Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Between the International Securities Exchange, LLC and the National Association of Securities Dealers, Inc., 9983-9985 [E7-3837]

Download as PDF Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices The NRC staff denied the Petitioner’s request for a DFI to STPNOC. Issuance of a DFI is not warranted because the NRC has already reviewed and has ready access to all the information for which the Petitioner had requested a DFI. NRC has also denied your request to docket the documents for which you requested DFI. The NRC will docket only documents which are submitted to the NRC. However, NRC is denying your request for a DFI, and NRC did not require submission of the documents in its Confirmatory Order Modifying License (Effective Immediately) of June 9, 1998. Instead, STPNOC maintains the documents for ready access by the NRC at the site. A copy of the director’s decision will be filed with the Secretary of the Commission for the Commission’s review in accordance with 10 CFR 2.206 of the Commission’s regulations. As provided for by this regulation, the director’s decision will constitute the final action of the Commission 25 days after the date of the decision, unless the Commission, on its own motion, institutes a review of the director’s decision in that time. Dated at Rockville, Maryland, this 24th day of February 2007. For the Nuclear Regulatory Commission. J.E. Dyer, Director, Office of Nuclear Reactor Regulation. [FR Doc. E7–3827 Filed 3–5–07; 8:45 am] BILLING CODE 7590–01–P POSTAL SERVICE United States Postal Service Board of Governors; Sunshine Act Meeting cprice-sewell on PROD1PC67 with NOTICES Board Votes To Close February 27, 2007 Meeting By telephone vote on February 27, 2007, the Board of Governors of the United States Postal Service voted unanimously to close to public observation its meeting held in Washington, DC, via teleconference. The Board determined that prior public notice was not possible. Item Considered: Postal Regulatory Commission Opinion and Recommended Decision in Docket No. R2006–1, Postal Rate and Fee Changes. General Counsel Certification: The General Counsel of the United States Postal Service has certified that the meeting was properly closed under the Government in the Sunshine Act. CONTACT PERSON FOR MORE INFORMATION: Requests for information about the meeting should be addressed to the VerDate Aug<31>2005 15:35 Mar 05, 2007 Jkt 211001 Secretary of the Board, Wendy A. Hocking, at (202) 268–4800. Wendy A. Hocking, Secretary. [FR Doc. 07–1066 Filed 3–2–07; 1:58 pm] BILLING CODE 7710–12–M SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55367; File No. 4–529] Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Between the International Securities Exchange, LLC and the National Association of Securities Dealers, Inc. February 27, 2007. Notice is hereby given that the Securities and Exchange Commission (‘‘Commission’’) has issued an Order, pursuant to Sections 17(d) 1 and 11A(a)(3)(B) 2 of the Securities Exchange Act of 1934 (‘‘Act’’), granting approval and declaring effective an amended and restated plan for the allocation of regulatory responsibilities (‘‘Plan’’) that was filed pursuant to Rule 17d–2 under the Act 3 by the International Securities Exchange, LLC (‘‘ISE’’) and the National Association of Securities Dealers, Inc. (‘‘NASD’’) (together with ISE, the ‘‘Parties’’).4 Accordingly, NASD shall assume, in addition to the regulatory responsibility it has under the Act, the regulatory responsibilities allocated to it under the Plan. At the same time, ISE is relieved of those regulatory responsibilities allocated to NASD under the Plan. I. Introduction Section 19(g)(1) of the Act,5 among other things, requires every selfregulatory organization (‘‘SRO’’) registered as either a national securities exchange or registered securities association to examine for, and enforce compliance by, its members and persons associated with its members with the Act, the rules and regulations thereunder, and the SRO’s own rules, unless the SRO is relieved of this responsibility pursuant to Section 17(d) 6 or 19(g)(2) 7 of the Act. Section 1 15 U.S.C. 78q(d). U.S.C. 78k–1(a)(3)(B). 3 17 CFR 240.17d–2. 4 See Securities Exchange Act Release No. 55057 (January 8, 2007), 72 FR 2040 (January 17, 2007) (‘‘Notice’’). 5 15 U.S.C. 78s(g)(1). 6 15 U.S.C. 78q(d). 7 15 U.S.C. 78s(g)(2). 2 15 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 9983 17(d)(1) of the Act 8 was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication for those broker-dealers that maintain memberships in more than one SRO (‘‘common members’’).9 With respect to a common member, Section 17(d)(1) authorizes the Commission, by rule or order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and enforce compliance with applicable statutes, rules, and regulations, or to perform other specified regulatory functions. To implement Section 17(d)(1), the Commission adopted two rules: Rule 17d–1 10 and Rule 17d–2 11 under the Act. Rule 17d–2 permits SROs to propose joint plans for the allocation of regulatory responsibilities, other than financial responsibility rules, with respect to their common members. Under paragraph (c) of Rule 17d–2, the Commission may declare such a plan effective