Commission Guidance and Amendment to the Rules Relating to Organization and Program Management Concerning Proposed Rule Changes Filed by Self-Regulatory Organizations, 40144-40152 [E8-15574]
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Federal Register / Vol. 73, No. 134 / Friday, July 11, 2008 / Rules and Regulations
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 200 and 241
[Release No. 34–58092]
Commission Guidance and
Amendment to the Rules Relating to
Organization and Program
Management Concerning Proposed
Rule Changes Filed by Self-Regulatory
Organizations
Securities and Exchange
Commission.
ACTION: Final rule and interpretation.
AGENCY:
SUMMARY: The Securities and Exchange
Commission (‘‘Commission’’) is
providing guidance regarding a rule
under the Securities Exchange Act of
1934 (‘‘Exchange Act’’) concerning
filings with respect to proposed rule
changes of self-regulatory organizations
(‘‘SROs’’) that the Commission expects
will streamline the process by which
SROs file proposed rule changes with
the Commission and result in a broader
range of rule changes qualifying for
immediate effectiveness. Further, the
Commission is amending its rules to
delegate authority to the Director of the
Division of Trading and Markets. These
actions are intended to facilitate more
expeditious handling of proposed rule
changes submitted by SROs pursuant to
Exchange Act section 19(b).
DATES: Effective Date: July 11, 2008.
FOR FURTHER INFORMATION CONTACT:
Marlon Quintanilla Paz, Senior Counsel
to the Director, at (202) 551–5703, or
Richard Holley III, Senior Special
Counsel, at (202) 551–5614, Division of
Trading and Markets, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–6628.
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I. Introduction
Self-regulation, with oversight by the
Commission, is a basic premise of the
Exchange Act. For example, Congress
recognized the regulatory role of
national securities exchanges in section
6 of the Exchange Act,1 requiring all
existing securities exchanges to register
with the Commission and to function as
self-regulatory organizations. SROs
(such as exchanges, registered national
securities associations, and clearing
agencies) are subject to various
requirements under the Exchange Act,
including the requirement in section
19(b) and Rule 19b–4 thereunder 2 to file
1 15
U.S.C. 78f.
U.S.C. 78s(b) and 17 CFR 240.19b–4,
respectively. See also Form 19b–4. The rule filing
requirements of Section 19(b) also apply to other
SROs, such as national securities associations,
2 15
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their proposed rule changes with the
Commission. Commission review and
the public comment process are
intended, among other things, to help
ensure that SROs carry out the purposes
of the Exchange Act.3
National securities exchanges
registered under section 6(a) of the
Exchange Act 4 face increased
competitive pressures from entities that
trade the same or similar financial
instruments, such as foreign exchanges,
futures exchanges,5 electronic
communications networks (‘‘ECNs’’),
and alternative trading systems
(‘‘ATSs’’). These competitors, however,
can change their trading rules or trade
new products with greater ease and
without the required Commission
review.6
The Commission previously has
stated its belief that, ‘‘investors are best
served by a regulatory structure that
facilitates fair and vigorous competition
among market participants and fosters
investor protection’’ and that,
‘‘[e]nhancing the SROs’’ ability to
implement and to respond quickly to
changes in the marketplace should
encourage innovation and better
services to investors. * * *’’ 7
Consequently, the Commission
periodically has revised the SRO rule
filing requirements to balance the needs
of the exchanges in a competitive
financial marketplace against
maintaining the statutorily required
Commission oversight of the SROs and
the SRO rule change process.
In 1994, the Commission adopted
amendments to Rule 19b–4 to allow
certain non-controversial proposed rule
changes and proposed rule changes for
minor systems changes to ‘‘become
immediately effective’’ upon filing and
without Commission approval.8 In 1998,
clearing agencies, and the Municipal Securities
Rulemaking Board (‘‘MSRB’’).
3 See Section 19 of the Exchange Act, 15 U.S.C.
78s. See also Market 2000: An Examination Of
Current Equity Market Developments, Study VI,
Division of Market Regulation, U.S. Securities and
Exchange Commission (January 1994).
