Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing and Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Between the National Association of Securities Dealers, Inc., New York Stock Exchange, LLC, and NYSE Regulation, Inc., 42146-42155 [E7-14877]
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42146
Federal Register / Vol. 72, No. 147 / Wednesday, August 1, 2007 / Notices
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closely the extent to which the standard
as implemented achieves a reduction in
cost, and to take action if there is not an
appropriate reduction.47
In response to continued concerns
about the extent of cost reductions, the
Commission’s staff is planning to
analyze and report on the costs
associated with the implementation of
the Commission’s interpretive guidance
for management as well as the
implementation of Auditing Standard
No. 5. The staff will make any
recommendations it believes
appropriate to the Commission.
(7) Does AS5 inappropriately
discourage or restrict auditors from
scaling audits, particularly for smaller
public companies?
With regards to scalability, most
commenters who responded to this
question noted that Auditing Standard
No. 5 appropriately discusses the
concepts of scalability based on size and
complexity without including
inappropriate restrictions on the
auditor’s ability to scale the audit.48
Other commenters observed that where
feasible, Auditing Standard No. 5
should also provide additional guidance
on how to effectively plan an integrated
audit for smaller public companies and
a discussion of related best practices to
enhance a broader understanding of
risk-based auditing.49 One commenter
expressed concern that an objective
definition of ‘‘smaller company’’ is
necessary in order to provide
meaningful direction in scaling the
audit and that the standard should
clarify that both smaller and less
complex companies would be subject to
scaled audits.50
The Commission believes that
Auditing Standard No. 5 appropriately
discusses the concepts of scalability
without including inappropriate
restrictions on the auditor’s ability to
scale the audit. Further the Commission
agrees with the guidance in Auditing
Standard No. 5 that provides for scaling
and tailoring of all audits to fit the
relevant facts and circumstances. The
Commission also agrees with the
47 See for example, American Bankers
Association; America’s Community Bankers;
Biotechnology Industry Organization; Independent
Community Bankers of America; Institute of
Chartered Accountants in England and Wales;
Institute of Management Accountants; The 100
Group of Finance Directors; and U.S. Chamber
Center for Capital Markets Competitiveness.
48 See for example, BDO Seidman, LLP; Center for
Audit Quality; Council of Institutional Investors;
Deloitte & Touche LLP; Ernst & Young LLP; Grant
Thornton LLP; PepsiCo; PricewaterhouseCoopers
LLP; and The Institute of Internal Auditors.
49 See for example, New York State Society of
Certified Public Accountants.
50 Biotechnology Industry Organization.
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statement made by the Board in its
release to Auditing Standard No. 5 that
‘‘scaling will be most effective if it is a
natural extension of the risk-based
approach and applicable to all
companies.’’ 51 As a result, Auditing
Standard No. 5 contains not only a
separate section on scaling the audit,
but it also contains specific discussion
of scaling concepts throughout the
standard. The Commission believes that
these concepts will enable tailoring of
internal control audits to fit the size and
complexity of the company being
audited rather than the company’s
control system being made to fit the
auditing standard. Additionally, as
some commenters observed, the
PCAOB’s project to develop guidance
and education for auditors of smaller
public companies, along with the
Committee of Sponsoring Organizations
of the Treadway Commission’s
(‘‘COSO’’) project to develop guidance
designed to help organizations monitor
the quality of their internal control
systems and other COSO guidance
directed to smaller public companies,
should also facilitate the
implementation of Section 404 in an
effective and efficient manner.52
In summary, the Commission believes
that Auditing Standard No. 5, the
related independence rule, and the
conforming amendments will enable
better integrated, more effective, and
more efficient audits while satisfying
the requirements set forth in Sections
103 and 404 of the Act. Further, the
Commission notes that Auditing
Standard No. 5 is appropriately aligned
with the Commission’s own rules and
interpretive guidance for management.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that proposed
Auditing Standard No. 5, the related
independence rule, and the conforming
amendments are consistent with the
requirements of the Act and the
securities laws and are necessary and
appropriate in the public interest and
for the protection of investors.
It is therefore ordered, pursuant to
Section 107 of the Act and Section
19(b)(2) of the Exchange Act, that
proposed Auditing Standard No. 5, An
Audit of Internal Control Over Financial
Reporting that is Integrated with an
Audit of Financial Statements, the
Related Independence Rule, and
Conforming Amendments (File No.
51 See
PCAOB Release No. 2007–005 (May 24,
2006).
52 See for example, Center for Audit Quality,
Deloitte & Touche LLP; and
PricewaterhouseCoopers LLP.
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PCAOB–2007–02) be and hereby are
approved.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7–14858 Filed 7–31–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56148; File No. 4–544]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Notice of Filing and Order
Approving and Declaring Effective a
Plan for the Allocation of Regulatory
Responsibilities Between the National
Association of Securities Dealers, Inc.,
New York Stock Exchange, LLC, and
NYSE Regulation, Inc.
July 26, 2007.
Notice is hereby given that the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) has issued an
Order, pursuant to Sections 17(d) and
11A(a)(3)(B) 1 of the Securities Exchange
Act of 1934 (‘‘Act’’), approving and
declaring effective a plan for the
allocation of regulatory responsibilities
(‘‘17d–2 Plan’’ or ‘‘Plan’’) that was filed
pursuant to Rule 17d–2 under the Act,2
by the National Association of
Securities Dealers, Inc. (‘‘NASD’’), the
New York Stock Exchange LLC
(‘‘NYSE’’), and NYSE Regulation, Inc.
(‘‘NYSE Regulation’’) (collectively, the
‘‘Parties’’).
I. Introduction
Section 19(g)(1) of the Act,3 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) 4 or 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
1 15 U.S.C. 78q(d) and 15 U.S.C. 78k–1(a)(3)(B),
respectively.
2 17 CFR 240.17d–2.
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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Federal Register / Vol. 72, No. 147 / Wednesday, August 1, 2007 / Notices
expenses for common members and
their SROs.
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.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.9 When an SRO has been named as
a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
member compliance with financial
responsibility requirements. Rule 17d–1
does not relieve an SRO from its
obligation to examine a common
member for compliance with its own
rules and provisions of the federal
securities laws governing matters other
than financial responsibility, including
sales practices and trading activities and
practices.
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 it determines that the plan is
necessary or appropriate in the public
interest and for the protection of
investors, fosters cooperation and
coordination among the SROs, removes
impediments to, and fosters the
6 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).
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)
(adopting Rule 17d–1).
10 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8, 1976)
(adopting Rule 17d–2).
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7 See
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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.
II. The Proposed Plan
A. The Transaction
In November 2006, NASD and NYSE
Group, Inc. (‘‘NYSE Group’’) 11
announced their plan to consolidate
their member regulation operations into
a single organization that would provide
member firm regulation for securities
firms that conduct business with the
public in the United States (the
‘‘Transaction’’).12 Pursuant to the
Transaction, the member firm regulation
and enforcement functions and
employees from NYSE Regulation
would be transferred to NASD,13 and
the expanded NASD would adopt a new
corporate name—the Financial Industry
Regulatory Authority (‘‘FINRA’’).14 The
consolidation is intended to streamline
the broker-dealer regulatory system,
combine technologies, and permit the
establishment of a single set of rules and
a single set of examiners with
complementary areas of expertise
within a single SRO.15
11 NYSE Group recently combined with Euronext
N.V. (‘‘Euronext’’) to form a single, publicly traded
holding company named NYSE Euronext. NYSE
Group and Euronext became separate subsidiaries
of NYSE Euronext. The corporate structure for the
businesses of NYSE Group (including the
businesses of the NYSE LLC and NYSE Arca, Inc.,
a registered national securities exchange) remained
unchanged following the combination. Specifically,
NYSE LLC remains a wholly-owned subsidiary of
NYSE Group. NYSE Market remains a whollyowned subsidiary of the NYSE LLC and conducts
NYSE LLC’s business. NYSE Regulation remains a
wholly-owned subsidiary of NYSE LLC and
performs the regulatory responsibilities for NYSE
LLC pursuant to a delegation agreement with NYSE
LLC and many of the regulatory functions of NYSE
Arca pursuant to a services agreement with NYSE
Arca. See Securities Exchange Act Release No.
55293 (February 14, 2007), 72 FR 8033 (February
22, 2007) (SR–NYSE–2006–120).
12 Currently, both NASD and NYSE Regulation
oversee the activities of U.S.-based broker-dealers
doing business with the public, approximately 170
of which are members of both organizations.
13 Following the closing of the Transaction, NYSE
Regulation will continue to oversee market
surveillance and listed company compliance at the
NYSE and NYSE Arca.
14 The closing of the Transaction and the
consolidation of the member firm regulatory
functions of the NASD and NYSE Regulation are
subject to the execution of definitive agreements
between NASD and NYSE Group, the Commission’s
approval of certain proposed rule changes, and
certain other additional regulatory approvals.
15 See Securities Exchange Act Release No. 55495
(March 20, 2007), 72 FR 14149 (March 26, 2007)
(SR–NASD–2007–023) (proposing to amend the ByLaws of NASD to implement governance and
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42147
To effectuate the consolidation, NASD
has submitted a proposed rule change to
incorporate into FINRA’s rulebook
certain existing NYSE rules that pertain
to the regulation of member firm
conduct (the ‘‘Incorporated NYSE
Rules’’).16 The Incorporated NYSE Rules
will apply to members of FINRA that are
also members of NYSE on or after the
date of the closing of the Transaction
(such common members are referred to
as ‘‘Dual Members’’).17 Consequently, to
relieve NYSE of its responsibility to
examine for, and enforce compliance
with, the applicable NYSE rules, the
Parties have entered into a joint plan for
the allocation of regulatory
responsibilities with respect to Dual
Members, as discussed below.
Subsequent to the closing of the
Transaction, FINRA intends to begin the
process of consolidating its rule set
applicable to member firms by reducing
to one the two sets of rules (i.e., NASD
rules and the Incorporated NYSE Rules)
that are currently applicable to Dual
Members.18
B. The Proposed Plan
On July 26, 2007, the Parties
submitted the proposed 17d–2 Plan in
connection with the proposed
consolidation of the member regulation
operations of NASD and NYSE Group.
The Plan would reduce regulatory
duplication for firms that are Dual
Members by allocating certain
regulatory responsibilities for selected
NYSE rules from NYSE Regulation to
FINRA.19 Specifically, the Plan includes
a list of all of those rules (the ‘‘Common
Rules,’’ which are listed on the ‘‘List of
Common Rules’’ attached as Exhibit 1 to
the Plan) for which FINRA would
assume examination, enforcement, and
surveillance responsibilities under the
Plan relating to compliance by Dual
Members to the extent that such
responsibilities involve member firm
regulation.20 The NYSE rules on the List
related changes to accommodate the consolidation
of the member firm regulatory functions of NASD
and NYSE Regulation) (‘‘By-Law Amendments
Filing’’).
16 See File No. SR–NASD–2007–054
(‘‘Incorporation Filing’’). The list of Incorporated
NYSE Rules is set forth in Exhibit 5 of SR–NASD–
2007–054.
17 See id. See also Proposed 17d–2 Plan (defining
Dual Members as broker-dealer firms that are
members of both the NYSE and FINRA on or after
the closing date of the Transaction).
18 FINRA’s efforts to reduce regulatory
duplication in this regard with respect to Dual
Members by consolidating the two separate rule sets
will constitute a proposed rule change and will be
subject to Commission approval.
19 See Incorporation Filing, supra note 16; see
also paragraph 2(a) of the proposed 17d–2 Plan.
20 See Paragraph 1(a) of the proposed 17d–2 Plan.
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of Common Rules are the same rules
that are proposed by NASD to be
incorporated into the FINRA rulebook,
so that such rules will be common rules
of both FINRA and NYSE for purposes
of the 17d–2 Plan.21
Under the Plan, NYSE would retain
full responsibility for: (i) Examinations
of Dual Member conduct covered by
NYSE rules that are not Common Rules
(‘‘NYSE-only Rules’’) and/or by federal
laws or regulations; (ii) surveillance,
investigation, and enforcement with
respect to conduct relating to trading on
or through the systems and facilities of
NYSE and conduct otherwise covered
by NYSE-only Rules, as well as
surveillance, investigation, and
enforcement with respect to whether
such conduct may constitute a violation
of federal laws or regulations; (iii)
processing of applications for trading
licenses or other indicia of membership
in NYSE; (iv) qualification and
registration of firm personnel to effect
transactions or work on the floor of
NYSE pursuant to NYSE’s applicable
qualification and registration rules; and
(v) the application of any Common Rule
as it pertains to matters other than
member firm regulation, including
matters relating to the NYSE’s exclusive
responsibility for the aforementioned
areas (the ‘‘Non-Exclusive Common
Rules’’).22
The text of the proposed 17d–2 Plan
and the Exhibits thereto are as follows:
Agreement Between National
Association of Securities Dealers, Inc.,
New York Stock Exchange, LLC., and
NYSE Regulation, Inc. Pursuant to SEC
Rule 17d–2 Promulgated by the
Securities and Exchange Commission
Under the Securities Exchange Act of
1934
This Agreement, between and among
National Association of Securities
Dealers, Inc., a Delaware nonstock
membership corporation (‘‘NASD’’),
New York Stock Exchange, LLC., a New
York limited liability company (the
‘‘NYSE’’), and NYSE Regulation, Inc., a
New York not-for-profit corporation and
an indirectly wholly-owned subsidiary
of NYSE Group, Inc. (‘‘NYSE
Regulation’’), is made this 26th day of
July, 2007, pursuant to the provisions of
Rule 17d–2 promulgated by the
Securities and Exchange Commission
(the ‘‘Commission’’) under the
Securities Exchange Act of 1934, as
amended (the ‘‘Act’’), which authorizes
agreements between self-regulatory
21 See
Paragraph 2(a) of the proposed 17d–Plan.