if, after providing for notice and comment, it determines that the plan is necessary or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among the SROs, to remove impediments to, and foster the development of, a national market system and a national clearance and settlement system, and is in conformity with the factors set forth in Section 17(d) of the Act. Upon effectiveness of a plan filed pursuant to Rule 17d–2, an SRO is relieved of those regulatory responsibilities for common members that are allocated by the plan to another SRO. On January 17, 2007, the Commission published notice of the Plan filed by ISE and NASD.12 The Commission received no comments on the Plan. The Plan is intended to replace and supersede the current 17d–2 plan between NASD and ISE and all prior amendments thereto in their entirety,13 and is intended to 8 15 U.S.C. 78q(d)(1). 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). 10 17 CFR 240.17d–1. Rule 17d–1 authorizes the Commission to name a single SRO as the designated examining authority (‘‘DEA’’) to examine common members for compliance with the financial responsibility requirements imposed by the Act, or by Commission or SRO rules. 11 17 CFR 240.17d–2. 12 See Notice, supra note 4. 13 The Parties currently operate pursuant to a 17d–2 plan in which NASD has assumed certain inspection, examination, and enforcement responsibility for common members with respect to certain applicable laws, rules, and regulations (the ‘‘current NASD–ISE 17d–2 plan’’). See Securities Exchange Act Release Nos. 42668 (April 11, 2000), 65 FR 21048 (April 19, 2000) (File No. 4–431) 9 See E:\FR\FM\06MRN1.SGM Continued 06MRN1 9984 Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices reduce regulatory duplication for firms that are common members of ISE and NASD. The text of the Plan allocates regulatory responsibilities among the Parties with respect to common members. Included in the Plan is an attachment (the ‘‘ISE Certification of Common Rules,’’ referred to herein as the ‘‘Certification’’) that lists every ISE rule and federal securities law and rule and regulation thereunder for which, under the Plan, NASD would bear responsibility for examining, and enforcing compliance by, common members. cprice-sewell on PROD1PC67 with NOTICES II. Discussion The Commission finds that the proposed Plan is consistent with the factors set forth in Section 17(d) of the Act 14 and Rule 17d–2(c) thereunder 15 in that the proposed Plan is necessary or appropriate in the public interest and for the protection of investors, fosters cooperation and coordination among SROs, and removes impediments to and fosters the development of the national market system. In particular, the Commission believes that the proposed Plan could reduce unnecessary regulatory duplication by allocating to NASD certain responsibilities for common members that would otherwise be performed by both ISE and NASD. Accordingly, the proposed Plan promotes efficiency by reducing costs to common members. Furthermore, because ISE and NASD will coordinate their regulatory functions in accordance with the Plan, the Plan should promote investor protection. The Commission notes that, under the Plan, ISE and NASD have allocated regulatory responsibility for all ISE rules that are substantially similar to NASD rules in that ISE’s rule would not require NASD to develop one or more new examination standards, modules, procedures, or criteria in order to analyze the application of the rule, or a dual member’s activity, conduct, or output in relation to such rule (‘‘Common Rules’’). These Common Rules are specifically listed in the Certification. In addition, under the Plan, the NASD would assume regulatory responsibility for any provisions of the federal securities laws and the rules and regulations thereunder that are set forth in the Certification.16 (notice of filing); 42815 (May 23, 2000), 65 FR 34762 (May 31, 2000) (File No. 4–431) (approval order). 14 15 U.S.C. 78q(d). 15 17 CFR 240.17d–2(c). 16 As proposed currently, however, there are no federal securities rules listed on the Certification. Therefore, at present, ISE has not been relieved of VerDate Aug<31>2005 15:35 Mar 05, 2007 Jkt 211001 The Plan further provides that NASD shall not assume regulatory responsibility, and ISE will retain full responsibility, for: (1) Surveillance and enforcement with respect to trading activities or practices involving ISE’s own marketplace; (2) registration pursuant to ISE’s applicable rules of associated persons (i.e., registration rules that are not Common Rules); (3) ISE’s duties as a DEA under Rule 17d– 1 of the Act;17 and (4) any rules of ISE that do not qualify as Common Rules, except that NASD shall be responsible for such rules with respect to any ISE member that operates as a facility, acts as an outbound router for ISE, and is a member of NASD (‘‘Router Member’’).18 Apparent violations of any ISE rules by any Router Member will be processed by NASD, and NASD will conduct any enforcement proceedings. The effect of these provisions is that regulatory oversight and enforcement responsibilities for any Router Member will be vested with NASD. These provisions should help avoid any potential conflicts of interest that could arise if ISE was primarily responsible