[Federal Register Volume 76, Number 18 (Thursday, January 27, 2011)]
[Notices]
[Pages 4948-4958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1764]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63750; 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 BATS Exchange, Inc., BATS Y-Exchange, Inc.,
Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange,
Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry
Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC,
The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York
Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc. Relating to the
Surveillance, Investigation, and Enforcement of Insider Trading Rules
January 21, 2011.
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 and among BATS Exchange, Inc. (``BATS''), BATS Y-Exchange, Inc.
(``BYX''), 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''), NASDAQ OMX BX, Inc., (``NASDAQ OMX BX''),
NASDAQ OMX PHLX, LLC, (``NASDAQ OMX PHLX''), The NASDAQ Stock Market
LLC (``Nasdaq''), National Stock Exchange, Inc. (``NSX''), New York
Stock Exchange LLC (``NYSE''), NYSE Amex, LLC (``NYSE Amex''), and NYSE
Arca, Inc. (``NYSE Arca'') (each a ``Participating Organization'' and
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
[[Page 4949]]
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 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). See also Securities
Exchange Act Release Nos. 58806 (October 17, 2008), 73 FR 63216
(October 23, 2008); 61919 (April 15, 2010), 75 FR 21051 (April 22,
2010); and 63103 (October 14, 2010), 75 FR 64755 (October 20, 2010).
\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 November 23, 2010, the Participating Organizations submitted an
amendment to the Plan. The proposed amendment was submitted as a result
of a recently completed agreement under which FINRA would assume
responsibility for performing the market surveillance and enforcement
functions previously conducted by NYSE Regulation for its U.S. equities
and options markets (NYSE, NYSE Arca and NYSE Amex). As part of this
acquisition agreement, most of the NYSE personnel performing these
responsibilities under the Plan have been transferred to FINRA. The
Participating Organizations believe that consolidating surveillance,
investigation, and enforcement for insider trading within FINRA will
lead to a more unified and effective system of regulation.
Accordingly, the proposed amendment would modify the Plan to
reflect that NYSE Regulation, Inc. would no longer perform any
regulatory responsibilities under the Plan. Under the amended Plan,
FINRA would perform surveillance, investigation, and enforcement of the
common insider trading rules listed in the Plan with respect to equity
securities listed on the NYSE, NASDAQ, NYSE Amex, NYSE Arca, or Chicago
Stock Exchange, irrespective of the marketplaces maintained by the
parties to the Plan. As with the current version of the Plan, FINRA
will have regulatory responsibility for members of FINRA that are also
members of at least one of the Participating Organizations. Separately,
FINRA performs investigations and enforcement with respect to non-
Common FINRA Members pursuant to a regulatory services agreement
between FINRA and the other Participating Organizations. The amended
Plan replaces the previous agreement in its entirety. The text of the
proposed amended 17d-2 plan is as follows (additions are italicized;
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 BATS Exchange, Inc.
(``BATS''), BATS Y-Exchange, Inc. (``BYX''), 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''), NASDAQ
OMX[,] BX, Inc. (``NASDAQ OMX BX''), NASDAQ OMX PHLX LLC (``NASDAQ OMX
PHLX''), The NASDAQ Stock Market LLC (``NASDAQ''), National Stock
Exchange, Inc. (``NSX''), New York Stock Exchange[,] LLC (``NYSE''),
NYSE Amex LLC (``NYSE Amex''), and NYSE Arca, Inc. (``NYSE Arca'')[,
and NYSE Regulation, Inc. (pursuant to delegated authority) (``NYSE
Regulation'')] (each a ``Participating Organization'' and 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 BYX)] approved by the SEC on [April 15]October
14, 2010.
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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.
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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
[[Page 4950]]
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 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
(as defined below) for surveillance, investigation and enforcement of
Insider Trading (as defined below) in [NASDAQ] Listed Stocks (as
defined below) [, 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 (as defined below);
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]a Regulatory Services Agreement[s] (the ``Insider Trading
RSA[s]''), 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]c. ``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]d. ``Effective Date'' shall have the meaning set forth in
paragraph 28.
[f]e. ``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]f. ``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 trade secrets; or (3) software, systems,
machine-readable texts and files and related documentation.
[h]g. ``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.
h. ``Listed Stock(s)'' shall mean NYSE Listed Stock(s), NASDAQ
Listed Stock(s), NYSE Amex Listed Stock(s), NYSE Arca Listed Stock(s)
or CHX Solely Listed Stock(s).