Paragraphs 2(d)(i)–(v) of the proposed 17d–
2 Plan; see also infra text accompanying notes 29–
30 (discussing the Non-Exclusive Common Rules).
22 See
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organizations for plans to reduce or
eliminate regulatory duplication.
Whereas, NYSE Group, Inc., a
Delaware corporation and direct whollyowned subsidiary of NYSE Euronext
(‘‘NYSE Group’’), NYSE Regulation and
NASD intend to enter into an Asset
Purchase Agreement (the ‘‘Purchase
Agreement’’), pursuant to which (i)
NYSE Regulation will agree to transfer
to NASD and NASD will agree to
assume from NYSE Regulation,
approximately 470 employees and
related expenses and revenues from the
following functions or groups of NYSE
Regulation: (1) Member firm regulation
(including testing, continuing education
and registration); (2) risk assessment; (3)
arbitration; and (4) enforcement (except
for the portion thereof that handles
cases related to market surveillance and
NYSE-only Rules (as defined herein)
and/or related federal laws or
regulations), and (ii) NASD will operate
under a new name, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’);
and
Whereas, in connection with the
transactions contemplated by the
Purchase Agreement (collectively, the
‘‘Transaction’’), the parties seek to
reduce duplication in the regulation of
broker-dealer firms that are members of
both the NYSE and FINRA on or after
the Effective Date, as defined herein,
(‘‘Dual Members’’) and in the filing and
processing of certain registration and
membership records; and
Whereas, the parties intend that
FINRA will perform various functions
formerly performed by NYSE
Regulation; and
Whereas, FINRA will perform certain
of these functions pursuant to a
Regulatory Services Agreement to be
entered into between and among the
parties, and will perform certain of
these functions pursuant to this
Agreement among the parties in
conformity with the requirements of
Section 17(d) of the Act and Rule 17d–
2 promulgated thereunder; and
Whereas, the parties intend this
Agreement to describe the functions to
be performed by FINRA pursuant to
Section 17(d) of the Act and Rule 17d–
2 promulgated thereunder, and intend
to file such with the Commission for its
approval.
Now, Therefore, in consideration of
the foregoing, the mutual covenants
contained hereinafter, and other good
and valuable consideration, the parties
hereby agree as follows:
1. Assumption of Regulatory
Responsibilities.
(a) On the Effective Date, which shall
be the closing date of the Transaction,
provided that the Commission has
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Fmt 4703
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approved this Agreement as of such
closing date, FINRA will assume
regulatory responsibilities for all Dual
Members for the list of rules attached as
Exhibit 1 (‘‘Common Rules’’) to this
Agreement and made part hereof
including examination, enforcement
and surveillance responsibilities for
such Common Rules to the extent that
such responsibilities involve member
firm regulation (the ‘‘Regulatory
Responsibilities’’). This Agreement shall
not become effective if the Transaction
does not close.
(b) FINRA shall not charge NYSE for
performing the Regulatory
Responsibilities except for the
reasonable notification expenses and
travel and out-of-pocket expenses as
provided in paragraphs 4(c) and 5.
2. Scope of Regulatory
Responsibilities.
(a) Prior to the Effective Date, NASD
shall submit a filing to the Commission
adopting, as of the Effective Date, those
NYSE rules listed in Exhibit 1 by
incorporating into the FINRA rulebook
in their entirety such NYSE rules in
effect as of the Effective Date so that as
of the Effective Date, the rules shall be
Common Rules of both FINRA and the
NYSE for purposes of this Agreement,
Section 17(d) of the Act and Rule 17d–
2 promulgated thereunder.
(b) Whenever either NYSE or FINRA
proposes to make a change to the
substance of any of the Common Rules,
before filing such proposal with the
SEC, it shall inform the other party to
determine whether the other party will
agree to promptly propose a conforming
change to its version of the Common
Rule. In the event the parties do not
agree to propose conforming changes,
the parties agree that they will file with
the SEC for approval an amendment to
this Agreement deleting such rule from
the list of Common Rules, such
amendment to be effective no earlier
than the date of SEC approval of the
change to the Common Rule proposed
by the NYSE or FINRA, as the case may
be.
(c) Common Rulebook. FINRA intends
to create a single set of Rules to replace
the FINRA NASD Rules and the NYSE
Rules incorporated by FINRA. There is
a substantial likelihood that each FINRA
rule that would replace an as thenexisting NYSE Rule incorporated by
FINRA and applicable to Dual Members
will be substantially different from the
then-existing NYSE Rule. In such case,
pursuant to paragraph 2(b) above, NYSE
would need to seek and obtain approval
from the Commission to amend its
corresponding Rule to conform to the
new FINRA Rule.
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Federal Register / Vol. 72, No. 147 / Wednesday, August 1, 2007 / Notices
(d) Notwithstanding anything
contained in this Agreement to the
contrary, NYSE shall retain regulatory
responsibility for the following
(collectively, the ‘‘Retained
Responsibilities’’):
(i) Examinations of conduct or action
by a Dual Member that is otherwise
covered by NYSE rules that are not
Common Rules (the ‘‘NYSE-only
Rules’’) and/or by related federal laws or
regulations;
(ii) Surveillance of, and investigation
and enforcement with respect to,
conduct or action undertaken in
connection with trading on or through
the systems and facilities of the NYSE,
or conduct or actions by a Dual Member
that are otherwise covered by NYSEonly Rules, additionally, in all such
cases, surveillance, investigation and
enforcement with respect to how such
conduct may constitute a violation of
applicable federal laws or regulations;
(iii) Processing of applications for
trading licenses or other indicia of
membership in the NYSE, including
without limitation applying NYSE’s
rules relating to the rights and
obligations of Dual Members that hold
a trading license to effect transactions
on the floor of the NYSE or through any
systems or facilities of the NYSE;
(iv) Qualification and registration of
member firm personnel to effect
transactions or work as Floor employees
on the Floor of the NYSE, pursuant to
the NYSE’s applicable rules regarding
qualifications and registration; and
(v) The application of any Common
Rule as it pertains to matters other than
member firm regulation, including
matters relating to NYSE’s exclusive
responsibility for (i)–(iv) above (the
‘‘Non-Exclusive Common Rules’’). The
parties have identified the NonExclusive Common Rules, which are
specifically designated on Exhibit 1, as
those rules for which both NYSE and
FINRA will bear responsibility when
performing their respective regulatory
responsibilities.
3. Violations. (a) Should FINRA
become aware of potential violations of
the NYSE-only Rules, discovered
pursuant to the performance of the
Regulatory Responsibilities assumed
hereunder, FINRA will promptly notify
the NYSE of those potential violations,
and such matters will be handled by
NYSE.
(b) Should NYSE become aware of
potential violations of Common Rules,
discovered pursuant to the performance
of the Retained Responsibilities, NYSE
will promptly notify FINRA of those
potential violations, and such matters
will be handled by FINRA as provided
in this Agreement.
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4. Applications for, Qualification for,
and Termination of, Membership. (a)(i)
Dual Members subject to this Agreement
will be required to submit to FINRA,
and FINRA will be responsible for
processing, and acting upon, all
applications (each an ‘‘Application’’)
submitted on behalf of the Dual Member
and any individual associated with such
Dual Member required to be approved
by the rules of NYSE and FINRA
(collectively, an ‘‘Applicant’’).
(ii) Promptly upon receipt of any
complete Application, but in any event
no later than seven (7) business days
thereafter, FINRA shall advise NYSE of
the qualifications and registration status
of the Applicant required to be
approved pursuant to the rules of NYSE
and FINRA. The NYSE reserves the right
to require additional qualifications or
registrations prior to approving an
Applicant as a member of the NYSE,
pursuant to the process described in
NYSE rules.
(b) FINRA shall promptly advise
NYSE of information regarding changes
in status of any person required to be
approved pursuant to the rules of NYSE
and FINRA that relates to a statutory
disqualification, involuntary
termination from employment or any
other submission made to FINRA
pursuant to NYSE Rule 351(a)–(c). The
NYSE reserves the right to disqualify a
member pursuant to the process
described in NYSE rules.
(c) Dual Members will be required to
send to FINRA all letters, termination
notices or other material respecting
persons required to be approved
pursuant to the rules of NYSE and
FINRA. When as a result of processing
said submissions FINRA becomes aware
of a statutory disqualification as defined
in the Act with respect to a Dual
Member or person associated with a
Dual Member, FINRA will determine
pursuant to Section 15A(g) or 6(c) of the
Act the acceptability or continued
acceptability of the person to whom
such disqualification applies but will
not make a determination regarding
NYSE membership or participation, or
association of a person with an NYSE
member. FINRA shall advise NYSE in
writing of its actions in this regard.
NYSE shall, within 30 days of receiving
such information from FINRA,
determine whether to permit a Dual
Member that has been determined to be
statutorily disqualified by FINRA from
becoming or remaining an NYSE
member or a participant, or a person
associated with a member. NYSE will
advise FINRA of its decision. NYSE will
reimburse FINRA for reasonable
expenses incurred in notifying NYSE of
FINRA’s decision regarding a statutory
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42149
disqualification under Section 15A(g) or
Section 6(c) of the Act.
FINRA will also be responsible for
processing and, if required, acting upon
all requests for the opening, address
changes, and terminations of branch
offices by Dual Members and any other
applications required of Dual Members
under the Common Rules.
5. Information Sharing. The parties
agree to share information as follows:
(a) General.
(i) FINRA shall promptly furnish to
the NYSE any information that FINRA
determines indicates possible financial
or operational problems that may affect
the continued ability of any Dual
Member to conduct business.
(ii) NYSE shall promptly furnish to
FINRA any information that the NYSE
determines indicates possible financial
or operational problems that may affect
the continued ability of any Dual
Member to conduct business.
(b) Reports and Other Documents.
(i) FINRA shall upon request
promptly make available to the NYSE at
no cost any existing financial,
operational, or related report filed with
FINRA by a Dual Member, as well as
any existing files, information on
customer complaints, termination
notices, copies of an examination report,
examination workpapers, investigative
material, enforcement referrals or other
documents involving compliance with
the federal securities laws and
regulations and the rules of the parties
by the Dual Member, or other
documents in the possession of FINRA
relating to the Dual Member as
necessary to assist the NYSE in fulfilling
the Retained Responsibilities.
(ii) NYSE shall upon request promptly
make available to FINRA at no cost any
existing files, information on customer
complaints, termination notices, copies
of an examination report, examination
workpapers, investigative material,
enforcement referrals or other
documents involving compliance with
the federal securities laws and
regulations and the rules of the parties
by the Dual Member, or other
documents in the possession of NYSE
relating to the Dual Member as
necessary to assist FINRA in fulfilling
the self-regulatory responsibilities,
obligations, and functions allocated to it
under this Agreement.
(c) Third-party Complaints.
(i) If FINRA receives a copy of a
complaint from any third-party or any
report from a Dual Member pursuant to
NYSE Rule 351, as incorporated by
FINRA, relating to possible violations by
a Dual Member or persons associated
with a Dual Member that is not within
the Regulatory Responsibilities of
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FINRA and is within the Retained
Responsibilities of the NYSE, FINRA
shall promptly forward to the NYSE
copies of such complaints, and NYSE
shall have responsibility to review and
take any appropriate action with respect
to such complaint.
(ii) If NYSE receives a copy of a
complaint from any third-party relating
to a Dual Member’s activity or conduct
that is within the Regulatory
Responsibilities of FINRA or is
otherwise within the scope of FINRA’s
regulatory jurisdiction, the NYSE shall
promptly forward to FINRA copies of
such complaints, and FINRA shall have
responsibility to review and take any
appropriate action with respect to such
complaint.
(d) Information on Formal and
Informal Discipline.
(i) FINRA shall promptly make
available to the NYSE information on (1)
Formal disciplinary actions taken by
FINRA involving a Dual Member or
persons associated with a Dual Member;
and (2) informal disciplinary actions
taken by FINRA involving a Dual
Member and such individuals identified
to FINRA by NYSE that are employed by
a Dual Member and who have been
designated to effect transactions on the
Floor of the NYSE or to work as Floor
employees on the Floor of the NYSE, or
to supervise such employees. For
purposes of this paragraph (d)(i),
informal disciplinary actions shall mean
Letters of Caution.
(ii) The NYSE shall promptly make
available to FINRA information on (1)
formal disciplinary actions taken by
NYSE involving a Dual Member or
persons associated with a Dual Member;
and (2) informal disciplinary actions
taken by NYSE involving a Dual
Member. For purposes of this paragraph
(d)(ii), informal disciplinary actions
shall mean Letters of Education, Letters
of Admonition, and Summary Fines.
(e) Parties to Make Personnel
Available as Witnesses.
(i) FINRA shall make its personnel
available to the NYSE to serve as
testimonial or non-testimonial witnesses
as necessary to assist the NYSE in
fulfilling the self-regulatory
responsibilities retained by it under this
Agreement. NYSE shall pay all
reasonable travel and other out-ofpocket expenses incurred by FINRA’s
employees to the extent that the NYSE
requires such employees to serve as a
witness, and provide information or
other assistance pursuant to this
Agreement.
(ii) The NYSE shall make its
personnel available to FINRA to serve as
testimonial or non-testimonial witnesses
as necessary to assist FINRA in fulfilling
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the Regulatory Responsibilities. FINRA
shall pay all reasonable travel and other
out-of-pocket expenses incurred by
NYSE’s employees to the extent that
FINRA requires such employees to serve
as a witness, and provide information or
other assistance pursuant to this
Agreement.
(f) 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.
Neither party shall assert regulatory or
other privileges as against the other with
respect to documents or information
that is required to be shared pursuant to
this Agreement.
(g) No Waiver of Privilege. The sharing
of documents or information between
the parties pursuant to this Agreement
shall not be deemed a waiver as against
third parties of regulatory or other
privileges relating to the discovery of
documents or information.