for regulating its affiliated outbound router.19 According to the Plan, ISE will perform a review of the Certification, at least annually, or more frequently if required by changes in either the rules of ISE or NASD, to add ISE rules not included on the then-current list of Common Rules that are substantially similar to NASD rules (i.e., new rules that qualify as Common Rules or existing rules that have been amended so that they now qualify as Common Rules); delete ISE rules included in the then-current list of Common Rules that are no longer substantially similar to NASD rules (i.e., amended rules that cease to be Common Rules); and confirm that the remaining rules on the list of Common Rules continue to be ISE rules that are substantially similar to NASD rules. NASD will then confirm in writing whether the rules listed in any updated list are Common Rules as defined in the Plan. Under the Plan, ISE any regulatory responsibilities, pursuant to the Plan, for any provisions of the federal securities laws and the rules and regulations thereunder. 17 17 CFR 240.17d–1. 18 Currently, ISE Route LLC is the only Router Member. 19 In a separate proposed rule change relating to the adoption of rules to govern its electronic trading system for equities, ISE represented that it would enter into a 17d–2 agreement with NASD to delegate to NASD all regulatory oversight and enforcement responsibilities with respect to the ISE’s outbound routing facility pursuant to applicable laws (i.e., the Plan). See Securities Exchange Act Release No. 54528 (September 28, 2006), 71 FR 58650, 58654 (October 4, 2006) (SR– ISE–2006–48). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 will also provide NASD with a current list of dual members and shall update the list no less frequently than once each quarter. The Commission is hereby declaring effective and approving a plan that, among other things, allocates regulatory responsibility to NASD for the oversight and enforcement of all ISE rules that are substantially similar to the rules of NASD for common members of ISE and NASD. Therefore, modifications to the Certification need not be filed with the Commission as an amendment to the Plan, provided that the Parties are only adding to, deleting from, or confirming changes to ISE rules in the Certification in conformance with the definition of Common Rules provided in the Plan. However, should ISE or NASD decide to add an ISE rule to the Certification that is not substantially similar to an NASD rule; delete an ISE rule from the Certification that is substantially similar to an NASD rule; or leave on the Certification an ISE rule that is no longer substantially similar to an NASD rule, then such a change would constitute an amendment to the Plan, which must be filed with the Commission pursuant to Rule 17d–2 under the Act and noticed for public comment.20 The Plan also permits ISE and NASD to terminate the Plan, subject to notice, for various reasons. The Commission notes, however, that while the Plan permits the Parties to terminate the Plan, the Parties cannot by themselves reallocate the regulatory responsibilities set forth in the Plan, since Rule 17d–2 under the Act requires that any allocation or re-allocation of regulatory responsibilities be filed with the Commission.21 III. Conclusion This Order gives effect to the Plan filed with the Commission in File No. 4–529. The Parties shall notify all members affected by the Plan of their rights and obligations under the Plan. It is therefore ordered, pursuant to Sections 17(d) and 11A(a)(3)(B) of the Act, that the Plan in File No. 4–529, between ISE and NASD, filed pursuant to Rule 17d–2 under the Act, is approved and declared effective. 20 The Commission also notes that the addition to (or eventual deletion from) the Certification of any federal securities laws, rules, and regulations for which NASD would bear responsibility under the Plan for examining, and enforcing compliance by, common members, would constitute an amendment to the Plan. 21 The Commission notes that paragraphs 4 and 13 of the Plan reflect the fact that NASD’s responsibilities under the Plan will continue in effect until the Commission approves the termination of the Plan. E:\FR\FM\06MRN1.SGM 06MRN1 Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.22 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–3837 Filed 3–5–07; 8:45 am] reports of an execution involving an incorrect security, incorrect side of the market, incorrect price or whether an execution actually took place, to be treated as an erroneous trade. The text of the proposed rule change appears below. Proposed new language is italicized; proposed deletions are in [brackets].5 * * * * * BILLING CODE 8010–01–P Rule 134. It is therefore ordered that ISE is relieved of those responsibilities allocated to the NASD under the Plan in File No. 4–529. Differences and Omissions-Cleared Transactions SECURITIES AND EXCHANGE COMMISSION (‘‘QTs’’) [Release No. 34–55361; File No. SR–NYSE– 2006–28] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of a Proposed Rule Change as Modified by Amendment No. 2 Thereto Relating to NYSE Rules 134 and 411 February 27, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 2, 2006, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by NYSE. NYSE filed Amendment No. 1 to the proposed rule change on September 22, 2006.3 NYSE filed Amendment No. 2 to the proposed rule change on February 20, 2007.