ``Fee Analysis Meeting''). The parties to
this Agreement acknowledge and agree that while FINRA commits to
discuss the supporting documentation at the Fee Analysis Meeting, FINRA
shall not be subject, by virtue of the above Audit rights or any
discussions during the Fee Analysis Meeting or otherwise, to any
limitation whatsoever, other than the Increase in Fee provisions set
forth in paragraph 1.d. of this Exhibit, on its discretion as to the
manner and means by which it conducts its regulatory efforts in its
role as the SRO primarily liable for regulatory decisions under this
Agreement. To that end, no disagreement among the Participating
Organizations as to the manner or means by which FINRA conducts its
regulatory efforts hereunder shall be subject to the dispute resolution
procedures hereunder, and no Participating Organization shall have the
right to compel FINRA to alter the manner or means by which it conducts
its regulatory efforts. Further, a Participating Organization shall not
have the right to compel a rebate or reassessment of fees for services
rendered, on the basis that the Participating Organization would have
conducted regulatory efforts in a different manner than FINRA in its
professional judgment chose to conduct its regulatory efforts.
b. Record Keeping. In anticipation of any audit that may be
performed by the Exchange Committee under paragraph 5.a. above, NYSE
and FINRA shall each keep accurate financial records and documentation
relating to the Fees charged by each, respectively, under this
Agreement.
Exhibit C: Reports
NYSE Regulation and FINRA shall provide the following information
in reports to the Exchange Committee, which information covers activity
occurring under this Agreement:
1. Alert Summary Statistics: Total number of surveillance system
alerts generated by quarter along with associated number of reviews and
investigations. In addition, this paragraph shall also reflect the
number of reviews and investigations originated from a source other
than an alert. A separate table would be presented for Amex Listed,
Nasdaq Listed, and CHX Solely Listed equity trading activity.
------------------------------------------------------------------------
2008 Surveillance alerts Investigations
------------------------------------------------------------------------
1st Quarter ....................... ......................
2nd Quarter ....................... ......................
3rd Quarter ....................... ......................
4th Quarter ....................... ......................
------------------------------------------------
2008 Total ....................... ......................
------------------------------------------------------------------------
2. Aging of Open Matters: Would reflect the aging for all currently
open matters for the quarterly period being reported. A separate table
would be presented for Amex Listed, Nasdaq Listed, and CHX Solely
Listed equity trading activity. Example:
------------------------------------------------------------------------
Surveillance alerts Investigations
------------------------------------------------------------------------
0-6 months ....................... ......................
6-9 months ....................... ......................
9-12 months ....................... ......................
12+ months ....................... ......................
------------------------------------------------
Total ....................... ......................
------------------------------------------------------------------------
3. Timeliness of Completed Matters: Would reflect the total age of
those matters that were completed or closed during the quarterly period
being reported. NYSE and FINRA will provide total referrals to the SEC.
Example:
[[Page 21060]]
------------------------------------------------------------------------
Surveillance alerts Investigations
------------------------------------------------------------------------
0-6 months ....................... ......................
6-9 months ....................... ......................
9-12 months ....................... ......................
12+ months ....................... ......................
------------------------------------------------
Total ....................... ......................
------------------------------------------------------------------------
4. Disposition of Closed Matters: Would reflect the disposition of
those matters that were completed or closed during the quarterly period
being reported. A separate table would be presented for Amex Listed,
Nasdaq Listed, and CHX Solely Listed equity trading activity.
Example:
------------------------------------------------------------------------
Surveillance YTD Investigations YTD
------------------------------------------------------------------------
No Further Review ....................... ......................
Letter of Caution/ ....................... ......................
Admonition/Fine
Referred to Legal/ ....................... ......................
Enforcement
Referred to SEC/SRO ....................... ......................
Merged ....................... ......................
Other ....................... ......................
------------------------------------------------
Total ....................... ......................
------------------------------------------------------------------------
5. Pending Reviews. In addition to the above reports, the Chief
Regulatory Officer (CRO) (or his or her designee) of any Participating
Organization that is also a listing market (including CHX) may inquire
about pending reviews involving stocks listed on that Participating
Organization's market. NYSE Regulation and FINRA, respectively, will
respond to such inquiries from a CRO; provided, however, that (a) the
CRO must hold any information provided by NYSE Regulation and FINRA in
confidence and (b) NYSE Regulation and FINRA will not be compelled to
provide information in contradiction of any mandate, directive or order
from the SEC, U.S. Attorney's Office, the Office of any State Attorney
General or court of competent jurisdiction.
* * * * *
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number 4-566 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number 4-566. This file number
should be included on the subject line if e-mail is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed plan that are filed with the
Commission, and all written communications relating to the proposed
plan 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 Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the plan also will be available for inspection and
copying at the principal offices of Amex, BATS, BX, CBOE, CHX, EDGA,
EDGX, FINRA, ISE, NASDAQ, NSX, NYSE, NYSE Arca, NYSE Regulation, and
Phlx. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number 4-566
and should be submitted on or before May 13, 2010.
V. Discussion
The Commission finds that the Plan, as proposed to be amended, is
consistent with the factors set forth in Section 17(d) of the Act \15\
and Rule 17d-2 \16\ thereunder in that it 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. The Commission
continues to believe that the Plan, as proposed to be amended, should
reduce unnecessary regulatory duplication by allocating regulatory
responsibility for the surveillance, investigation, and enforcement of
Common Rules over Common NYSE Members, with respect to NYSE-listed
stocks and NYSE Arca listed stocks, to NYSE and over Common FINRA
Members, with respect to NASDAQ-listed stocks, Amex-listed stocks, and
any CHX solely-listed stock, to FINRA. Accordingly, the proposed
amendment to the Plan promotes efficiency by consolidating these
regulatory functions in a single SRO based on the listing market for a
stock, with regard to Common NYSE Members and Common FINRA Members.
Under paragraph (c) of Rule 17d-2, the Commission may, after
appropriate notice and comment, declare a plan, or any part of a plan,
effective. In this instance, the Commission believes that appropriate
notice and comment can take place after the proposed
[[Page 21061]]
amendment is effective. The purpose of the amendment is to add EDGA and
EDGX as SRO participants to the Plan. By declaring effective the
amended Plan today, EDGA and EDGX can be included in the Plan prior to
beginning operations as a national securities exchange and the amended
Plan can become effective and be implemented without undue delay. In
addition, the Commission notes that the prior version of this Plan was
published for comment, and the Commission did not receive any comments
thereon.\17\ Finally, the Commission does not believe that the
amendment to the Plan raises any new regulatory issues that the
Commission has not previously considered.
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\15\ 15 U.S.C. 78q(d).
\16\ 17 CFR 240.17d-2.
\17\ See supra note 11.
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VI. Conclusion
This order gives effect to the amended Plan submitted to the
Commission that is contained in File No. 4-566.
It is therefore ordered, pursuant to Section 17(d) of the Act,\18\
that the Plan, as amended, is hereby approved and declared effective.
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\18\ 15 U.S.C. 78q(d).
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It is further ordered that the Participating Organizations are
relieved of those regulatory responsibilities allocated to NYSE and
FINRA under the amended Plan to the extent of such allocation.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9277 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P