(h) Periodic Meetings. The parties
agree that they shall conduct regular
joint meetings between them for the
purposes of reporting on the conduct of
the Regulatory Responsibilities and
current investigations involving
significant rule violations by a Dual
Member, and identifying issues or
concerns with respect to the regulation
of Dual Members.
6. Arbitration of Disputes Under This
Agreement.
(a) Regulatory Services Manager.
NYSE and NASD hereby each appoint
the employee identified on Exhibit 2
hereto as its respective Regulatory
Services Manager (the ‘‘Regulatory
Services Manager’’) to, among other
things, resolve disputes pursuant to
Section 6(b) of this Agreement and
oversee day-to-day management of the
services and activities contemplated by
this Agreement. On reasonable prior
written notice to the other, NYSE and
FINRA shall each have the right to
replace its respective Regulatory
Services Manager with an employee or
officer with comparable knowledge,
expertise and decision-making
authority.
(b) Dispute Resolution. Except as
otherwise expressly set forth in this
Agreement, any dispute arising out of or
relating to this Agreement shall be
submitted for resolution to the
Regulatory Services Managers. In the
event the Regulatory Services Managers
fail to resolve a dispute pursuant to this
Section 6(b) within a reasonable time of
receiving notice of such dispute from a
party, then the parties shall refer the
dispute to the employee identified on
Exhibit 2 as its respective Senior Officer
(the ‘‘Senior Officer’’) and such Senior
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Officers shall attempt in good faith to
conclusively resolve any such dispute.
On reasonable prior written notice to
the other, NYSE and FINRA shall each
have the right to replace its respective
Senior Officer with an officer with
comparable rank, knowledge, expertise
and decision-making authority. If the
Senior Officers are unable to resolve the
dispute amicably within 30 days, the
dispute will be resolved by binding
arbitration between the parties as
provided herein. Arbitration shall be
conducted by a single arbitrator agreed
upon by the parties in accordance with
the arbitration rules of the American
Arbitration Association (the ‘‘AAA’’);
provided, that, if the parties cannot
agree on the identity of the arbitrator,
then the arbitrator shall be chosen by
the AAA in accordance with its rules.
All arbitration hearings shall be
conducted in New York, New York.
Each party shall pay its own costs for
the arbitration, with the cost of the
arbitrator to be equally divided between
the parties; provided, that the arbitrator
may, in his or her discretion, award
reasonable attorneys’ fees and expenses
to the prevailing party. The arbitrator
will have no authority to award punitive
damages or any other damages not
measured by the prevailing party’s
actual damages, and may not, in any
event, make any ruling, finding or
award that does not conform to the
terms and conditions of this Agreement.
A judgment upon an award may be
entered in any court having jurisdiction.
No party or the arbitrator may disclose
the existence, content, or results of any
arbitration hereunder without the prior
written consent of the other parties,
other than to the Commission. Except as
otherwise expressly set forth in this
Agreement, the procedures set forth in
this Section 6(b) must be satisfied as a
condition precedent to a party
commencing any arbitration in
connection with any dispute arising
hereunder. A party’s failure to comply
with the preceding sentence shall
constitute cause for the dismissal
without prejudice of any such
arbitration.
(c) Continuity of Services. Each party
acknowledges that the timely and
complete performance of its obligations
pursuant to this Agreement is critical to
the business and operations of the other
party. In the event of a dispute between
the parties, the parties will continue to
perform their respective obligations
under this Agreement in good faith
during the resolution of such dispute
unless and until this Agreement is
terminated in accordance with its
provisions. Nothing in this Section 6(c)
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will interfere with a party’s right to
terminate this Agreement as set forth in
this Agreement.
7. No Restrictions on Regulatory
Action. Nothing contained in this
Agreement shall restrict or in any way
encumber the right of either party to
conduct its own independent or
concurrent investigation, examination
or enforcement proceeding of or against
Dual Members, as either party, in its
sole discretion, shall deem appropriate
or necessary.
8. Limitation of Liability. None of the
parties nor any of their respective
directors, governors, officers,
employees, affiliates or agents shall be
liable to any other party or such party’s
directors, governors, officers,
employees, affiliates or agents for any
liability, loss or damage resulting from
any delays, inaccuracies, errors or
omissions with respect to its performing
or failing to perform its obligations
under this Agreement, except as
otherwise provided for under the Act or
for any liability, loss or damage
resulting from the gross negligence,
willful misconduct, reckless disregard
or breach of confidentiality by a party or
its directors, governors, officers,
employees, affiliates or agents. The
parties understand and agree with each
other that the Regulatory
Responsibilities are being performed on
a good faith and best effort basis and no
warranties, express or implied, are made
by any party to any other party with
respect to any of the obligations to be
performed by the parties hereunder.
9. Commission Approval. (a) The
parties agree to file promptly this
Agreement with the Commission for its
review and approval. This Agreement
shall be effective upon approval of the
Commission, contingent upon the
closing of the Transaction.
(b) If approved by the Commission,
FINRA will notify Dual Members of the
general terms of the Agreement and its
impact on such members. The notice
will be sent on behalf of both parties
and, prior to being sent, NYSE will
review and approve the notice.
10. Applicability of Certain Laws.
Notwithstanding any provision hereof,
this Agreement shall be subject to any
applicable federal or state statute, or any
rule or order of the Commission, or
industry agreement, restructuring the
regulatory framework of the securities
industry or reassigning regulatory
responsibilities between self-regulatory
organizations. To the extent such
statute, rule, order or agreement is
inconsistent with one or more
provisions of this Agreement, such
statute, rule, order or agreement shall
supersede the provision(s) hereof to the
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extent necessary to be properly
effectuated and the provision(s) hereof
in that respect shall be null and void.
11. Definitions. Unless otherwise
defined in this Agreement, or unless the
context otherwise requires, the terms
used in this Agreement shall have the
same meaning as they have under the
Act and the rules and regulations
promulgated by the Commission
thereunder.
12. 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.
13. Amendment. This Agreement may
be amended in writing duly approved
by each party. All such amendments
must be filed with and approved by the
Commission before they become
effective.
14. Termination. This Agreement may
be terminated by NYSE or FINRA at any
time upon the approval of the
Commission after 180 days written
notice to the other party.
15. General. The parties 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.
16. Liaison and Notices. All questions
regarding the implementation of this
Agreement shall be directed to the
persons identified in subsections (a), (b)
and (c), as applicable, below. 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:
(a) If to NYSE Regulation: NYSE
Regulation, Inc., 20 Broad Street, New
York, New York 10005. Telephone:
(212) 656–3000, Facsimile: (212) 656–
8101, Attention: General Counsel
Regulatory Services Manager.
(b) If to New York Stock Exchange,
LLC.: New York Stock Exchange, LLC.,
11 Wall Street, New York, NY 10005.
Telephone: (212) 656–3000, Facsimile:
(212) 656–8101, Attention: General
Counsel.
(c) If to FINRA: Financial Industry
Regulatory Authority, Inc., 1735 K
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Frm 00110
Fmt 4703
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42151
Street, NW., Washington, DC 20006–
1500. Telephone: (202) 728–8071,
Facsimile: (202) 728–8075, Attention:
General Counsel Regulatory Services
Manager.
17. Relief from Regulatory
Responsibility. Pursuant to Section
17(d)(1)(A) of the Act, and Rule 17d–2
thereunder, NASD and the NYSE jointly
request the SEC, upon its approval of
this Agreement, to relieve the NYSE of
any and all responsibilities with respect
to the matters allocated to NASD or
FINRA pursuant to this Agreement for
purposes of Sections 17(d) and 19(g) of
the Act.
18. 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 by or for the
State of New York or the United States
District Court for the Southern District
of New York in connection with any
action or proceeding relating to this
Agreement.
19. Survival of Provisions. Provisions
intended by their terms or context to
survive and continue notwithstanding
delivery of the regulatory services by
FINRA, the payment of the price by the
NYSE, and any termination of this
Agreement shall survive and continue.
20. Prior Agreements. This Agreement
is wholly separate from the multiparty
Agreement made pursuant to Rule 17d–
2 of the Exchange Act between the
American Stock Exchange LLC, the
Boston Stock Exchange, Inc., the
Chicago Board Options Exchange,
Incorporated, the International
Securities Exchange LLC., the National
Association of Securities Dealers, Inc.,
the New York Stock Exchange, LLC., the
NYSE Arca, Inc., and the Philadelphia
Stock Exchange, Inc. involving the
allocation of regulatory responsibilities
with respect to common members for
compliance with common rules relating
to the conduct by broker-dealers of
accounts for listed options or index
warrants entered into on December 1,
2006, and as may be amended from time
to time.
21. Counterparts. This Agreement
may be executed in one or more
counterparts, each of which shall be
deemed an original, and such
counterparts together shall constitute
but one and the same instrument.
In Witness Whereof, the parties hereto
have caused this Agreement to be
executed by their respective officers
thereunto duly authorized, as of the date
first written above.
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National Association of Securities
Title:
Dealers, Inc.
NYSE Regulation, Inc.
By: llllllllllllllll
By: llllllllllllllll
Name:
Name:
Title:
Title:
New York Stock Exchange, LLC.
By: llllllllllllllll
Name:
Exhibit 1—List Of Common Rules
As referenced in paragraph 2(d)(v) of
the Agreement, rules designated with a
‘‘*’’ are Non-Exclusive Common Rules,
and NYSE shall retain regulatory
responsibility for these rules insofar as
necessary to discharge its Retained
Responsibilities.
FINRA Rule
*Rule 1 ‘‘The Exchange’’ ..........................................................................
*Rule 2 ‘‘Member,’’ ‘‘Membership,’’ ‘‘Member Firm,’’ etc. ........................
*Rule 2A ‘‘Jurisdiction’’ .............................................................................
*Rule 2B No Affiliation between Exchange and any Member Organization.
*Rule 3 ‘‘Security’’ ....................................................................................
*Rule 4 ‘‘Stock’’ ........................................................................................
*Rule 5 ‘‘Bond’’ .........................................................................................
*Rule 6 ‘‘Floor’’ .........................................................................................
*Rule 8 ‘‘Delivery’’ ....................................................................................
*Rule 9 ‘‘Branch Office Manager’’ ............................................................
*Rule 10 ‘‘Registered Representative’’ .....................................................
*Rule 11 Effect of Definitions ...................................................................
*Rule 12 ‘‘Business Day’’ .........................................................................
*Rule 134 Differences and Omissions—Cleared Transactions ...............
Rule 176 Delivery Time ............................................................................
Rule 177 Delivery Time—‘‘Cash’’ Contracts ............................................
Rule 180 Failure to Deliver ......................................................................
Rule 282 Buy-in Procedures ....................................................................
Rule 283 Members Closing Contracts—Procedure .................................
Rule 285 Notice of Intention to Successive Parties .................................
Rule 286 Closing Portion of Contract ......................................................
Rule 287 Liability of Succeeding Parties .................................................
Rule 288 Notice of Closing to Successive Parties ..................................
Rule 289 Must Receive Delivery ..............................................................
Rule 290 Defaulting Party May Deliver After ‘‘Buy-In’’ Notice .................
Rule 291 Failure to Fulfill Closing Contract .............................................
Rule 292 Restrictions on Members’ Participation in Transaction to
Close Defaulted Contracts.
Rule 293 Closing Contracts in Suspended Securities .............................
Rule 294 Default in Loan of Money .........................................................
Rule 296 Liquidation of Securities Loans and Borrowings ......................
Rule 311 Formation and Approval of Member Organizations .................
Rule 312 Changes Within Member Organizations ...................................
Rule 313 Submission of Partnership Articles—Submission of Corporate
Documents.
Rule 319 Fidelity Bonds ...........................................................................
Rule 321 Formation of Acquisition of Subsidiaries ..................................
Rule 322 Guarantees by, or Flow Through Benefits for Members or
Member Organizations.
*Rule 325 Capital Requirements Members Organizations ......................
Rule 326(a) Growth Capital Requirement ................................................
Rule 326(b) Business Reduction Capital Requirement ...........................
Rule 326(c) Business Reduction Capital Requirement ............................
Rule 326(d) Reduction of Elimination of Loans and Advances ...............
Rule 328 Sale-and-Leasebacks, Factoring, Financing and Similar Arrangements.
*Rule 342 Offices—Approval, Supervision and Control ...........................
Rule 343 Offices—Sole Tenancy, Hours, Display of Membership Certificates.
Rule 344 Research Analysts and Supervisory Analysts ..........................
Rule 345 Employees—Registration, Approval, Records .........................
Rule 345A Continuing Education for Registered Persons .......................
Rule 346 Limitations—Employment and Association with Members and
Member Organizations.
*Rule 350 Compensation or Gratuities to Employees of Others .............
Rule 351 Reporting Requirements ...........................................................
Rule 352 Guarantees, Sharing in Accounts, and Loan Arrangements ...
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NYSE Rule
NYSE Rule 1 ‘‘The Exchange.’’
NYSE Rule 2 ‘‘Member,’’ ‘‘Membership,’’ ‘‘Member Firm,’’ etc.
NYSE Rule 2A ‘‘Jurisdiction.’’
NYSE Rule 2B No Affiliation between Exchange and any Member Organization.
NYSE Rule 3 ‘‘Security.’’
NYSE Rule 4 ‘‘Stock.’’
NYSE Rule 5 ‘‘Bond.’’
NYSE Rule 6 ‘‘Floor.’’
NYSE Rule 8 ‘‘Delivery.’’
NYSE Rule 9 ‘‘Branch Office Manager.’’
NYSE Rule 10 ‘‘Registered Representative.’’
NYSE Rule 11 Effect of Definitions.
NYSE Rule 12 ‘‘Business Day.’’
NYSE Rule 134 Differences and Omissions—Cleared Transactions.
NYSE Rule 176 Delivery Time.
NYSE Rule 177 Delivery Time—‘‘Cash’’ Contracts.
NYSE Rule 180 Failure to Deliver.