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change cprice-sewell on PROD1PC67 with NOTICES The proposed rule change consists of amendments to NYSE Rules 134 (Differences and Omissions-Cleared Transactions) and 411 (Erroneous Reports). The proposed amendments seek to incorporate recognized trading errors into NYSE Rule 134. The Exchange further seeks to expand the use of the Floor broker’s error account to include certain situations involving ‘‘not held’’ orders. Furthermore, the proposed rule change would amend NYSE Rule 411 to allow erroneous 22 17 CFR 200.30–3(a)(34). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 supersedes the original filing in its entirety. 4 Amendment No. 2 supersedes Amendment No. 1 in its entirety. 1 15 VerDate Aug<31>2005 15:35 Mar 05, 2007 Jkt 211001 * * * * * (d) * * * * * (iii) Records as to all errors shall be contemporaneous to the error and be maintained by the member or his or her member organization. Such records shall include the audit trail data elements prescribed in Rule 132, as well as the nature and amount of the error, the means whereby the member resolved the error with the member or member organization that cleared the error trade on the member’s behalf, the aggregate amount of liability that the member has incurred and has outstanding, as of the time each such error trade entry is recorded, and such other information as the Exchange may from time to time require. * * * * * (g) For the purposes of this rule an ‘‘error’’ occurs as described in this subsection (g) and (h) below. When an order is executed outside of the customer instructions as entered in the electronic order tracking system of the Exchange pursuant to Rule 123(e). This includes, but is not limited to: (i) When a held or a not held order is executed in: (a) The wrong security; or (b) on the wrong side of the market; or (c) at a price outside the limit price of the order; or (d) is over bought or over sold; or (e) duplicates an execution. (ii) When an error is committed in the execution of a not held order as it relates to symbol, side, or price as noted in (i) above, which causes such not held order to remain unexecuted. 5 The Exchange inadvertently failed to identify the numbering of Rule 134(g)(i) and (ii) as proposed new text. For clarity, this numbering has been italicized herein. The Exchange has committed to file an amendment reflecting the fact that this section numbering is new text prior to Commission approval of the proposed rule change. Telephone conversation between Deanna Logan, Director, Office of the General Counsel, NYSE and David Michehl, Special Counsel, Commission, Division of Market Regulation, on February 21, 2007. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 9985 (h) When: (i) There is a failure to execute a held order when market conditions permitted; or (ii) when a not held order remains unexecuted, in whole or in part, due to the order being lost or misplaced, or as a result of a system malfunction. (i) The Floor broker must maintain a signed, time-stamped record, including supporting documentation of such error. (j)(i) For the types of errors referred to in (h)(ii) above, such record and supporting documents must be provided to the Exchange Division of Market Surveillance prior to the opening of the Floor on the next trade date following the error. (ii) With respect to the errors described in (h)(ii) above, the Floor broker may execute the order in alignment with half the volume of each Exchange tape print up to the size of the order between the time that the order was entered and the time that the Floor Broker realized that the order was lost, misplaced or not executed as a result of a system malfunction. If executing half the volume of an order based on the Exchange tape print would result in more than a unit of trading, but not a multiple thereof (such as 150 shares), the customer would be entitled to the nearest full unit of shares rounded down (such as 100 shares). (iii) If the Floor broker fails to provide sufficient documentation, (which must include, but is not limited to, the date and time of the error, the date and time the error was discovered, the size of the error, the stock in which the error occurred, the original instructions, the names of all involved parties including the client and any upstairs trader, a detailed narrative of how the error occurred, detail narrative of discussions with relevant parties, the steps taken to correct the error and the ultimate resolution of the error) prior to the next trade date following the error, the Floor broker is prohibited from relying on the provisions of (j)(ii) above. * * * * * Rule 411. Erroneous Reports (a) * * * * * (iii) Except as provided in (iv) below, [A] a report shall not be binding and must be rescinded if an order was not actually executed but was in error reported to have been executed; an order which was executed, but in error reported as not executed, shall be binding; provided, however, when a member who is on the Floor reports in good faith the execution of an order entrusted to him by another member or E:\FR\FM\06MRN1.SGM 06MRN1