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. ``NYSE Amex Listed Stock'' shall mean an equity security that is
listed on [the]NYSE Amex.
l. ``NYSE Arca Listed Stock'' shall mean an equity security that is
listed on NYSE Arca.
[l]m. ``CHX Solely Listed Stock'' shall mean an equity security
that is listed only [in]on the [Chicago Stock Exchange]CHX.
[m]n. ``Listing Market'' shall mean NYSE Amex, [Nasdaq]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 Responsibilit[y]ies'').
[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]Exhibit
A hereto are correct, and [NYSE Regulation and] FINRA hereby confirms
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
[[Page 4951]]
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 Insider Trading 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 agrees
with the submitted certified and updated list of Common Insider Trading
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 an NYSE Listed Stock,
a NASDAQ Listed Stock, an NYSE Arca Listed Stock or an NYSE 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]the 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]this 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]this 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.
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 entit[ies]y 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 requires 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,]Listed Stocks, NYSE Amex Listed Stocks, NYSE Arca
Listed Stocks and CHX [solely listed securities]Solely Listed Stocks
and (b) the NASDAQ Unlisted Trading Privileges Plan as the exclusive
SIP for all NASDAQ[-listed securities] Listed Stocks.
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]Regulatory Responsibilities assumed under the terms of
this Agreement. Such information shall include any information
collected by [an exchange or association]a Participating Organization
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]its 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
[[Page 4952]]
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']FINRA's 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]it (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) Fees for New IP. [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]its 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 [P]parties to this Agreement 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 [P]parties shall refer the
dispute to binding arbitration.
b. Binding Arbitration. All claims, disputes, controversies, and
other matters in question between the [P]parties to this Agreement
arising out of or relating to this Agreement or the breach thereof that
cannot be resolved by the [P]parties will be resolved through binding
arbitration. Unless otherwise agreed by the [P]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
responsibilities]Regulatory 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]this 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]this 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]this 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
[[Page 4953]]
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]FINRA 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]FINRA 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] FINRA 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]this 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 approved by the
[Commission]SEC 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 [P]parties.
* * * * *
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 thereunder 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 Rule 2010 (Standards of Commercial Honor and Principles of Trade)
FINRA Rule 2020 (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)
[[Page 4954]]
NYSE AMEX Cons. Art. II Sec. 3, Confidential Information
NYSE AMEX Cons. Art. V Sec. 4 Suspension or Expulsion (b), (h), (i),
(j) and (r)
NYSE AMEX Cons. Art. XI Sec. 4 Controlled Corporations and
Associations--Responsibility for Corporate Subsidiary; Duty to Produce
Books
NYSE AMEX Rule 3 General Prohibitions and Duty to Report (d), (h) (j)
and (l)
NYSE AMEX Rule 3-AEMI General Prohibitions and Duty to Report (d) and
(h)
NYSE AMEX Rule 16 Business Conduct
NYSE AMEX Rule 320 Offices--Approval, Supervision and Control
NYSE AMEX Rule 324 Books and Records
NASDAQ OMX Rule 2110 (Standards of Commercial Honor and Principles of
Trade)
NASDAQ OMX Rule 2120 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
NASDAQ OMX Rule 3010 (Supervision)
NASDAQ OMX 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)
CBOE [RULE]Rule 4.1 (Practices inconsistent with just and equitable
principles)
CBOE [RULE]Rule 4.2 (adherence to law)
CBOE [RULE]Rule 4.7 (Manipulation)
CBOE [RULE]Rule 4.18 (Prevention of the misuse of material nonpublic
information)
NASDAQ OMX PHLX [RULE]Rule 707 (Conduct Inconsistent with Just and
Equitable Principles of Trade)
NASDAQ OMX PHLX [RULE]Rule 748 (Supervision)
NASDAQ OMX PHLX [RULE]Rule 760 (Maintenance, Retention and Furnishing
of Books, Records and Other Information)
NASDAQ OMX PHLX [RULE]Rule 761 (Supervisory Procedures Relating to
ITSFEA and to Prevention of Misuse or Material Nonpublic Information)
NASDAQ OMX PHLX [RULE]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
NASDAQ OMX BX Rule 2110 (Standards of Commercial Honor and Principles
of Trade)
NASDAQ OMX BX Rule 2120 (Use of Manipulative, Deceptive or Other
Fraudulent
Devices)
NASDAQ OMX BX Rule 3010 (Supervision)
NASDAQ OMX BX Rule 3110 (a) and (c) (Books and Records; Financial
Condition)
BATS Rule 3.1 Business Conduct of [ETP Holders]Members
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 Prevention of the Misuse of Material, Non-Public
Information
BATS Rule 12.4 Manipulative Transactions
BYX Rule 3.1 Business Conduct of ETP Holders
BYX Rule 3.2[.] Violations Prohibited
BYX Rule 3.3[.] Use of Fraudulent Devices
BYX Rule 4.1 Requirements
BYX Rule 5.1[.] Written Procedures
BYX Rule 5.3 Records
BYX Rule 5.5 Prevention of the Misuse of Material, Non-Public
Information
BYX 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
Participating Organization a Quarterly Fee in arrears for the
performance of [NYSE Regulation's and] FINRA's [respective regulatory
responsibilities]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]Listed Stock 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,]all Listed Stock trades 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
[[Page 4955]]
1.0%, the Quarterly Fee shall be $[3,125]6,250, 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]18,750, 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]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 [B]budget
[P]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]NYSE Amex Listed Stocks, NYSE Arca
Listed Stocks and CHX Solely Listed Stocks, and (b) the Unlisted
Trading Privileges Plan as the exclusive SIP for NASDAQ[-l] Listed
Stocks.