4 15 U.S.C. 78f(a).
5 Certain futures exchanges are also registered as
national securities exchanges under Section 6(g) of
the Exchange Act, 15 U.S.C. 78f(g), solely for the
purpose of trading security futures products.
6 While a security futures exchange registered
under Section 6(g) of the Exchange Act is required
to file certain proposed rule changes with the
Commission, few such filings must receive
Commission approval under Section 19(b)(2). If
they must be filed at all, most may be filed under
Section 19(b)(3)(A) of the Exchange Act. See 15
U.S.C. 78f(g)(4)(B).
7 Securities Exchange Act Release No. 43860
(January 19, 2001), 66 FR 8912 (February 5, 2001)
(S7–03–01) (‘‘Rule 19b–6 Proposing Release’’).
8 See Securities Exchange Act Release No. 35123
(December 20, 1994), 59 FR 66692 (December 28,
1994) (S7–17–94) (‘‘Non-Controversial Rule
Adopting Release’’).
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the Commission again amended Rule
19b–4 to allow for the listing and
trading of certain derivative securities
products without prior submission of a
proposed rule change under section
19(b).9 The 1998 rulemaking was
intended to speed the introduction of
new derivative securities products and
enable exchanges to remain competitive
with foreign and over-the-counter
derivatives markets that are not subject
to section 19(b).
In 2001, the Commission proposed
comprehensive changes to the SRO rule
filing process.10 The Commission
proposed to completely replace Rule
19b–4, the rule governing the
requirements for SRO rule filings, with
proposed new Rule 19b–6. Proposed
Rule 19b–6, among other things, would
have defined terms used in proposed
Rule 19b–6 to allow most exchange
trading rules, other than proposals
involving fundamental market structure
changes, to be immediately effective
upon filing with the Commission
pursuant to section 19(b)(3)(A) of the
Exchange Act. The Commission also
proposed related changes that would
have imposed a number of new
obligations on SROs filing proposed rule
changes with the Commission. For
example, in proposed Rule 19b–6, the
Commission would have required,
among other things, that a senior SRO
official certify the accuracy and
completeness of the proposal. The
Commission also proposed to eliminate
the 30-day operational date and the fiveday pre-filing requirement for noncontroversial rule filings.
The Commission received 21
comment letters on proposed Rule 19b–
6, many of which opposed various
aspects of the proposal, though for
widely divergent reasons. Four
commenters explicitly supported the
proposal to make certain trading rules
effective upon filing.11 Several SROs
believed that the proposal provided
only minor benefits that were
potentially outweighed by new
burdensome requirements.12 A few
9 See Securities Exchange Act Release No. 40761
(December 8, 1998), 63 FR 70952 (December 22,
1998) (S7–13–98) (‘‘New Products Adopting
Release’’).
10 See Rule 19b–6 Proposing Release, supra note
7.
11 See Comment letters from Nasdaq (dated April
6, 2001); the Pacific Exchange (dated April 24,
2001); Bloomberg Tradebook LLC (dated April 5,
2001); and the Chicago Stock Exchange (dated April
5, 2001).
12 See, e.g., Comment letters from The Options
Clearing Corporation (dated April 6, 2001); the
Philadelphia Stock Exchange (dated April 6, 2001);
the Chicago Stock Exchange (dated April 5, 2001);
the International Securities Exchange (dated March
23, 2001); and the Chicago Board Options Exchange
(dated April 11, 2001).