NYSE Rule 282 Buy-in Procedures.
NYSE Rule 283 Members Closing Contracts—Procedure.
NYSE Rule 285 Notice of Intention to Successive Parties.
NYSE Rule 286 Closing Portion of Contract.
NYSE Rule 287 Liability of Succeeding Parties.
NYSE Rule 288 Notice of Closing to Successive Parties.
NYSE Rule 289 Must Receive Delivery.
NYSE Rule 290 Defaulting Party May Deliver After ‘‘Buy-In’’ Notice.
NYSE Rule 291 Failure to Fulfill Closing Contract.
NYSE Rule 292 Restrictions on Members’ Participation in Transaction
to Close Defaulted Contracts.
NYSE Rule 293 Closing Contracts in Suspended Securities.
NYSE Rule 294 Default in Loan of Money.
NYSE Rule 296 Liquidation of Securities Loans and Borrowings.
NYSE Rule 311 Formation and Approval of Member Organizations.
NYSE Rule 312 Changes Within Member Organizations.
NYSE Rule 312 Submission of Partnership Articles—Submission of
Corporate Documents.
NYSE Rule 319 Fidelity Bonds.
NYSE Rule 321 Formation of Acquisition of Subsidiaries.
NYSE Rule 322 Guarantees by, or Flow Through Benefits for Members
or Member Organizations.
NYSE Rule 325 Capital Requirements Members Organizations.
NYSE Rule 326(a) Growth Capital Requirement.
NYSE Rule 326(b) Business Reduction Capital Requirement.
NYSE Rule 326(c) Business Reduction Capital Requirement.
NYSE Rule 326(d) Reduction of Elimination of Loans and Advances.
NYSE Rule 328 Sale-and-Leasebacks, Factoring, Financing and Similar Arrangements.
NYSE Rule 342 Offices—Approval, Supervision and Control.
NYSE Rule 343 Offices—Sole Tenancy, Hours, Display of Membership
Certificates.
NYSE Rule 344 Research Analysts and Supervisory Analysts.
NYSE Rule 345 Employees—Registration, Approval, Records.
NYSE Rule 345A Continuing Education for Registered Persons.
NYSE Rule 346 Limitations—Employment and Association with Members and Member Organizations.
NYSE Rule 350 Compensation or Gratuities to Employees of Others.
NYSE Rule 351 Reporting Requirements.
NYSE Rule 352 Guarantees, Sharing in Accounts, and Loan Arrangements.
NYSE Rule 353 Rebates and Compensation.
NYSE Rule 354 Reports to Control Persons.
NYSE Rule 375 Missing the Market.
NYSE Rule 382 Carrying Agreements.
NYSE Rule 387 COD Orders.
Rule 353 Rebates and Compensation .....................................................
Rule 354 Reports to Control Persons ......................................................
*Rule 375 Missing the Market ..................................................................
Rule 382 Carrying Agreements ................................................................
Rule 387 COD Orders ..............................................................................
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42153
NYSE Rule
FINRA Rule
*Rule 392 Notification Requirements for Offerings of Listed Securities ..
NYSE Rule 392 Notification Requirements for Offerings of Listed Securities.
NYSE Rule 401 Business Conduct.
NYSE Rule 401A Customer Complaints.
NYSE Rule 402 Customer Protection-Reserves and Custody of Securities.
NYSE Rule 404 Individual Members Not To Carry Accounts.
NYSE Rule 405 Diligence as to Accounts.
NYSE Rule 405A Non-Managed Fee-Based Account Programs—Disclosure and Monitoring.
NYSE Rule 406 Designation Of Accounts.
NYSE Rule 407 Transactions—Employees of Members, Member Organizations and the Exchange.
NYSE Rule 407A Disclosure of All Member Accounts.
NYSE Rule 408 Discretionary Power in Customers’ Accounts.
NYSE Rule 409 Statements of Accounts to Customers.
NYSE Rule 409A SIPC Disclosures.
NYSE Rule 410 Records of Orders.
NYSE Rule 411 Erroneous Reports.
NYSE Rule 412 Customer Account Transfer Contracts.
NYSE Rule 413 Uniform Forms.
NYSE Rule 414 Index and Currency Warrants.
NYSE Rule 416 Questionnaires and Reports.
NYSE Rule 416A Member and Member Organization Profile Information Updates and Quarterly Certifications Via the Electronic Filing
Platform.
NYSE Rule 418 Audit.
NYSE Rule 420 Reports of Borrowings and Subordinate Loans for
Capital Purposes.
NYSE Rule 421 Periodic Reports.
NYSE Rule 424 Reports of Options.
NYSE Rule 430 Partial Delivery of Securities to Customers on C.O.D.
Purchases.
NYSE Rule 431 Margin Requirements.
NYSE Rule 432 Daily Record of Required Margin.
NYSE Rule 434 Required Submission of Requests for Extensions of
Time for Customers.
NYSE Rule 435 Miscellaneous Prohibitions (Excessive Trading by
Members).
NYSE Rule 436 Interest on Credit Balances.
NYSE Rule 440 Books and Records.
NYSE Rule 440A Telephone Solicitation.
NYSE Rule 440F Public Short Sale Transactions Effected on the Exchange.
NYSE Rule 440G Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations.
NYSE Rule 440I Records of Compensation Arrangements—Floor Brokerage.
NYSE Rule 445 Anti-Money Laundering Compliance Program.
NYSE Rule 446 Business Continuity and Contingency Plans.
NYSE Rule 472 Communications with the Public.
NYSE Rule 477 Retention of Jurisdiction—Failure to Cooperate.
NYSE Rule 700 Applicability, Definitions and References.
NYSE Rule 704 Position Limits.
NYSE Rule 705 Exercise Limits.
NYSE Rule 707 Liquidation of Positions.
NYSE Rule 709 Other Restrictions on Exchange Option Transactions
and Exercises.
NYSE Rule 720 Registration of Options Principals.
NYSE Rule 721 Opening of Accounts.
NYSE Rule 722 Supervision of Accounts.
NYSE Rule 723 Suitability.
NYSE Rule 724 Discretionary Accounts.
NYSE Rule 725 Confirmations.
NYSE Rule 726 Delivery of Options Disclosure Document and Prospectus.
NYSE Rule 727 Transactions with Issuers.
NYSE Rule 728 Registered Stock.
NYSE Rule 730 Statement of Accounts.
NYSE Rule 732 Customer Complaints.
NYSE Rule 780 Exercise of Option Contracts.
NYSE Rule 781 Allocation of Exercise Assignment Notices.
NYSE Rule 791 Communications to Customers.
*Rule 401 Business Conduct ...................................................................
Rule 401A Customer Complaints .............................................................
Rule 402 Customer Protection-Reserves and Custody of Securities ......
Rule 404 Individual Members Not To Carry Accounts ............................
Rule 405 Diligence as to Accounts ..........................................................
Rule 405A Non-Managed Fee-Based Account Programs—Disclosure
and Monitoring.
Rule 406 Designation of Accounts ...........................................................
*Rule 407 Transactions-Employees of Members, Member Organizations and the Exchange.
*Rule 407A Disclosure of All Member Accounts ......................................
Rule 408 Discretionary Power in Customers’ Accounts ..........................
Rule 409 Statements of Accounts to Customers .....................................
Rule 409A SIPC Disclosures ...................................................................
*Rule 410 Records of Orders ...................................................................
*Rule 411 Erroneous Reports ..................................................................
Rule 412 Customer Account Transfer Contracts .....................................
Rule 413 Uniform Forms ..........................................................................
*Rule 414 Index and Currency Warrants .................................................
*Rule 416 Questionnaires and Reports ...................................................
*Rule 416A Member and Member Organization Profile Information Updates and Quarterly Certifications Via the Electronic Filing Platform.
Rule 418 Audit ..........................................................................................
Rule 420 Reports of Borrowings and Subordinate Loans for Capital
Purposes.
Rule 421 Periodic Reports .......................................................................
Rule 424 Reports of Options ....................................................................
Rule 430 Partial Delivery of Securities to Customers on C.O.D. Purchases.
Rule 431 Margin Requirements ...............................................................
Rule 432 Daily Record of Required Margin .............................................
Rule 434 Required Submission of Requests for Extensions of Time for
Customers.
*Rule 435 Miscellaneous Prohibitions (Excessive Trading by Members)
Rule 436 Interest on Credit Balances ......................................................
*Rule 440 Books and Records .................................................................
Rule 440A Telephone Solicitation ............................................................
Rule 440F Public Short Sale Transactions Effected on the Exchange ...
Rule 440G Transactions in Stocks and Warrants for the Accounts of
Members, Allied Members and Member Organizations.
Rule 440I Records of Compensation Arrangements—Floor Brokerage ..
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Rule 445 Anti-Money Laundering Compliance Program .........................
Rule 446 Business Continuity and Contingency Plans ............................
Rule 472 Communications with the Public ..............................................
*Rule 477 Retention of Jurisdiction—Failure to Cooperate .....................
Rule 700 Applicability, Definitions and References .................................
Rule 704 Position Limits ...........................................................................
Rule 705 Exercise Limits ..........................................................................
Rule 707 Liquidation of Positions .............................................................
Rule 709 Other Restrictions on Exchange Option Transactions and Exercises.
Rule 720 Registration of Options Principals ............................................
Rule 721 Opening of Accounts ................................................................
Rule 722 Supervision of Accounts ...........................................................
Rule 723 Suitability ...................................................................................
Rule 724 Discretionary Accounts .............................................................
Rule 725 Confirmations ............................................................................
Rule 726 Delivery of Options Disclosure Document and Prospectus .....
Rule
Rule
Rule
Rule
Rule
Rule
Rule
727
728
730
732
780
781
791
Transactions with Issuers .........................................................
Registered Stock ......................................................................
Statement of Accounts .............................................................
Customer Complaints ...............................................................
Exercise of Option Contracts ....................................................
Allocation of Exercise Assignment Notices ..............................
Communications to Customers ................................................
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20:12 Jul 31, 2007
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42154
Federal Register / Vol. 72, No. 147 / Wednesday, August 1, 2007 / Notices
Exhibit 2
For purposes of this Agreement, the
Regulatory Services Managers required
under paragraph 6 shall be:
For NYSE Regulation: Susan Axelrod,
Chief of Staff, NYSE Regulation, Inc., 11
Wall Street, New York, NY 10005, (212)
656–2347 (phone), (212) 656–5788 (fax).
For NASD/FINRA: James F. Price, Jr.,
Vice President, Business & Exchange
Solution, FINRA, 9509 Key West
Avenue, Rockville, MD 20850–3329,
(240) 386–4608 (phone), (240) 386–5139
(fax).
For purposes of this Agreement, the
Senior Officers required under
paragraph 6 shall be:
For NYSE Regulation: Richard G.
Ketchum, Chief Regulatory Officer,
NYSE Regulation, Inc., 20 Broad Street,
New York, NY 10005, (212) 656–2789
(phone), (212) 656–5809 (fax).
For NASD/FINRA: Stephen I.
Luparello, Senior Executive Vice
President, FINRA, 1735 K Street, NW.,
Washington, DC 20006, (202) 728–6947
(phone), (202) 728–8075 (fax).
III. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the 17d–2 Plan is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/other.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number 4–544 on the subject line.
jlentini on PROD1PC65 with NOTICES
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number 4–544. 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 (https://www.sec.gov/rules/
other.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
VerDate Aug<31>2005
20:12 Jul 31, 2007
Jkt 211001
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room 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 NASD and NYSE. 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 4–544 and should be submitted
on or before August 22, 2007.
IV. Discussion
The Commission finds that the
proposed Plan is consistent with the
factors set forth in Section 17(d) of the
Act 23 and Rule 17d–2(c) thereunder 24
in that the 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 Plan will
reduce unnecessary regulatory
duplication by fostering cooperation
and coordination between NYSE and
FINRA, and will thereby remove
impediments to the development of the
national market system. In particular,
the Plan will allocate to FINRA certain
responsibilities for Dual Members that
would otherwise be performed by both
NYSE and FINRA following the closing
of the Transaction. Accordingly, the
Plan promotes efficiency by reducing
costs to Dual Members. Furthermore,
because NYSE and FINRA will
coordinate their regulatory functions in
accordance with the Plan, the Plan
should promote investor protection and
the public interest.
Under paragraph (c) of Rule 17d–2,
the Commission may, after appropriate
notice and opportunity for comment,
declare a plan, or any part of a plan,
effective.25 In this instance, the
Commission believes that appropriate
notice and comment can take place after
the proposed Plan is effective. The
purpose of the 17d–2 Plan is to allocate
regulatory responsibilities for certain
member conduct rules from NYSE to
FINRA in connection with the proposed
consolidation of NYSE Regulation’s and
NASD’s member regulation
PO 00000
23 15
24 17
U.S.C. 78q(d).
CFR 240.17d–2(c).
25 Id.
Frm 00113
Fmt 4703
Sfmt 4703
operations.26 As discussed above, for an
interim period while FINRA develops a
single rulebook to apply to all Dual
Members, it has adopted into its
rulebook the Incorporated NYSE Rules,
and it is those exact same rules that
constitute the List of Common Rules
covered by the 17d–2 Plan. As such, the
NYSE rules covered by the 17d–2 Plan
for which FINRA will assume regulatory
responsibilities will, at least initially, be
identical to the Incorporated NYSE
Rules on FINRA’s own rulebook. Thus,
the Plan will benefit Dual Members by
avoiding duplicative regulation by two
separate SROs of identical rules. The
Commission, therefore, believes it is
appropriate to herein declare effective
the proposed 17d–2 Plan, so that it may
be effective upon the closing of the
Transaction.