Agencies

[Federal Register Volume 72, Number 43 (Tuesday, March 6, 2007)]
[Notices]
[Pages 9983-9985]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-3837]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55367; File No. 4-529]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities Between the International 
Securities Exchange, LLC and the National Association of Securities 
Dealers, Inc.

February 27, 2007.
    Notice is hereby given that the Securities and Exchange Commission 
(``Commission'') has issued an Order, pursuant to Sections 17(d) \1\ 
and 11A(a)(3)(B) \2\ of the Securities Exchange Act of 1934 (``Act''), 
granting approval and declaring effective an amended and restated plan 
for the allocation of regulatory responsibilities (``Plan'') that was 
filed pursuant to Rule 17d-2 under the Act \3\ by the International 
Securities Exchange, LLC (``ISE'') and the National Association of 
Securities Dealers, Inc. (``NASD'') (together with ISE, the 
``Parties'').\4\
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    \1\ 15 U.S.C. 78q(d).
    \2\ 15 U.S.C. 78k-1(a)(3)(B).
    \3\ 17 CFR 240.17d-2.
    \4\ See Securities Exchange Act Release No. 55057 (January 8, 
2007), 72 FR 2040 (January 17, 2007) (``Notice'').
---------------------------------------------------------------------------

    Accordingly, NASD shall assume, in addition to the regulatory 
responsibility it has under the Act, the regulatory responsibilities 
allocated to it under the Plan. At the same time, ISE is relieved of 
those regulatory responsibilities allocated to NASD under the Plan.

I. Introduction

    Section 19(g)(1) of the Act,\5\ among other things, requires every 
self-regulatory organization (``SRO'') registered as either a national 
securities exchange or registered securities association to examine 
for, and enforce compliance by, its members and persons associated with 
its members with the Act, the rules and regulations thereunder, and the 
SRO's own rules, unless the SRO is relieved of this responsibility 
pursuant to Section 17(d) \6\ or 19(g)(2) \7\ of the Act. Section 
17(d)(1) of the Act \8\ was intended, in part, to eliminate unnecessary 
multiple examinations and regulatory duplication for those broker-
dealers that maintain memberships in more than one SRO (``common 
members'').\9\ With respect to a common member, Section 17(d)(1) 
authorizes the Commission, by rule or order, to relieve an SRO of the 
responsibility to receive regulatory reports, to examine for and 
enforce compliance with applicable statutes, rules, and regulations, or 
to perform other specified regulatory functions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(g)(1).
    \6\ 15 U.S.C. 78q(d).
    \7\ 15 U.S.C. 78s(g)(2).
    \8\ 15 U.S.C. 78q(d)(1).
    \9\ See Securities Act Amendments of 1975, Report of the Senate 
Committee on Banking, Housing, and Urban Affairs to Accompany S. 
249, S. Rep. No. 94-75, 94th Cong., 1st Session 32 (1975).
---------------------------------------------------------------------------

    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 \10\ and Rule 17d-2 \11\ under the Act. Rule 17d-2 permits 
SROs to propose joint plans for the allocation of regulatory 
responsibilities, other than financial responsibility rules, with 
respect to their common members. Under paragraph (c) of Rule 17d-2, the 
Commission may declare such a plan effective if, after providing for 
notice and comment, it determines that the plan is necessary or 
appropriate in the public interest and for the protection of investors, 
to foster cooperation and coordination among the SROs, to remove 
impediments to, and foster the development of, a national market system 
and a national clearance and settlement system, and is in conformity 
with the factors set forth in Section 17(d) of the Act. Upon 
effectiveness of a plan filed pursuant to Rule 17d-2, an SRO is 
relieved of those regulatory responsibilities for common members that 
are allocated by the plan to another SRO.
---------------------------------------------------------------------------