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commenters believed that the category
of trading rules eligible for immediate
effectiveness was too narrow, or that
more objective standards were needed
to determine what qualifies as a trading
rule.13 In contrast, other commenters
were concerned that the proposal might
reduce the opportunity to comment on
proposed rule changes,14 and that the
Commission might be hesitant to
abrogate immediately effective filings.15
Several commenters explicitly opposed
making certain types of trading rules
immediately effective, noting that such
rule changes may have particular
importance to the public or have a major
impact on market participants.16 Several
commenters also opposed the proposal
to remove the operative delay 17 from
Rule 19b–4(f)(6).18 In addition, several
13 See, e.g., Comment letters from Credit Suisse
First Boston (dated March 26, 2001); the
International Securities Exchange (dated March 23,
2001); the Philadelphia Stock Exchange (dated
April 6, 2001); the Pacific Exchange (dated April 24,
2001); Nasdaq (dated April 6, 2001); the Chicago
Board Options Exchange (dated April 11, 2001); the
Chicago Stock Exchange (dated April 5, 2001); and
the Mercatus Center of George Mason University
(dated April 9, 2001).
14 See, e.g., Comment letters from the Investment
Company Institute (dated April 6, 2001); Bloomberg
Tradebook LLC (dated April 5, 2001); Brunelle &
Hadjikow (dated April 4, 2001); the Consumer
Federation of America (dated April 6, 2001); the
Securities Industry Association (dated April 6,
2001); and the American Council of Life Insurers
(dated April 10, 2001). See discussion below in
Section III.A.2(b) regarding the importance of
public comment to the SRO proposed rule change
process.
15 See, e.g., Comment letters from Credit Suisse
First Boston (dated March 26, 2001); the Council of
Institutional Investors (dated March 26, 2001); the
Investment Company Institute (dated April 6, 2001);
and the Consumer Federation of America (dated
April 6, 2001). See discussion below in Section IV
regarding abrogation of immediately effective
proposals.
16 See, e.g., Comment letters from the Securities
Industry Association (dated April 6, 2001) and
Brunelle & Hadjikow (dated April 4, 2001). These
commenters believed that entities that are familiar
with the technology and operation of SRO trading
systems should be given an opportunity to
comment on proposed changes to such systems. See
Section III.A.2(b), below (‘‘Opportunity for Public
Comment With Regard to Immediately Effective
Rule Filings’’).
17 A proposed rule change designated
immediately effective normally becomes operative
upon filing with the Commission, except for a
proposal submitted pursuant to Rule 19b–4(f)(6),
which becomes operative 30 days after the date of
filing with the Commission or such shorter time as
the Commission may designate if consistent with
the protection of investors and the public interest.
17 CFR 240.19b–4(f)(6)(iii).
18 See, e.g., Comment letters from the Investment
Company Institute (dated April 6, 2001); the State
of Wisconsin Investment Board (dated March 28,
2001); Brunelle & Hadjikow (dated April 4, 2001);
the Consumer Federation of America (dated April
6, 2001); the Securities Industry Association (dated
April 6, 2001); and the American Council of Life
Insurers (dated April 10, 2001). One commenter
suggested that a delay between the effective and
operative date would allow the Commission to
abrogate a rule with a minimum of disruption to an
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commenters expressed support for
Commission issuance of notice of a
proposed rule change within 10
business days or such longer period as
the SRO consents.19
The Commission has considered
thoroughly all of these comments. The
Commission is not taking action today
on proposed Rule 19b–6 nor with regard
to any of the other related changes,20 but
the Commission’s action in this release
is consistent with the objectives
underlying the Rule 19b–6 proposal and
takes into account the varying views
expressed in the comments.
The Commission notes that the
guidance and rule adopted herein do
not alter the existing legal obligations
for SROs filing proposed rule changes.
The Commission today is not modifying
or replacing Rule 19b–4, nor is it
imposing related obligations on SROs
with regard to the rule filing process
and, therefore, the Commission believes
that the additional requirements
proposed in the Rule 19b–6 Proposing
Release are not necessary at this time.
As discussed below, the guidance in
this release addresses a much narrower
part of the SRO rule filing process and
imposes no new obligations on SROs.
The Commission believes that it is
now appropriate to issue guidance
related to the filing of certain
immediately effective proposed rule
changes by SROs and to adopt a rule
amendment designed to streamline
further the SRO proposed rule change
process. Specifically, the Commission
today is (1) providing an interpretation
of the Commission’s views as to which
SRO rule filings could be filed as
immediately effective and (2) modifying
only its own internal processes.