The Commission notes that, under the
proposed Plan, NYSE and NASD have
allocated regulatory responsibility for
the Common Rules to the extent that
such responsibilities involve member
firm regulation.27 The Plan further sets
forth those areas for which NYSE will
retain full regulatory responsibility,
including: Examinations of Dual
Member conduct covered by NYSE-only
Rules and/or by federal laws or
regulations; surveillance, investigation,
and enforcement with respect to
conduct relating to trading on or
through the systems and facilities of
NYSE and conduct otherwise covered
by NYSE-only Rules, as well as whether
such conduct may constitute a violation
of federal laws or regulations;
processing of applications for trading
licenses or other membership in NYSE;
and qualification and registration of
firm personnel to effect transactions or
work on the Floor of NYSE pursuant to
its unique rules.28
The Commission notes that the
proposed Plan also provides that NYSE
will retain regulatory responsibility for
the application of any Common Rule as
it pertains to matters other than member
firm regulation, including matters
relating to the NYSE’s exclusive
retained responsibilities as set forth in
the Plan and noted above (the ‘‘NonExclusive Common Rules’’).29 The Non26 See
By-Law Amendments Filing, supra note 15.
infra text accompanying notes 29–30
(discussing those Common Rules that are deemed
to be Non-Exclusive Common Rules, for which
NYSE will retain certain regulatory
responsibilities).
28 See Paragraphs 2(d)(i)–(iv) of the proposed
17d–2 Plan.
29 See Paragraph 2(d)(v) of the proposed 17d–2
Plan and the List of Common Rules. Because NYSE
will retain responsibility for all rules related to
market regulation, as well as Common Rules as they
pertain to matters other than member regulation,
the Commission staff believes that the proposed
27 See
E:\FR\FM\01AUN1.SGM
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Federal Register / Vol. 72, No. 147 / Wednesday, August 1, 2007 / Notices
jlentini on PROD1PC65 with NOTICES
Exclusive Common Rules are
specifically annotated in the List of
Common Rules and include those rules
for which FINRA and NYSE will each
bear their respective regulatory
responsibilities, consistent with the
scope of the 17d–2 Plan. Notably, such
rules are ‘‘non-exclusive’’ in the sense
that they have aspects that may relate to
member firm regulation (for which
FINRA would assume regulatory
responsibility) and aspects that may
relate to matters other than member firm
regulation (for which the NYSE would
retain regulatory responsibility).30
Accordingly, both NYSE and FINRA
will bear responsibility for the
application of each Non-Exclusive
Common Rule as it relates to their
particular regulatory responsibilities.
According to the Plan, whenever
either NYSE or FINRA wishes to make
a change to the substance of any
Common Rule, before filing such
proposed rule change with the
Commission, it will inform the other
party of the intended change to
determine whether the other party will
propose a conforming change to its
version of the Common Rule. If the
Parties do not agree to propose
conforming changes, the Parties agree to
file with the Commission an
amendment to the 17d–2 Plan to delete
such rule from the list of Common
Rules.31 Similarly, the Parties anticipate
that when FINRA creates a consolidated
rulebook, it is likely that the new FINRA
rules that would replace existing
Incorporated NYSE Rules might be
substantially different from the thenexisting NYSE rules. In such case, the
NYSE would need to submit a proposed
rule change and seek approval from the
Commission to amend its corresponding
rule to conform to the new FINRA
rule.32
Plan does not adversely affect NYSE’s ability to
ensure compliance with the outstanding
undertakings contained in two recent settlement
orders relating to trading violations by certain
NYSE floor members. See Order Instituting Public
Administrative Proceedings Pursuant to Sections
19(h)(1) and 21C of the Securities Exchange Act of
1934, Making Findings, Ordering Compliance with
Undertakings, and Imposing a Censure and Ceaseand-Desist Order, File No. 3–11892, Release No. 34–
51524 (April 12, 2005); and Order Instituting Public
Proceedings Pursuant to Section 19(h)(1) of the
Securities Exchange Act of 1934, Making Findings
and Ordering Compliance with Undertakings, File
No. 3–9925, Release No. 34–41574 (June 29, 1999).
30 For example, a Non-Exclusive Common Rule
may contain multiple provisions, certain of which
relate to matters of NYSE’s retained responsibilities
under the Plan, such as trading-related provisions.
31 See Paragraph 2(b) of the Plan.
32 See Paragraph 2(c) of the Plan. Further, the
Parties thereafter would need to consider whether
any amendments to the Plan or the List of Common
Rules are required.
VerDate Aug<31>2005
20:12 Jul 31, 2007
Jkt 211001
Additionally, the Commission notes
that, since the Plan allocates regulatory
responsibility to FINRA for the
oversight and enforcement of all NYSE
rules on the list of Common Rules to the
extent that such responsibilities involve
member firm regulation, any additions
to, deletions from, or other changes to
the List of Common Rules pursuant to
the aforementioned provisions or
otherwise would constitute an
amendment to the Plan, which must be
filed with the Commission pursuant to
Rule 17d–2 under the Act.
The Plan permits NYSE and FINRA to
terminate the Plan at any time, subject
to 180 days written notice to the other
party. 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,
and approved by, the Commission.33
Finally, the Plan also requires the
Parties to share information on a
number of matters. Specifically, the
Parties must provide information to one
another relating to possible financial or
operational problems that may affect the
ability of any Dual Member to conduct
business and must also, upon request,
make available to one another certain
reports and documents set forth in the
Plan, such as existing files, copies of
examination reports, examination work
papers, or investigative materials.
Further, the Parties must promptly
provide one another with copies of
third-party complaints that relate to the
other party’s regulatory responsibilities
under the Plan. The Parties also must
promptly share information relating to
any formal disciplinary actions or
informal disciplinary actions taken
involving a Dual Member or other
certain individuals. The Commission
believes that the information sharing
provisions contained in the Plan further
foster cooperation and coordination
between NYSE and FINRA, thereby
promoting investor protection and
removing impediments to the
development of a national market
system.
V. Conclusion
This Order gives effect to the Plan
filed with the Commission in File No.
4–544. 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. 4–544,
between NASD, NYSE, and NYSE
Regulation filed pursuant to Rule 17d–
2 under the Act, is approved and
declared effective.
It is therefore ordered that NYSE is
relieved of those responsibilities
allocated to FINRA under the Plan in
File No. 4–544.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.34
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–14877 Filed 7–31–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56127; File No. SR–Amex–
2007–63]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change Relating to
the Options Order Cancellation Fee
July 24, 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 June 27,
2007, the American Stock Exchange LLC
(‘‘Amex’’ 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 the Exchange.
The Amex has filed the proposed rule
change as one establishing or changing
a due, fee, or other charge imposed by
the Exchange under section
19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
4(f)(2) thereunder,4 which renders the
proposal effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to revise the
options order cancellation fee. The text
of the proposed rule change is available
at Amex, the Commission’s Public
34 17
CFR 200.30–3(a)(34).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
33 The Commission notes that paragraph 14 of the
Plan reflects the fact that Commission approval of
any termination of the Plan is required.
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]]>Agencies
[Federal Register Volume 72, Number 147 (Wednesday, August 1, 2007)]
[Notices]
[Pages 42146-42155]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-14877]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56148; File No. 4-544]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing and Order Approving and Declaring
Effective a Plan for the Allocation of Regulatory Responsibilities
Between the National Association of Securities Dealers, Inc., New York
Stock Exchange, LLC, and NYSE Regulation, Inc.
July 26, 2007.
Notice is hereby given that the Securities and Exchange Commission
(``SEC'' or ``Commission'') has issued an Order, pursuant to Sections
17(d) and 11A(a)(3)(B) \1\ of the Securities Exchange Act of 1934
(``Act''), approving and declaring effective a plan for the allocation
of regulatory responsibilities (``17d-2 Plan'' or ``Plan'') that was
filed pursuant to Rule 17d-2 under the Act,\2\ by the National
Association of Securities Dealers, Inc. (``NASD''), the New York Stock
Exchange LLC (``NYSE''), and NYSE Regulation, Inc. (``NYSE
Regulation'') (collectively, the ``Parties'').
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78q(d) and 15 U.S.C. 78k-1(a)(3)(B), respectively.
\2\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------
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 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) \4\ or 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
[[Page 42147]]
expenses for common members and their SROs.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(g)(1).
\4\ 15 U.S.C. 78q(d).
\5\ 15 U.S.C. 78s(g)(2).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
To implement Section 17(d)(1), the Commission adopted two rules:
Rule 17d-1 and Rule 17d-2 under the Act.\8\ Rule 17d-1 authorizes the
Commission to name a single SRO as the designated examining authority
(``DEA'') to examine common members for compliance with the financial
responsibility requirements imposed by the Act, or by Commission or SRO
rules.\9\ When an SRO has been named as a common member's DEA, all
other SROs to which the common member belongs are relieved of the
responsibility to examine the firm for compliance with the applicable
financial responsibility rules. On its face, Rule 17d-1 deals only with
an SRO's obligations to enforce member compliance with financial
responsibility requirements. Rule 17d-1 does not relieve an SRO from
its obligation to examine a common member for compliance with its own
rules and provisions of the federal securities laws governing matters
other than financial responsibility, including sales practices and
trading activities and practices.
---------------------------------------------------------------------------
\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) (adopting Rule 17d-1).
---------------------------------------------------------------------------
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
it determines that the plan is necessary or appropriate in the public
interest and for the protection of investors, fosters cooperation and
coordination among the SROs, removes impediments to, and fosters 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.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976) (adopting Rule 17d-2).
---------------------------------------------------------------------------
II. The Proposed Plan
A. The Transaction
In November 2006, NASD and NYSE Group, Inc. (``NYSE Group'') \11\
announced their plan to consolidate their member regulation operations
into a single organization that would provide member firm regulation
for securities firms that conduct business with the public in the
United States (the ``Transaction'').\12\ Pursuant to the Transaction,
the member firm regulation and enforcement functions and employees from
NYSE Regulation would be transferred to NASD,\13\ and the expanded NASD
would adopt a new corporate name--the Financial Industry Regulatory
Authority (``FINRA'').\14\ The consolidation is intended to streamline
the broker-dealer regulatory system, combine technologies, and permit
the establishment of a single set of rules and a single set of
examiners with complementary areas of expertise within a single
SRO.\15\
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\11\ NYSE Group recently combined with Euronext N.V.
(``Euronext'') to form a single, publicly traded holding company
named NYSE Euronext. NYSE Group and Euronext became separate
subsidiaries of NYSE Euronext. The corporate structure for the
businesses of NYSE Group (including the businesses of the NYSE LLC
and NYSE Arca, Inc., a registered national securities exchange)
remained unchanged following the combination. Specifically, NYSE LLC
remains a wholly-owned subsidiary of NYSE Group. NYSE Market remains
a wholly-owned subsidiary of the NYSE LLC and conducts NYSE LLC's
business. NYSE Regulation remains a wholly-owned subsidiary of NYSE
LLC and performs the regulatory responsibilities for NYSE LLC
pursuant to a delegation agreement with NYSE LLC and many of the
regulatory functions of NYSE Arca pursuant to a services agreement
with NYSE Arca. See Securities Exchange Act Release No. 55293
(February 14, 2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-
120).
\12\ Currently, both NASD and NYSE Regulation oversee the
activities of U.S.-based broker-dealers doing business with the
public, approximately 170 of which are members of both
organizations.
\13\ Following the closing of the Transaction, NYSE Regulation
will continue to oversee market surveillance and listed company
compliance at the NYSE and NYSE Arca.
\14\ The closing of the Transaction and the consolidation of the
member firm regulatory functions of the NASD and NYSE Regulation are
subject to the execution of definitive agreements between NASD and
NYSE Group, the Commission's approval of certain proposed rule
changes, and certain other additional regulatory approvals.
\15\ See Securities Exchange Act Release No. 55495 (March 20,
2007), 72 FR 14149 (March 26, 2007) (SR-NASD-2007-023) (proposing to
amend the By-Laws of NASD to implement governance and related
changes to accommodate the consolidation of the member firm
regulatory functions of NASD and NYSE Regulation) (``By-Law
Amendments Filing'').
---------------------------------------------------------------------------
To effectuate the consolidation, NASD has submitted a proposed rule
change to incorporate into FINRA's rulebook certain existing NYSE rules
that pertain to the regulation of member firm conduct (the
``Incorporated NYSE Rules'').\16\ The Incorporated NYSE Rules will
apply to members of FINRA that are also members of NYSE on or after the
date of the closing of the Transaction (such common members are
referred to as ``Dual Members'').\17\ Consequently, to relieve NYSE of
its responsibility to examine for, and enforce compliance with, the
applicable NYSE rules, the Parties have entered into a joint plan for
the allocation of regulatory responsibilities with respect to Dual
Members, as discussed below.
---------------------------------------------------------------------------
\16\ See File No. SR-NASD-2007-054 (``Incorporation Filing'').
The list of Incorporated NYSE Rules is set forth in Exhibit 5 of SR-
NASD-2007-054.
\17\ See id. See also Proposed 17d-2 Plan (defining Dual Members
as broker-dealer firms that are members of both the NYSE and FINRA
on or after the closing date of the Transaction).
---------------------------------------------------------------------------
Subsequent to the closing of the Transaction, FINRA intends to
begin the process of consolidating its rule set applicable to member
firms by reducing to one the two sets of rules (i.e., NASD rules and
the Incorporated NYSE Rules) that are currently applicable to Dual
Members.\18\
---------------------------------------------------------------------------
\18\ FINRA's efforts to reduce regulatory duplication in this
regard with respect to Dual Members by consolidating the two
separate rule sets will constitute a proposed rule change and will
be subject to Commission approval.