    \10\ 17 CFR 240.17d-1. Rule 17d-1 authorizes the Commission to 
name a single SRO as the designated examining authority (``DEA'') to 
examine common members for compliance with the financial 
responsibility requirements imposed by the Act, or by Commission or 
SRO rules.
    \11\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

    On January 17, 2007, the Commission published notice of the Plan 
filed by ISE and NASD.\12\ The Commission received no comments on the 
Plan. The Plan is intended to replace and supersede the current 17d-2 
plan between NASD and ISE and all prior amendments thereto in their 
entirety,\13\ and is intended to

[[Page 9984]]

reduce regulatory duplication for firms that are common members of ISE 
and NASD. The text of the Plan allocates regulatory responsibilities 
among the Parties with respect to common members. Included in the Plan 
is an attachment (the ``ISE Certification of Common Rules,'' referred 
to herein as the ``Certification'') that lists every ISE rule and 
federal securities law and rule and regulation thereunder for which, 
under the Plan, NASD would bear responsibility for examining, and 
enforcing compliance by, common members.
---------------------------------------------------------------------------

    \12\ See Notice, supra note 4.
    \13\ The Parties currently operate pursuant to a 17d-2 plan in 
which NASD has assumed certain inspection, examination, and 
enforcement responsibility for common members with respect to 
certain applicable laws, rules, and regulations (the ``current NASD-
ISE 17d-2 plan''). See Securities Exchange Act Release Nos. 42668 
(April 11, 2000), 65 FR 21048 (April 19, 2000) (File No. 4-431) 
(notice of filing); 42815 (May 23, 2000), 65 FR 34762 (May 31, 2000) 
(File No. 4-431) (approval order).
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II. Discussion

    The Commission finds that the proposed Plan is consistent with the 
factors set forth in Section 17(d) of the Act \14\ and Rule 17d-2(c) 
thereunder \15\ in that the proposed Plan is necessary or appropriate 
in the public interest and for the protection of investors, fosters 
cooperation and coordination among SROs, and removes impediments to and 
fosters the development of the national market system. In particular, 
the Commission believes that the proposed Plan could reduce unnecessary 
regulatory duplication by allocating to NASD certain responsibilities 
for common members that would otherwise be performed by both ISE and 
NASD. Accordingly, the proposed Plan promotes efficiency by reducing 
costs to common members. Furthermore, because ISE and NASD will 
coordinate their regulatory functions in accordance with the Plan, the 
Plan should promote investor protection.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q(d).
    \15\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission notes that, under the Plan, ISE and NASD have 
allocated regulatory responsibility for all ISE rules that are 
substantially similar to NASD rules in that ISE's rule would not 
require NASD to develop one or more new examination standards, modules, 
procedures, or criteria in order to analyze the application of the 
rule, or a dual member's activity, conduct, or output in relation to 
such rule (``Common Rules''). These Common Rules are specifically 
listed in the Certification. In addition, under the Plan, the NASD 
would assume regulatory responsibility for any provisions of the 
federal securities laws and the rules and regulations thereunder that 
are set forth in the Certification.\16\
---------------------------------------------------------------------------

    \16\ As proposed currently, however, there are no federal 
securities rules listed on the Certification. Therefore, at present, 
ISE has not been relieved of any regulatory responsibilities, 
pursuant to the Plan, for any provisions of the federal securities 
laws and the rules and regulations thereunder.
---------------------------------------------------------------------------