II. Background on the Current Rule
Filing Process
Section 19(b)(1) of the Exchange Act
requires an SRO to file with the
SRO’s operations. See Comment letter from the
State of Wisconsin Investment Board (dated March
28, 2001).
19 See Comment letters from Credit Suisse First
Boston (dated March 26, 2001); the Chicago Stock
Exchange (dated April 5, 2001); the Philadelphia
Stock Exchange (dated April 6, 2001); Nasdaq
(dated April 6, 2001); the Securities Industry
Association (dated April 6, 2001); the Pacific
Exchange (dated April 24, 2001); the Government
Securities Clearing Corporation (dated March 20,
2001); NASD Dispute Resolution and NASD
Regulation (dated May 3, 2001). One commenter
suggested that the Commission publish notice of a
proposed rule change within ten calendar days, not
business days, and recommended that there be a
mechanism to ensure compliance with the
requirement. See Comment letter from the Chicago
Board Options Exchange (dated April 11, 2001).
20 For example, the Commission is taking no
further action at this time on the Rule 19b–6
proposal to require certifications or to remove the
pre-filing or operative delay from Rule 19b–4(f)(6)
under the Exchange Act.
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Commission any proposed rule
change,21 which must be ‘‘accompanied
by a concise general statement of the
basis and purpose of such proposed rule
change’’ and be submitted electronically
on Form 19b–4, in accordance with the
General Instructions thereto.22 Exhibit 1
of Form 19b–4 requires an SRO to
prepare the notice of its proposed rule
change for publication in the Federal
Register.23 A proposed rule change may
not take effect unless it is approved by
the Commission 24 or becomes
immediately effective upon filing
pursuant to section 19(b)(3)(A) of the
Exchange Act.25
A. Proposals Subject to Commission
Approval
For those proposals that are subject to
Commission approval, section 19(b)(2)
of the Exchange Act specifies the
standards and time periods for
Commission action either to approve a
proposed rule change or to institute
proceedings to determine whether a
21 Section 19(b)(1) of the Exchange Act defines a
‘‘proposed rule change’’ as ‘‘any proposed rule, or
any proposed change in, addition to, or deletion
from the rules of’’ an SRO. 15 U.S.C. 78s(b)(1).
Section 3(a)(27) of the Exchange Act defines ‘‘rules’’
to include ‘‘the constitution, articles of
incorporation, bylaws, and rules, or instruments
corresponding to the foregoing * * * and such of
the stated policies, practices, and interpretations of
such exchange, association, or clearing agency as
the Commission, by rule, may determine to be
necessary or appropriate in the public interest or for
the protection of investors to be deemed to be rules
of such exchange, association, or clearing agency.’’
15 U.S.C. 78c(a)(27).
22 17 CFR 249.819. Among other things, the
General Instructions to Form 19b–4 specify that an
SRO’s proposal must be clear and complete before
it will be accepted as filed by the Commission. See
General Instruction B to Form 19b–4 (‘‘This form,
including the exhibits, is intended to elicit
information necessary for the public to provide
meaningful comment on the proposed rule change
and for the Commission to determine whether the
proposed rule change is consistent with the
requirements of the [Exchange] Act and the rules
and regulations thereunder * * * The [SRO] must
provide all the information called for by the form,
including the exhibits, and must present the
information in a clear and comprehensible manner
* * * Any filing that does not comply with the
requirements of this form may be returned to the
[SRO] at any time before the issuance of the notice
of filing. Any filing so returned shall for all
purposes be deemed not to have been filed with the
Commission’’). See also Rule 0–3 under the
Exchange Act, 17 CFR 240.0–3 (‘‘The date on which
papers are actually received by the Commission
shall be the date of filing thereof if all of the
requirements with respect to the filing have been
complied with. * * *’’).
23 If the conditions of Rule 19b–4 and Form 19b–
4 are satisfied, a proposed rule change submitted
electronically via the Commission’s Electronic
Form Filing System on or before 5:30 p.m. Eastern
Time on a business day is deemed ‘‘filed’’ on that
business day, and all filings submitted after 5:30
p.m. Eastern Time are deemed filed on the next
business day. See Rule 19b–4(k), 17 CFR 240.19b–
4(k).