---------------------------------------------------------------------------
B. The Proposed Plan
On July 26, 2007, the Parties submitted the proposed 17d-2 Plan in
connection with the proposed consolidation of the member regulation
operations of NASD and NYSE Group. The Plan would reduce regulatory
duplication for firms that are Dual Members by allocating certain
regulatory responsibilities for selected NYSE rules from NYSE
Regulation to FINRA.\19\ Specifically, the Plan includes a list of all
of those rules (the ``Common Rules,'' which are listed on the ``List of
Common Rules'' attached as Exhibit 1 to the Plan) for which FINRA would
assume examination, enforcement, and surveillance responsibilities
under the Plan relating to compliance by Dual Members to the extent
that such responsibilities involve member firm regulation.\20\ The NYSE
rules on the List
[[Page 42148]]
of Common Rules are the same rules that are proposed by NASD to be
incorporated into the FINRA rulebook, so that such rules will be common
rules of both FINRA and NYSE for purposes of the 17d-2 Plan.\21\
---------------------------------------------------------------------------
\19\ See Incorporation Filing, supra note 16; see also paragraph
2(a) of the proposed 17d-2 Plan.
\20\ See Paragraph 1(a) of the proposed 17d-2 Plan.
\21\ See Paragraph 2(a) of the proposed 17d-Plan.
---------------------------------------------------------------------------
Under the Plan, NYSE would retain full responsibility for: (i)
Examinations of Dual Member conduct covered by NYSE rules that are not
Common Rules (``NYSE-only Rules'') and/or by federal laws or
regulations; (ii) surveillance, investigation, and enforcement with
respect to conduct relating to trading on or through the systems and
facilities of NYSE and conduct otherwise covered by NYSE-only Rules, as
well as surveillance, investigation, and enforcement with respect to
whether such conduct may constitute a violation of federal laws or
regulations; (iii) processing of applications for trading licenses or
other indicia of membership in NYSE; (iv) qualification and
registration of firm personnel to effect transactions or work on the
floor of NYSE pursuant to NYSE's applicable qualification and
registration rules; and (v) the application of any Common Rule as it
pertains to matters other than member firm regulation, including
matters relating to the NYSE's exclusive responsibility for the
aforementioned areas (the ``Non-Exclusive Common Rules'').\22\
---------------------------------------------------------------------------
\22\ See Paragraphs 2(d)(i)-(v) of the proposed 17d-2 Plan; see
also infra text accompanying notes 29-30 (discussing the Non-
Exclusive Common Rules).
---------------------------------------------------------------------------
The text of the proposed 17d-2 Plan and the Exhibits thereto are as
follows:
Agreement Between National Association of Securities Dealers, Inc., New
York Stock Exchange, LLC., and NYSE Regulation, Inc. Pursuant to SEC
Rule 17d-2 Promulgated by the Securities and Exchange Commission Under
the Securities Exchange Act of 1934
This Agreement, between and among National Association of
Securities Dealers, Inc., a Delaware nonstock membership corporation
(``NASD''), New York Stock Exchange, LLC., a New York limited liability
company (the ``NYSE''), and NYSE Regulation, Inc., a New York not-for-
profit corporation and an indirectly wholly-owned subsidiary of NYSE
Group, Inc. (``NYSE Regulation''), is made this 26th day of July, 2007,
pursuant to the provisions of Rule 17d-2 promulgated by the Securities
and Exchange Commission (the ``Commission'') under the Securities
Exchange Act of 1934, as amended (the ``Act''), which authorizes
agreements between self-regulatory organizations for plans to reduce or
eliminate regulatory duplication.
Whereas, NYSE Group, Inc., a Delaware corporation and direct
wholly-owned subsidiary of NYSE Euronext (``NYSE Group''), NYSE
Regulation and NASD intend to enter into an Asset Purchase Agreement
(the ``Purchase Agreement''), pursuant to which (i) NYSE Regulation
will agree to transfer to NASD and NASD will agree to assume from NYSE
Regulation, approximately 470 employees and related expenses and
revenues from the following functions or groups of NYSE Regulation: (1)
Member firm regulation (including testing, continuing education and
registration); (2) risk assessment; (3) arbitration; and (4)
enforcement (except for the portion thereof that handles cases related
to market surveillance and NYSE-only Rules (as defined herein) and/or
related federal laws or regulations), and (ii) NASD will operate under
a new name, Financial Industry Regulatory Authority, Inc. (``FINRA'');
and
Whereas, in connection with the transactions contemplated by the
Purchase Agreement (collectively, the ``Transaction''), the parties
seek to reduce duplication in the regulation of broker-dealer firms
that are members of both the NYSE and FINRA on or after the Effective
Date, as defined herein, (``Dual Members'') and in the filing and
processing of certain registration and membership records; and
Whereas, the parties intend that FINRA will perform various
functions formerly performed by NYSE Regulation; and
Whereas, FINRA will perform certain of these functions pursuant to
a Regulatory Services Agreement to be entered into between and among
the parties, and will perform certain of these functions pursuant to
this Agreement among the parties in conformity with the requirements of
Section 17(d) of the Act and Rule 17d-2 promulgated thereunder; and
Whereas, the parties intend this Agreement to describe the
functions to be performed by FINRA pursuant to Section 17(d) of the Act
and Rule 17d-2 promulgated thereunder, and intend to file such with the
Commission for its approval.
Now, Therefore, in consideration of the foregoing, the mutual
covenants contained hereinafter, and other good and valuable
consideration, the parties hereby agree as follows:
1. Assumption of Regulatory Responsibilities.
(a) On the Effective Date, which shall be the closing date of the
Transaction, provided that the Commission has approved this Agreement
as of such closing date, FINRA will assume regulatory responsibilities
for all Dual Members for the list of rules attached as Exhibit 1
(``Common Rules'') to this Agreement and made part hereof including
examination, enforcement and surveillance responsibilities for such
Common Rules to the extent that such responsibilities involve member
firm regulation (the ``Regulatory Responsibilities''). This Agreement
shall not become effective if the Transaction does not close.
(b) FINRA shall not charge NYSE for performing the Regulatory
Responsibilities except for the reasonable notification expenses and
travel and out-of-pocket expenses as provided in paragraphs 4(c) and 5.
2. Scope of Regulatory Responsibilities.
(a) Prior to the Effective Date, NASD shall submit a filing to the
Commission adopting, as of the Effective Date, those NYSE rules listed
in Exhibit 1 by incorporating into the FINRA rulebook in their entirety
such NYSE rules in effect as of the Effective Date so that as of the
Effective Date, the rules shall be Common Rules of both FINRA and the
NYSE for purposes of this Agreement, Section 17(d) of the Act and Rule
17d-2 promulgated thereunder.
(b) Whenever either NYSE or FINRA proposes to make a change to the
substance of any of the Common Rules, before filing such proposal with
the SEC, it shall inform the other party to determine whether the other
party will agree to promptly propose a conforming change to its version
of the Common Rule. In the event the parties do not agree to propose
conforming changes, the parties agree that they will file with the SEC
for approval an amendment to this Agreement deleting such rule from the
list of Common Rules, such amendment to be effective no earlier than
the date of SEC approval of the change to the Common Rule proposed by
the NYSE or FINRA, as the case may be.
(c) Common Rulebook. FINRA intends to create a single set of Rules
to replace the FINRA NASD Rules and the NYSE Rules incorporated by
FINRA. There is a substantial likelihood that each FINRA rule that
would replace an as then-existing NYSE Rule incorporated by FINRA and
applicable to Dual Members will be substantially different from the
then-existing NYSE Rule. In such case, pursuant to paragraph 2(b)
above, NYSE would need to seek and obtain approval from the Commission
to amend its corresponding Rule to conform to the new FINRA Rule.
[[Page 42149]]
(d) Notwithstanding anything contained in this Agreement to the
contrary, NYSE shall retain regulatory responsibility for the following
(collectively, the ``Retained Responsibilities''):
(i) Examinations of conduct or action by a Dual Member that is
otherwise covered by NYSE rules that are not Common Rules (the ``NYSE-
only Rules'') and/or by related federal laws or regulations;
(ii) Surveillance of, and investigation and enforcement with
respect to, conduct or action undertaken in connection with trading on
or through the systems and facilities of the NYSE, or conduct or
actions by a Dual Member that are otherwise covered by NYSE-only Rules,
additionally, in all such cases, surveillance, investigation and
enforcement with respect to how such conduct may constitute a violation
of applicable federal laws or regulations;
(iii) Processing of applications for trading licenses or other
indicia of membership in the NYSE, including without limitation
applying NYSE's rules relating to the rights and obligations of Dual
Members that hold a trading license to effect transactions on the floor
of the NYSE or through any systems or facilities of the NYSE;
(iv) Qualification and registration of member firm personnel to
effect transactions or work as Floor employees on the Floor of the
NYSE, pursuant to the NYSE's applicable rules regarding qualifications
and registration; and
(v) The application of any Common Rule as it pertains to matters
other than member firm regulation, including matters relating to NYSE's
exclusive responsibility for (i)-(iv) above (the ``Non-Exclusive Common
Rules''). The parties have identified the Non-Exclusive Common Rules,
which are specifically designated on Exhibit 1, as those rules for
which both NYSE and FINRA will bear responsibility when performing
their respective regulatory responsibilities.
3. Violations. (a) Should FINRA become aware of potential
violations of the NYSE-only Rules, discovered pursuant to the
performance of the Regulatory Responsibilities assumed hereunder, FINRA
will promptly notify the NYSE of those potential violations, and such
matters will be handled by NYSE.
(b) Should NYSE become aware of potential violations of Common
Rules, discovered pursuant to the performance of the Retained
Responsibilities, NYSE will promptly notify FINRA of those potential
violations, and such matters will be handled by FINRA as provided in
this Agreement.
4. Applications for, Qualification for, and Termination of,
Membership. (a)(i) Dual Members subject to this Agreement will be
required to submit to FINRA, and FINRA will be responsible for
processing, and acting upon, all applications (each an ``Application'')
submitted on behalf of the Dual Member and any individual associated
with such Dual Member required to be approved by the rules of NYSE and
FINRA (collectively, an ``Applicant'').
(ii) Promptly upon receipt of any complete Application, but in any
event no later than seven (7) business days thereafter, FINRA shall
advise NYSE of the qualifications and registration status of the
Applicant required to be approved pursuant to the rules of NYSE and
FINRA. The NYSE reserves the right to require additional qualifications
or registrations prior to approving an Applicant as a member of the
NYSE, pursuant to the process described in NYSE rules.
(b) FINRA shall promptly advise NYSE of information regarding
changes in status of any person required to be approved pursuant to the
rules of NYSE and FINRA that relates to a statutory disqualification,
involuntary termination from employment or any other submission made to
FINRA pursuant to NYSE Rule 351(a)-(c). The NYSE reserves the right to
disqualify a member pursuant to the process described in NYSE rules.
(c) Dual Members will be required to send to FINRA all letters,
termination notices or other material respecting persons required to be
approved pursuant to the rules of NYSE and FINRA. When as a result of
processing said submissions FINRA becomes aware of a statutory
disqualification as defined in the Act with respect to a Dual Member or
person associated with a Dual Member, FINRA will determine pursuant to
Section 15A(g) or 6(c) of the Act the acceptability or continued
acceptability of the person to whom such disqualification applies but
will not make a determination regarding NYSE membership or
participation, or association of a person with an NYSE member. FINRA
shall advise NYSE in writing of its actions in this regard. NYSE shall,
within 30 days of receiving such information from FINRA, determine
whether to permit a Dual Member that has been determined to be
statutorily disqualified by FINRA from becoming or remaining an NYSE
member or a participant, or a person associated with a member. NYSE
will advise FINRA of its decision. NYSE will reimburse FINRA for
reasonable expenses incurred in notifying NYSE of FINRA's decision
regarding a statutory disqualification under Section 15A(g) or Section
6(c) of the Act.
FINRA will also be responsible for processing and, if required,
acting upon all requests for the opening, address changes, and
terminations of branch offices by Dual Members and any other
applications required of Dual Members under the Common Rules.
5. Information Sharing. The parties agree to share information as
follows:
(a) General.
(i) FINRA shall promptly furnish to the NYSE any information that
FINRA determines indicates possible financial or operational problems
that may affect the continued ability of any Dual Member to conduct
business.
(ii) NYSE shall promptly furnish to FINRA any information that the
NYSE determines indicates possible financial or operational problems
that may affect the continued ability of any Dual Member to conduct
business.
(b) Reports and Other Documents.
(i) FINRA shall upon request promptly make available to the NYSE at
no cost any existing financial, operational, or related report filed
with FINRA by a Dual Member, as well as any existing files, information
on customer complaints, termination notices, copies of an examination
report, examination workpapers, investigative material, enforcement
referrals or other documents involving compliance with the federal
securities laws and regulations and the rules of the parties by the
Dual Member, or other documents in the possession of FINRA relating to
the Dual Member as necessary to assist the NYSE in fulfilling the
Retained Responsibilities.
(ii) NYSE shall upon request promptly make available to FINRA at no
cost any existing files, information on customer complaints,
termination notices, copies of an examination report, examination
workpapers, investigative material, enforcement referrals or other
documents involving compliance with the federal securities laws and
regulations and the rules of the parties by the Dual Member, or other
documents in the possession of NYSE relating to the Dual Member as
necessary to assist FINRA in fulfilling the self-regulatory
responsibilities, obligations, and functions allocated to it under this
Agreement.
(c) Third-party Complaints.
(i) If FINRA receives a copy of a complaint from any third-party or
any report from a Dual Member pursuant to NYSE Rule 351, as
incorporated by FINRA, relating to possible violations by a Dual Member
or persons associated with a Dual Member that is not within the
Regulatory Responsibilities of
[[Page 42150]]
FINRA and is within the Retained Responsibilities of the NYSE, FINRA
shall promptly forward to the NYSE copies of such complaints, and NYSE
shall have responsibility to review and take any appropriate action
with respect to such complaint.
(ii) If NYSE receives a copy of a complaint from any third-party
relating to a Dual Member's activity or conduct that is within the
Regulatory Responsibilities of FINRA or is otherwise within the scope
of FINRA's regulatory jurisdiction, the NYSE shall promptly forward to
FINRA copies of such complaints, and FINRA shall have responsibility to
review and take any appropriate action with respect to such complaint.