    The Plan further provides that NASD shall not assume regulatory 
responsibility, and ISE will retain full responsibility, for: (1) 
Surveillance and enforcement with respect to trading activities or 
practices involving ISE's own marketplace; (2) registration pursuant to 
ISE's applicable rules of associated persons (i.e., registration rules 
that are not Common Rules); (3) ISE's duties as a DEA under Rule 17d-1 
of the Act;\17\ and (4) any rules of ISE that do not qualify as Common 
Rules, except that NASD shall be responsible for such rules with 
respect to any ISE member that operates as a facility, acts as an 
outbound router for ISE, and is a member of NASD (``Router 
Member'').\18\ Apparent violations of any ISE rules by any Router 
Member will be processed by NASD, and NASD will conduct any enforcement 
proceedings. The effect of these provisions is that regulatory 
oversight and enforcement responsibilities for any Router Member will 
be vested with NASD. These provisions should help avoid any potential 
conflicts of interest that could arise if ISE was primarily responsible 
for regulating its affiliated outbound router.\19\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.17d-1.
    \18\ Currently, ISE Route LLC is the only Router Member.
    \19\ In a separate proposed rule change relating to the adoption 
of rules to govern its electronic trading system for equities, ISE 
represented that it would enter into a 17d-2 agreement with NASD to 
delegate to NASD all regulatory oversight and enforcement 
responsibilities with respect to the ISE's outbound routing facility 
pursuant to applicable laws (i.e., the Plan). See Securities 
Exchange Act Release No. 54528 (September 28, 2006), 71 FR 58650, 
58654 (October 4, 2006) (SR-ISE-2006-48).
---------------------------------------------------------------------------

    According to the Plan, ISE will perform a review of the 
Certification, at least annually, or more frequently if required by 
changes in either the rules of ISE or NASD, to add ISE rules not 
included on the then-current list of Common Rules that are 
substantially similar to NASD rules (i.e., new rules that qualify as 
Common Rules or existing rules that have been amended so that they now 
qualify as Common Rules); delete ISE rules included in the then-current 
list of Common Rules that are no longer substantially similar to NASD 
rules (i.e., amended rules that cease to be Common Rules); and confirm 
that the remaining rules on the list of Common Rules continue to be ISE 
rules that are substantially similar to NASD rules. NASD will then 
confirm in writing whether the rules listed in any updated list are 
Common Rules as defined in the Plan. Under the Plan, ISE will also 
provide NASD with a current list of dual members and shall update the 
list no less frequently than once each quarter.
    The Commission is hereby declaring effective and approving a plan 
that, among other things, allocates regulatory responsibility to NASD 
for the oversight and enforcement of all ISE rules that are 
substantially similar to the rules of NASD for common members of ISE 
and NASD. Therefore, modifications to the Certification need not be 
filed with the Commission as an amendment to the Plan, provided that 
the Parties are only adding to, deleting from, or confirming changes to 
ISE rules in the Certification in conformance with the definition of 
Common Rules provided in the Plan. However, should ISE or NASD decide 
to add an ISE rule to the Certification that is not substantially 
similar to an NASD rule; delete an ISE rule from the Certification that 
is substantially similar to an NASD rule; or leave on the Certification 
an ISE rule that is no longer substantially similar to an NASD rule, 
then such a change would constitute an amendment to the Plan, which 
must be filed with the Commission pursuant to Rule 17d-2 under the Act 
and noticed for public comment.\20\
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    \20\ The Commission also notes that the addition to (or eventual 
deletion from) the Certification of any federal securities laws, 
rules, and regulations for which NASD would bear responsibility 
under the Plan for examining, and enforcing compliance by, common 
members, would constitute an amendment to the Plan.
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    The Plan also permits ISE and NASD to terminate the Plan, subject 
to notice, for various reasons. The Commission notes, however, that 
while the Plan permits the Parties to terminate the Plan, the Parties 
cannot by themselves reallocate the regulatory responsibilities set 
forth in the Plan, since Rule 17d-2 under the Act requires that any 
allocation or re-allocation of regulatory responsibilities be filed 
with the Commission.\21\
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    \21\ The Commission notes that paragraphs 4 and 13 of the Plan 
reflect the fact that NASD's responsibilities under the Plan will 
continue in effect until the Commission approves the termination of 
the Plan.
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III. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-529. The Parties shall notify all members affected by the 
Plan of their rights and obligations under the Plan.
    It is therefore ordered, pursuant to Sections 17(d) and 
11A(a)(3)(B) of the Act, that the Plan in File No. 4-529, between ISE 
and NASD, filed pursuant to Rule 17d-2 under the Act, is approved and 
declared effective.

[[Page 9985]]

    It is therefore ordered that ISE is relieved of those 
responsibilities allocated to the NASD under the Plan in File No. 4-
529.
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    \22\ 17 CFR 200.30-3(a)(34).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-3837 Filed 3-5-07; 8:45 am]
BILLING CODE 8010-01-P