24 See 15 U.S.C. 78s(b)(2).
25 15 U.S.C. 78s(b)(3)(A).
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proposed rule change should be
disapproved.26 After expiration of the
applicable comment period and due
consideration of any comment letters
received, the Commission shall approve
a proposed rule change if it finds such
proposed rule change is consistent with
the requirements of the Exchange Act
and the rules and regulations
thereunder applicable to the SRO.27 The
Commission shall disapprove a
proposed rule change if it cannot make
such a finding.28
B. Immediately Effective Proposals
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Section 19(b)(3)(A) of the Exchange
Act provides that, notwithstanding the
provisions of section 19(b)(2), a
proposed rule change may take effect
upon filing with the Commission if
designated by the SRO as:
(i) Constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or
enforcement of an existing rule of the
self-regulatory organization;
(ii) Establishing or changing a due,
fee, or other charge imposed by the selfregulatory organization; or
(iii) Concerned solely with the
administration of the self-regulatory
organization or other matters which the
Commission, by rule * * * may specify
* * *.29
Section 19(b)(3)(A)(iii) of the
Exchange Act grants the Commission
authority to expand the scope of
proposed rule changes entitled to
qualify for immediate effectiveness to
other matters which the Commission, by
rule, consistent with the public interest
and the purposes of section 19(b) of the
Exchange Act, may specify. Rule 19b–
4(f) under the Exchange Act 30 specifies
the following types of proposed rule
changes that may take effect upon filing
with the Commission pursuant to
section 19(b)(3)(A) if properly
designated by an SRO as:
(1) Constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or
enforcement of an existing rule;
26 See 15 U.S.C. 78s(b)(2). The Commission must
either approve or institute disapproval proceedings
within thirty-five days of the date of publication of
notice of the filing in the Federal Register, or
within such longer period as the Commission may
designate (up to ninety days of such date if it finds
such longer period to be appropriate and publishes
its reasons for so finding) or as to which the SRO
consents. See id.
27 The Commission may approve a proposed rule
change on an accelerated basis prior to the 30th day
after publication of the notice in the Federal
Register if it finds good cause and publishes its
reasons for so doing. See id.
28 See id.
29 15 U.S.C. 78s(b)(3)(A).
30 17 CFR 240.19b–4(f).
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(2) Establishing or changing a due,
fee, or other charge applicable to a
member;
(3) Concerned solely with the
administration of the self-regulatory
organization;
(4) Effecting a change in an existing
service of a registered clearing agency
that: (i) Does not adversely affect the
safeguarding of securities or funds in
the custody or control of the clearing
agency or for which it is responsible;
and (ii) does not significantly affect the
respective rights or obligations of the
clearing agency or persons using the
service;
(5) Effecting a change in an existing
order-entry or trading system of a selfregulatory organization that: (i) Does not
significantly affect the protection of
investors or the public interest; (ii) does
not impose any significant burden on
competition; and (iii) does not have the
effect of limiting the access to or
availability of the system; or
(6) Effecting a change that: (i) Does
not significantly affect the protection of
investors or the public interest; (ii) does
not impose any significant burden on
competition; and (iii) by its terms, does
not become operative for 30 days after
the date of the filing, or such shorter
time as the Commission may designate
if consistent with the protection of
investors and the public interest;
provided that the self-regulatory
organization has given the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change (the ‘‘pre-filing’’),
or such shorter time as designated by
the Commission.31
As with a proposed rule change filed
pursuant to section 19(b)(2) of the
Exchange Act, the Commission
publishes notice in the Federal Register
of a proposed rule change designated for
immediate effectiveness under section
31 The five-day period commences from the date
the Commission receives the SRO’s pre-filing. The
pre-filing requirement was designed to serve as an
opportunity for Commission staff to ‘‘discuss with
the SRO whether there exists an adequate basis
upon which the proposed rule change may properly
qualify’’ for immediate effectiveness under Rule
19b–4(f)(6), and allows the SRO to ‘‘elicit guidance
from Commission staff to help the SRO identify
those aspects of a proposed rule change that the
Commission deems important’’ in order to ‘‘help
the SRO articulate in its subsequent filing the
purpose and effects of the proposed rule change,
which in turn should further facilitate and expedite
the filing process.’’ Securities Exchange Act Release
No. 34140 (June 1, 1994), 59 FR 29393, 29395 (June
7, 1994) (S7–17–94) (‘‘Non-Controversial Rule
Proposing Release’’). The Commission also notes
that it has enhanced its electronic system through
which SROs file proposed rule changes to allow the
electronic submission of pre-filings.