(d) Information on Formal and Informal Discipline.
(i) FINRA shall promptly make available to the NYSE information on
(1) Formal disciplinary actions taken by FINRA involving a Dual Member
or persons associated with a Dual Member; and (2) informal disciplinary
actions taken by FINRA involving a Dual Member and such individuals
identified to FINRA by NYSE that are employed by a Dual Member and who
have been designated to effect transactions on the Floor of the NYSE or
to work as Floor employees on the Floor of the NYSE, or to supervise
such employees. For purposes of this paragraph (d)(i), informal
disciplinary actions shall mean Letters of Caution.
(ii) The NYSE shall promptly make available to FINRA information on
(1) formal disciplinary actions taken by NYSE involving a Dual Member
or persons associated with a Dual Member; and (2) informal disciplinary
actions taken by NYSE involving a Dual Member. For purposes of this
paragraph (d)(ii), informal disciplinary actions shall mean Letters of
Education, Letters of Admonition, and Summary Fines.
(e) Parties to Make Personnel Available as Witnesses.
(i) FINRA shall make its personnel available to the NYSE to serve
as testimonial or non-testimonial witnesses as necessary to assist the
NYSE in fulfilling the self-regulatory responsibilities retained by it
under this Agreement. NYSE shall pay all reasonable travel and other
out-of-pocket expenses incurred by FINRA's employees to the extent that
the NYSE requires such employees to serve as a witness, and provide
information or other assistance pursuant to this Agreement.
(ii) The NYSE shall make its personnel available to FINRA to serve
as testimonial or non-testimonial witnesses as necessary to assist
FINRA in fulfilling the Regulatory Responsibilities. FINRA shall pay
all reasonable travel and other out-of-pocket expenses incurred by
NYSE's employees to the extent that FINRA requires such employees to
serve as a witness, and provide information or other assistance
pursuant to this Agreement.
(f) 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.
Neither party shall assert regulatory or other privileges as against
the other with respect to documents or information that is required to
be shared pursuant to this Agreement.
(g) No Waiver of Privilege. The sharing of documents or information
between the parties pursuant to this Agreement shall not be deemed a
waiver as against third parties of regulatory or other privileges
relating to the discovery of documents or information.
(h) Periodic Meetings. The parties agree that they shall conduct
regular joint meetings between them for the purposes of reporting on
the conduct of the Regulatory Responsibilities and current
investigations involving significant rule violations by a Dual Member,
and identifying issues or concerns with respect to the regulation of
Dual Members.
6. Arbitration of Disputes Under This Agreement.
(a) Regulatory Services Manager. NYSE and NASD hereby each appoint
the employee identified on Exhibit 2 hereto as its respective
Regulatory Services Manager (the ``Regulatory Services Manager'') to,
among other things, resolve disputes pursuant to Section 6(b) of this
Agreement and oversee day-to-day management of the services and
activities contemplated by this Agreement. On reasonable prior written
notice to the other, NYSE and FINRA shall each have the right to
replace its respective Regulatory Services Manager with an employee or
officer with comparable knowledge, expertise and decision-making
authority.
(b) Dispute Resolution. Except as otherwise expressly set forth in
this Agreement, any dispute arising out of or relating to this
Agreement shall be submitted for resolution to the Regulatory Services
Managers. In the event the Regulatory Services Managers fail to resolve
a dispute pursuant to this Section 6(b) within a reasonable time of
receiving notice of such dispute from a party, then the parties shall
refer the dispute to the employee identified on Exhibit 2 as its
respective Senior Officer (the ``Senior Officer'') and such Senior
Officers shall attempt in good faith to conclusively resolve any such
dispute. On reasonable prior written notice to the other, NYSE and
FINRA shall each have the right to replace its respective Senior
Officer with an officer with comparable rank, knowledge, expertise and
decision-making authority. If the Senior Officers are unable to resolve
the dispute amicably within 30 days, the dispute will be resolved by
binding arbitration between the parties as provided herein. Arbitration
shall be conducted by a single arbitrator agreed upon by the parties in
accordance with the arbitration rules of the American Arbitration
Association (the ``AAA''); provided, that, if the parties cannot agree
on the identity of the arbitrator, then the arbitrator shall be chosen
by the AAA in accordance with its rules. All arbitration hearings shall
be conducted in New York, New York. Each party shall pay its own costs
for the arbitration, with the cost of the arbitrator to be equally
divided between the parties; provided, that the arbitrator may, in his
or her discretion, award reasonable attorneys' fees and expenses to the
prevailing party. The arbitrator will have no authority to award
punitive damages or any other damages not measured by the prevailing
party's actual damages, and may not, in any event, make any ruling,
finding or award that does not conform to the terms and conditions of
this Agreement. A judgment upon an award may be entered in any court
having jurisdiction. No party or the arbitrator may disclose the
existence, content, or results of any arbitration hereunder without the
prior written consent of the other parties, other than to the
Commission. Except as otherwise expressly set forth in this Agreement,
the procedures set forth in this Section 6(b) must be satisfied as a
condition precedent to a party commencing any arbitration in connection
with any dispute arising hereunder. A party's failure to comply with
the preceding sentence shall constitute cause for the dismissal without
prejudice of any such arbitration.
(c) Continuity of Services. Each party acknowledges that the timely
and complete performance of its obligations pursuant to this Agreement
is critical to the business and operations of the other party. In the
event of a dispute between the parties, the parties will continue to
perform their respective obligations under this Agreement in good faith
during the resolution of such dispute unless and until this Agreement
is terminated in accordance with its provisions. Nothing in this
Section 6(c)
[[Page 42151]]
will interfere with a party's right to terminate this Agreement as set
forth in this Agreement.
7. No Restrictions on Regulatory Action. Nothing contained in this
Agreement shall restrict or in any way encumber the right of either
party to conduct its own independent or concurrent investigation,
examination or enforcement proceeding of or against Dual Members, as
either party, in its sole discretion, shall deem appropriate or
necessary.
8. Limitation of Liability. None of the parties nor any of their
respective directors, governors, officers, employees, affiliates or
agents shall be liable to any other party or such party's directors,
governors, officers, employees, affiliates or agents for any liability,
loss or damage resulting from any delays, inaccuracies, errors or
omissions with respect to its performing or failing to perform its
obligations under this Agreement, except as otherwise provided for
under the Act or for any liability, loss or damage resulting from the
gross negligence, willful misconduct, reckless disregard or breach of
confidentiality by a party or its directors, governors, officers,
employees, affiliates or agents. The parties understand and agree with
each other that the Regulatory Responsibilities are being performed on
a good faith and best effort basis and no warranties, express or
implied, are made by any party to any other party with respect to any
of the obligations to be performed by the parties hereunder.
9. Commission Approval. (a) The parties agree to file promptly this
Agreement with the Commission for its review and approval. This
Agreement shall be effective upon approval of the Commission,
contingent upon the closing of the Transaction.
(b) If approved by the Commission, FINRA will notify Dual Members
of the general terms of the Agreement and its impact on such members.
The notice will be sent on behalf of both parties and, prior to being
sent, NYSE will review and approve the notice.
10. Applicability of Certain Laws. Notwithstanding any provision
hereof, this Agreement shall be subject to any applicable federal or
state statute, or any rule or order of the Commission, or industry
agreement, restructuring the regulatory framework of the securities
industry or reassigning regulatory responsibilities between self-
regulatory organizations. To the extent such statute, rule, order or
agreement is inconsistent with one or more provisions of this
Agreement, such statute, rule, order or agreement 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.
11. Definitions. Unless otherwise defined in this Agreement, or
unless the context otherwise requires, the terms used in this Agreement
shall have the same meaning as they have under the Act and the rules
and regulations promulgated by the Commission thereunder.
12. 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.
13. Amendment. This Agreement may be amended in writing duly
approved by each party. All such amendments must be filed with and
approved by the Commission before they become effective.
14. Termination. This Agreement may be terminated by NYSE or FINRA
at any time upon the approval of the Commission after 180 days written
notice to the other party.
15. General. The parties 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.
16. Liaison and Notices. All questions regarding the implementation
of this Agreement shall be directed to the persons identified in
subsections (a), (b) and (c), as applicable, below. 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:
(a) If to NYSE Regulation: NYSE Regulation, Inc., 20 Broad Street,
New York, New York 10005. Telephone: (212) 656-3000, Facsimile: (212)
656-8101, Attention: General Counsel Regulatory Services Manager.
(b) If to New York Stock Exchange, LLC.: New York Stock Exchange,
LLC., 11 Wall Street, New York, NY 10005. Telephone: (212) 656-3000,
Facsimile: (212) 656-8101, Attention: General Counsel.
(c) If to FINRA: Financial Industry Regulatory Authority, Inc.,
1735 K Street, NW., Washington, DC 20006-1500. Telephone: (202) 728-
8071, Facsimile: (202) 728-8075, Attention: General Counsel Regulatory
Services Manager.
17. Relief from Regulatory Responsibility. Pursuant to Section
17(d)(1)(A) of the Act, and Rule 17d-2 thereunder, NASD and the NYSE
jointly request the SEC, upon its approval of this Agreement, to
relieve the NYSE of any and all responsibilities with respect to the
matters allocated to NASD or FINRA pursuant to this Agreement for
purposes of Sections 17(d) and 19(g) of the Act.
18. 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 by or for the
State of New York or the United States District Court for the Southern
District of New York in connection with any action or proceeding
relating to this Agreement.
19. Survival of Provisions. Provisions intended by their terms or
context to survive and continue notwithstanding delivery of the
regulatory services by FINRA, the payment of the price by the NYSE, and
any termination of this Agreement shall survive and continue.
20. Prior Agreements. This Agreement is wholly separate from the
multiparty Agreement made pursuant to Rule 17d-2 of the Exchange Act
between the American Stock Exchange LLC, the Boston Stock Exchange,
Inc., the Chicago Board Options Exchange, Incorporated, the
International Securities Exchange LLC., the National Association of
Securities Dealers, Inc., the New York Stock Exchange, LLC., the NYSE
Arca, Inc., and the Philadelphia Stock Exchange, Inc. involving the
allocation of regulatory responsibilities with respect to common
members for compliance with common rules relating to the conduct by
broker-dealers of accounts for listed options or index warrants entered
into on December 1, 2006, and as may be amended from time to time.
21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and such
counterparts together shall constitute but one and the same instrument.
In Witness Whereof, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized,
as of the date first written above.
[[Page 42152]]
National Association of Securities Dealers, Inc.
By:--------------------------------------------------------------------
Name:
Title:
New York Stock Exchange, LLC.
By:--------------------------------------------------------------------
Name:
Title:
NYSE Regulation, Inc.
By:--------------------------------------------------------------------
Name:
Title:
Exhibit 1--List Of Common Rules
As referenced in paragraph 2(d)(v) of the Agreement, rules
designated with a ``*'' are Non-Exclusive Common Rules, and NYSE shall
retain regulatory responsibility for these rules insofar as necessary
to discharge its Retained Responsibilities.
------------------------------------------------------------------------
NYSE Rule FINRA Rule
------------------------------------------------------------------------
*Rule 1 ``The Exchange''............... NYSE Rule 1 ``The Exchange.''
*Rule 2 ``Member,'' ``Membership,'' NYSE Rule 2 ``Member,''
``Member Firm,'' etc.. ``Membership,'' ``Member
Firm,'' etc.
*Rule 2A ``Jurisdiction''.............. NYSE Rule 2A ``Jurisdiction.''
*Rule 2B No Affiliation between NYSE Rule 2B No Affiliation
Exchange and any Member Organization. between Exchange and any
Member Organization.
*Rule 3 ``Security''................... NYSE Rule 3 ``Security.''
*Rule 4 ``Stock''...................... NYSE Rule 4 ``Stock.''
*Rule 5 ``Bond''....................... NYSE Rule 5 ``Bond.''
*Rule 6 ``Floor''...................... NYSE Rule 6 ``Floor.''
*Rule 8 ``Delivery''................... NYSE Rule 8 ``Delivery.''
*Rule 9 ``Branch Office Manager''...... NYSE Rule 9 ``Branch Office
Manager.''
*Rule 10 ``Registered Representative''. NYSE Rule 10 ``Registered
Representative.''
*Rule 11 Effect of Definitions......... NYSE Rule 11 Effect of
Definitions.
*Rule 12 ``Business Day''.............. NYSE Rule 12 ``Business Day.''
*Rule 134 Differences and Omissions-- NYSE Rule 134 Differences and
Cleared Transactions. Omissions--Cleared
Transactions.
Rule 176 Delivery Time................. NYSE Rule 176 Delivery Time.
Rule 177 Delivery Time--``Cash'' NYSE Rule 177 Delivery Time--
Contracts. ``Cash'' Contracts.
Rule 180 Failure to Deliver............ NYSE Rule 180 Failure to
Deliver.
Rule 282 Buy-in Procedures............. NYSE Rule 282 Buy-in
Procedures.
Rule 283 Members Closing Contracts-- NYSE Rule 283 Members Closing
Procedure. Contracts--Procedure.
Rule 285 Notice of Intention to NYSE Rule 285 Notice of
Successive Parties. Intention to Successive
Parties.
Rule 286 Closing Portion of Contract... NYSE Rule 286 Closing Portion
of Contract.
Rule 287 Liability of Succeeding NYSE Rule 287 Liability of
Parties. Succeeding Parties.
Rule 288 Notice of Closing to NYSE Rule 288 Notice of Closing
Successive Parties. to Successive Parties.
Rule 289 Must Receive Delivery......... NYSE Rule 289 Must Receive
Delivery.
Rule 290 Defaulting Party May Deliver NYSE Rule 290 Defaulting Party
After ``Buy-In'' Notice. May Deliver After ``Buy-In''
Notice.
Rule 291 Failure to Fulfill Closing NYSE Rule 291 Failure to
Contract. Fulfill Closing Contract.