c. Annual Budget Forecast. [NYSE Regulation and] FINRA will notify
the Participating Organizations of the forecasted costs of [their
respective]its insider trading program[s] 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]its Board
of Governors (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]Five 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]five percent ([20]5%) 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]FINRA provides a Final Budget for [2009]2011 that
represents an [8]4% increase above the Final Budget for [2008]2010, the
terms of this paragraph 1.d.(1) shall not apply; if, however, in April
of [2009, NYSE Regulation]2011, FINRA notifies the Exchange Committee
of an increase in Fees that represents an additional [14]3% increase
above the Final Budget for [2008]2010, 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% =]4% and 3% represents a cumulative
increase of [22]7% above [2008]the 2010 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 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,] FINRA
in writing of the disputed item(s) within fifteen (15) days of receipt
of the invoice. In its notification to [the Invoicing Party]FINRA 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]FINRA 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
[[Page 4956]]
under applicable [L]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)](i) 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 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)](ii) 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 [a]Audit
regarding the accuracy of the Fees, it will submit the dispute for
resolution pursuant to the dispute resolution procedures in paragraph
13 [hereof]of the Agreement.
[(c)](iii) 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
[[Page 4957]]
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,]it
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 NYSE Listed
Stock, NYSE Amex Listed[, Nasdaq] Stock, NYSE Arca Listed Stock, NASDAQ
Listed Stock, and CHX Solely Listed [equity]Stock trading activity.
------------------------------------------------------------------------
Surveillance
2008 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 NYSE Listed Stock, NYSE Amex Listed[, Nasdaq]
Stock, NYSE Arca Listed Stock, NASDAQ Listed Stock, and CHX Solely
Listed [equity]Stock 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:
------------------------------------------------------------------------
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 NYSE Listed
Stock, NYSE Amex Listed[, Nasdaq] Stock, NYSE Arca Listed Stock, NASDAQ
Listed Stock, and CHX Solely Listed [equity]Stock trading activity.
Example:
[[Page 4958]]
------------------------------------------------------------------------
Investigations
Surveillance YTD 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 [l]Listing [m]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, US 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 BATS, BYX, CBOE, CHX, EDGA, EDGX,
FINRA, NASDAQ OMX BX, NASDAQ OMX Phlx, NASDAQ, NSX, NYSE, NYSE Amex,
and NYSE Arca. 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 February 17, 2011.
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 amended, should reduce
unnecessary regulatory duplication by allocating regulatory
responsibility for the surveillance, investigation, and enforcement of
Common Rules to FINRA. Accordingly, the proposed amendment to the Plan
promotes efficiency by consolidating these regulatory functions in a
single SRO.
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\15\ 15 U.S.C. 78q(d).
\16\ 17 CFR 240.17d-2
---------------------------------------------------------------------------
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 amendment is
effective. The purpose of the amendment is to amend the Plan to reflect
that FINRA has assumed responsibility for performing the market
surveillance and enforcement functions previously conducted by NYSE
Regulation for its U.S. equities and options markets. The Commission
believes that the amended Plan should become effective and be
implemented without undue delay in order to conform the terms of the
Plan to reflect that new arrangement. 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78q(d).
---------------------------------------------------------------------------
It is further ordered that the Participating Organizations are
relieved of those regulatory responsibilities allocated to 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\
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(24).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1764 Filed 1-26-11; 8:45 am]
BILLING CODE 8011-01-P