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19(b)(3)(A).32 An immediately effective
filing becomes operative upon filing
with the Commission, except for a
proposal submitted pursuant to Rule
19b–4(f)(6), which becomes operative 30
days after the date of filing with the
Commission or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest.33
Further, the Exchange Act provides
that at any time within 60 days of the
date of filing of a proposed rule change
designated for immediate effectiveness
under section 19(b)(3)(A) of the
Exchange Act and Rule 19b–4(f)
thereunder, the Commission summarily
may abrogate the proposed rule change
and require that the SRO re-file the
proposal under section 19(b)(2) of the
Exchange Act ‘‘if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of [the Exchange Act].’’ 34
III. Interpretive Guidance on the Rule
Filing Process
The Commission today takes several
actions, discussed in greater detail
below, intended to facilitate more
expeditious handling of proposed rule
changes submitted by SROs. The
Commission is providing interpretive
guidance regarding the range of
proposed changes to exchange trading
rules that qualify for immediate
effectiveness pursuant to Exchange Act
Rule 19b–4(f)(6) as not significantly
affecting the protection of investors or
the public interest and not imposing any
significant burden on competition.35
The Commission anticipates that the
guidance will result in exchanges filing
a broader range of proposed changes to
trading rules for immediate
effectiveness under Rule 19b–4(f)(6).
32 An SRO must designate the basis for immediate
effectiveness of the proposed rule change in Item
7 of Form 19b–4. See Item 7 of Form 19b–4 (‘‘Basis
for Summary Effectiveness Pursuant to Section
19(b)(3)(A) or for Accelerated Effectiveness
Pursuant to Section 19(b)(2) or Section
19(b)(7)(D)’’).
33 With respect to amendments to filings
designated for immediate effectiveness pursuant to
Rule 19b–4(f)(6), the Commission has stated that
‘‘any substantive amendment would trigger a new
30-day period, assuming the changes do not render
the filing ineligible for this category.’’ NonControversial Rule Adopting Release, supra note 8,
59 FR at 66695. The Commission staff, however, has
‘‘discretion to accept editorial changes without
triggering a new 30-day period.’’ Id. Such proposals
should not require extensive amendments, since
‘‘[a] filing requiring further substantive
amendments may indicate that it is not appropriate
for the expedited treatment afforded by the
noncontroversial category.’’ Id.
34 15 U.S.C. 78s(b)(3)(C).
35 See Rule 19b–4(f)(6), 17 CFR 240.19b–4(f)(6).
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Additionally, the Commission is
providing guidance on proposed rule
changes relating to an SRO’s minor rule
violation plan (‘‘MRVP’’) and ‘‘copycat’’
filings relating to SRO rules other than
trading rules. The guidance provided
herein as it relates to proposed changes
to trading rules is directed at SROs that
operate trading systems (i.e., the
national securities exchanges). The
additional guidance is applicable to all
SROs, including exchanges, national
securities associations, clearing
agencies, and the MSRB.
Further, as discussed in section V
below, the Commission is adopting an
amendment to Rule 200.30–3(a)(12)
relating to the delegation of authority to
the Director of the Division of Trading
and Markets regarding the publication
of proposed rule changes.36 Amended
Rule 200.30–3(a)(12) applies with regard
to all SRO rule filings.