Rule 292 Restrictions on Members' NYSE Rule 292 Restrictions on
Participation in Transaction to Close Members' Participation in
Defaulted Contracts. Transaction to Close Defaulted
Contracts.
Rule 293 Closing Contracts in Suspended NYSE Rule 293 Closing Contracts
Securities. in Suspended Securities.
Rule 294 Default in Loan of Money...... NYSE Rule 294 Default in Loan
of Money.
Rule 296 Liquidation of Securities NYSE Rule 296 Liquidation of
Loans and Borrowings. Securities Loans and
Borrowings.
Rule 311 Formation and Approval of NYSE Rule 311 Formation and
Member Organizations. Approval of Member
Organizations.
Rule 312 Changes Within Member NYSE Rule 312 Changes Within
Organizations. Member Organizations.
Rule 313 Submission of Partnership NYSE Rule 312 Submission of
Articles--Submission of Corporate Partnership Articles--
Documents. Submission of Corporate
Documents.
Rule 319 Fidelity Bonds................ NYSE Rule 319 Fidelity Bonds.
Rule 321 Formation of Acquisition of NYSE Rule 321 Formation of
Subsidiaries. Acquisition of Subsidiaries.
Rule 322 Guarantees by, or Flow Through NYSE Rule 322 Guarantees by, or
Benefits for Members or Member Flow Through Benefits for
Organizations. Members or Member
Organizations.
*Rule 325 Capital Requirements Members NYSE Rule 325 Capital
Organizations. Requirements Members
Organizations.
Rule 326(a) Growth Capital Requirement. NYSE Rule 326(a) Growth Capital
Requirement.
Rule 326(b) Business Reduction Capital NYSE Rule 326(b) Business
Requirement. Reduction Capital Requirement.
Rule 326(c) Business Reduction Capital NYSE Rule 326(c) Business
Requirement. Reduction Capital Requirement.
Rule 326(d) Reduction of Elimination of NYSE Rule 326(d) Reduction of
Loans and Advances. Elimination of Loans and
Advances.
Rule 328 Sale-and-Leasebacks, NYSE Rule 328 Sale-and-
Factoring, Financing and Similar Leasebacks, Factoring,
Arrangements. Financing and Similar
Arrangements.
*Rule 342 Offices--Approval, NYSE Rule 342 Offices--
Supervision and Control. Approval, Supervision and
Control.
Rule 343 Offices--Sole Tenancy, Hours, NYSE Rule 343 Offices--Sole
Display of Membership Certificates. Tenancy, Hours, Display of
Membership Certificates.
Rule 344 Research Analysts and NYSE Rule 344 Research Analysts
Supervisory Analysts. and Supervisory Analysts.
Rule 345 Employees--Registration, NYSE Rule 345 Employees--
Approval, Records. Registration, Approval,
Records.
Rule 345A Continuing Education for NYSE Rule 345A Continuing
Registered Persons. Education for Registered
Persons.
Rule 346 Limitations--Employment and NYSE Rule 346 Limitations--
Association with Members and Member Employment and Association
Organizations. with Members and Member
Organizations.
*Rule 350 Compensation or Gratuities to NYSE Rule 350 Compensation or
Employees of Others. Gratuities to Employees of
Others.
Rule 351 Reporting Requirements........ NYSE Rule 351 Reporting
Requirements.
Rule 352 Guarantees, Sharing in NYSE Rule 352 Guarantees,
Accounts, and Loan Arrangements. Sharing in Accounts, and Loan
Arrangements.
Rule 353 Rebates and Compensation...... NYSE Rule 353 Rebates and
Compensation.
Rule 354 Reports to Control Persons.... NYSE Rule 354 Reports to
Control Persons.
*Rule 375 Missing the Market........... NYSE Rule 375 Missing the
Market.
Rule 382 Carrying Agreements........... NYSE Rule 382 Carrying
Agreements.
Rule 387 COD Orders.................... NYSE Rule 387 COD Orders.
[[Page 42153]]
*Rule 392 Notification Requirements for NYSE Rule 392 Notification
Offerings of Listed Securities. Requirements for Offerings of
Listed Securities.
*Rule 401 Business Conduct............. NYSE Rule 401 Business Conduct.
Rule 401A Customer Complaints.......... NYSE Rule 401A Customer
Complaints.
Rule 402 Customer Protection-Reserves NYSE Rule 402 Customer
and Custody of Securities. Protection-Reserves and
Custody of Securities.
Rule 404 Individual Members Not To NYSE Rule 404 Individual
Carry Accounts. Members Not To Carry Accounts.
Rule 405 Diligence as to Accounts...... NYSE Rule 405 Diligence as to
Accounts.
Rule 405A Non-Managed Fee-Based Account NYSE Rule 405A Non-Managed Fee-
Programs--Disclosure and Monitoring. Based Account Programs--
Disclosure and Monitoring.
Rule 406 Designation of Accounts....... NYSE Rule 406 Designation Of
Accounts.
*Rule 407 Transactions-Employees of NYSE Rule 407 Transactions--
Members, Member Organizations and the Employees of Members, Member
Exchange. Organizations and the
Exchange.
*Rule 407A Disclosure of All Member NYSE Rule 407A Disclosure of
Accounts. All Member Accounts.
Rule 408 Discretionary Power in NYSE Rule 408 Discretionary
Customers' Accounts. Power in Customers' Accounts.
Rule 409 Statements of Accounts to NYSE Rule 409 Statements of
Customers. Accounts to Customers.
Rule 409A SIPC Disclosures............. NYSE Rule 409A SIPC
Disclosures.
*Rule 410 Records of Orders............ NYSE Rule 410 Records of
Orders.
*Rule 411 Erroneous Reports............ NYSE Rule 411 Erroneous
Reports.
Rule 412 Customer Account Transfer NYSE Rule 412 Customer Account
Contracts. Transfer Contracts.
Rule 413 Uniform Forms................. NYSE Rule 413 Uniform Forms.
*Rule 414 Index and Currency Warrants.. NYSE Rule 414 Index and
Currency Warrants.
*Rule 416 Questionnaires and Reports... NYSE Rule 416 Questionnaires
and Reports.
*Rule 416A Member and Member NYSE Rule 416A Member and
Organization Profile Information Member Organization Profile
Updates and Quarterly Certifications Information Updates and
Via the Electronic Filing Platform. Quarterly Certifications Via
the Electronic Filing
Platform.
Rule 418 Audit......................... NYSE Rule 418 Audit.
Rule 420 Reports of Borrowings and NYSE Rule 420 Reports of
Subordinate Loans for Capital Purposes. Borrowings and Subordinate
Loans for Capital Purposes.
Rule 421 Periodic Reports.............. NYSE Rule 421 Periodic Reports.
Rule 424 Reports of Options............ NYSE Rule 424 Reports of
Options.
Rule 430 Partial Delivery of Securities NYSE Rule 430 Partial Delivery
to Customers on C.O.D. Purchases. of Securities to Customers on
C.O.D. Purchases.
Rule 431 Margin Requirements........... NYSE Rule 431 Margin
Requirements.
Rule 432 Daily Record of Required NYSE Rule 432 Daily Record of
Margin. Required Margin.
Rule 434 Required Submission of NYSE Rule 434 Required
Requests for Extensions of Time for Submission of Requests for
Customers. Extensions of Time for
Customers.
*Rule 435 Miscellaneous Prohibitions NYSE Rule 435 Miscellaneous
(Excessive Trading by Members). Prohibitions (Excessive
Trading by Members).
Rule 436 Interest on Credit Balances... NYSE Rule 436 Interest on
Credit Balances.
*Rule 440 Books and Records............ NYSE Rule 440 Books and
Records.
Rule 440A Telephone Solicitation....... NYSE Rule 440A Telephone
Solicitation.
Rule 440F Public Short Sale NYSE Rule 440F Public Short
Transactions Effected on the Exchange. Sale Transactions Effected on
the Exchange.
Rule 440G Transactions in Stocks and NYSE Rule 440G Transactions in
Warrants for the Accounts of Members, Stocks and Warrants for the
Allied Members and Member Accounts of Members, Allied
Organizations. Members and Member
Organizations.
Rule 440I Records of Compensation NYSE Rule 440I Records of
Arrangements--Floor Brokerage. Compensation Arrangements--
Floor Brokerage.
Rule 445 Anti-Money Laundering NYSE Rule 445 Anti-Money
Compliance Program. Laundering Compliance Program.
Rule 446 Business Continuity and NYSE Rule 446 Business
Contingency Plans. Continuity and Contingency
Plans.
Rule 472 Communications with the Public NYSE Rule 472 Communications
with the Public.
*Rule 477 Retention of Jurisdiction-- NYSE Rule 477 Retention of
Failure to Cooperate. Jurisdiction--Failure to
Cooperate.
Rule 700 Applicability, Definitions and NYSE Rule 700 Applicability,
References. Definitions and References.
Rule 704 Position Limits............... NYSE Rule 704 Position Limits.
Rule 705 Exercise Limits............... NYSE Rule 705 Exercise Limits.
Rule 707 Liquidation of Positions...... NYSE Rule 707 Liquidation of
Positions.
Rule 709 Other Restrictions on Exchange NYSE Rule 709 Other
Option Transactions and Exercises. Restrictions on Exchange
Option Transactions and
Exercises.
Rule 720 Registration of Options NYSE Rule 720 Registration of
Principals. Options Principals.
Rule 721 Opening of Accounts........... NYSE Rule 721 Opening of
Accounts.
Rule 722 Supervision of Accounts....... NYSE Rule 722 Supervision of
Accounts.
Rule 723 Suitability................... NYSE Rule 723 Suitability.
Rule 724 Discretionary Accounts........ NYSE Rule 724 Discretionary
Accounts.
Rule 725 Confirmations................. NYSE Rule 725 Confirmations.
Rule 726 Delivery of Options Disclosure NYSE Rule 726 Delivery of
Document and Prospectus. Options Disclosure Document
and Prospectus.
Rule 727 Transactions with Issuers..... NYSE Rule 727 Transactions with
Issuers.
Rule 728 Registered Stock.............. NYSE Rule 728 Registered Stock.
Rule 730 Statement of Accounts......... NYSE Rule 730 Statement of
Accounts.
Rule 732 Customer Complaints........... NYSE Rule 732 Customer
Complaints.
Rule 780 Exercise of Option Contracts.. NYSE Rule 780 Exercise of
Option Contracts.
Rule 781 Allocation of Exercise NYSE Rule 781 Allocation of
Assignment Notices. Exercise Assignment Notices.
Rule 791 Communications to Customers... NYSE Rule 791 Communications to
Customers.
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[[Page 42154]]
Exhibit 2
For purposes of this Agreement, the Regulatory Services Managers
required under paragraph 6 shall be:
For NYSE Regulation: Susan Axelrod, Chief of Staff, NYSE
Regulation, Inc., 11 Wall Street, New York, NY 10005, (212) 656-2347
(phone), (212) 656-5788 (fax).
For NASD/FINRA: James F. Price, Jr., Vice President, Business &
Exchange Solution, FINRA, 9509 Key West Avenue, Rockville, MD 20850-
3329, (240) 386-4608 (phone), (240) 386-5139 (fax).
For purposes of this Agreement, the Senior Officers required under
paragraph 6 shall be:
For NYSE Regulation: Richard G. Ketchum, Chief Regulatory Officer,
NYSE Regulation, Inc., 20 Broad Street, New York, NY 10005, (212) 656-
2789 (phone), (212) 656-5809 (fax).
For NASD/FINRA: Stephen I. Luparello, Senior Executive Vice
President, FINRA, 1735 K Street, NW., Washington, DC 20006, (202) 728-
6947 (phone), (202) 728-8075 (fax).
III. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the 17d-2 Plan is
consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/other.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number 4-544 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number 4-544. 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 (https://www.sec.gov/rules/other.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 inspection and copying in the
Commission's Public Reference Room 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 NASD
and NYSE. 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 4-544
and should be submitted on or before August 22, 2007.
IV. Discussion
The Commission finds that the proposed Plan is consistent with the
factors set forth in Section 17(d) of the Act \23\ and Rule 17d-2(c)
thereunder \24\ in that the 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 Plan will reduce unnecessary
regulatory duplication by fostering cooperation and coordination
between NYSE and FINRA, and will thereby remove impediments to the
development of the national market system. In particular, the Plan will
allocate to FINRA certain responsibilities for Dual Members that would
otherwise be performed by both NYSE and FINRA following the closing of
the Transaction. Accordingly, the Plan promotes efficiency by reducing
costs to Dual Members. Furthermore, because NYSE and FINRA will
coordinate their regulatory functions in accordance with the Plan, the
Plan should promote investor protection and the public interest.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78q(d).
\24\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------
Under paragraph (c) of Rule 17d-2, the Commission may, after
appropriate notice and opportunity for comment, declare a plan, or any
part of a plan, effective.\25\ In this instance, the Commission
believes that appropriate notice and comment can take place after the
proposed Plan is effective. The purpose of the 17d-2 Plan is to
allocate regulatory responsibilities for certain member conduct rules
from NYSE to FINRA in connection with the proposed consolidation of
NYSE Regulation's and NASD's member regulation operations.\26\ As
discussed above, for an interim period while FINRA develops a single
rulebook to apply to all Dual Members, it has adopted into its rulebook
the Incorporated NYSE Rules, and it is those exact same rules that
constitute the List of Common Rules covered by the 17d-2 Plan. As such,
the NYSE rules covered by the 17d-2 Plan for which FINRA will assume
regulatory responsibilities will, at least initially, be identical to
the Incorporated NYSE Rules on FINRA's own rulebook. Thus, the Plan
will benefit Dual Members by avoiding duplicative regulation by two
separate SROs of identical rules. The Commission, therefore, believes
it is appropriate to herein declare effective the proposed 17d-2 Plan,
so that it may be effe