A. Interpretive Guidance on
Immediately Effective Proposed Rule
Changes
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The national securities exchanges’
need to implement quickly new trading
rules has become increasingly critical,
particularly given the evolving role of
securities exchanges, innovations in
U.S. and cross-border trading, and the
increasingly competitive financial
marketplace. Specifically, the
Commission recognizes that the national
securities exchanges registered under
section 6(a) of the Exchange Act 37 face
increased competitive pressures from
entities that trade the same or similar
financial instruments—such as foreign
exchanges, futures exchanges, ECNs,
and ATSs. These competitors can
change their trading rules or trade new
products with greater ease, and without
filing them with the Commission.
Accordingly, to inform exchanges’
understanding of the range of exchange
trading rules eligible for immediate
effectiveness and to encourage
exchanges to consider filing a broader
range of proposed changes to trading
rules that do not ‘‘significantly affect the
protection of investors or the public
interest’’ 38 or do not ‘‘impose any
36 To assist the Commission in processing
proposed rule changes expeditiously, the
Commission emphasizes the obligation of each SRO
to prepare proposed rule changes that are clear and
complete. See supra note 22 and accompanying
text. The Commission encourages SROs to devote
sufficient resources to the rule filing process to
assure quality work product to enable the
Commission to evaluate efficiently whether the
proposed rule change is consistent with the
Exchange Act and applicable rules and regulations
thereunder as well as the SRO’s own rules.
37 15 U.S.C. 78f(a).
38 17 CFR 240.19b–4(f)(6)(i).
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significant burden on competition,’’ 39
and thus qualify for immediate
effectiveness under Rule 19b–4(f)(6), the
Commission is providing the
interpretive guidance set forth in this
release.
1. Previous Commission Guidance on
Immediately Effective Proposals
As discussed above, Rule 19b–4(f)(6)
permits a proposed rule change to
become immediately effective if, among
other things, it is properly designated by
an SRO as effecting a change that does
not significantly affect the protection of
investors or the public interest, and
does not impose any significant burden
on competition. Further, an
immediately effective rule pursuant to
Rule 19b–4(f)(6), by its terms, may not
become operative for 30 days after the
date of the filing, or such shorter time
as the Commission may designate, if
consistent with the protection of
investors and the public interest,
provided that the SRO has given the
Commission written notice of its intent
to file the proposed rule change, along
with a brief description and text of the
proposed rule change, at least five
business days prior to the date of filing
of the proposed rule change, or such
shorter time as designated by the
Commission.
When adding paragraph (f)(6) to Rule
19b–4 in 1994, the Commission referred
to it as the ‘‘noncontroversial category’’
and noted that it was intended to
accommodate proposed rule changes
that were generally ‘‘less likely to
engender adverse comments or require
the degree of review attendant with
more controversial filings.’’ 40
Accordingly, the Commission
contemplated that proposals eligible for
filing under paragraph (f)(6) of Rule
19b–4 would generally be ‘‘inherently
simple and concise’’ and ‘‘otherwise
require little in the way of extended
review or analysis by the
Commission.’’ 41
2. Interpretation of Rule 19b–4(f)(6) for
Rule Proposals Involving Exchange
Trading Rules
The rule filing process, by which
national securities exchanges are
required to file their proposed rule
changes with the Commission, currently
allows the exchanges to implement
many of their proposed rule changes
relating to trading rules on an expedited
basis. The Commission believes that
more rule filings pertaining to the
CFR 240.19b–4(f)(6)(ii).
Rule Adopting Release,
supra note 8, 59 FR at 66696.
41 Id. at 66695.
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40 Non-Controversial
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operation of an SRO’s trading systems
qualify for immediate effectiveness than
are currently filed as such. A number of
proposed rule changes that could
qualify for immediate effectiveness
under section 19(b)(3)(A) of the
Exchange Act are filed, instead, ‘‘regular
way’’ under section 19(b)(2), thus
requiring the Commission to issue a
notice and an approval order.42
The Commission believes that a
proposed trading rule change
appropriately may be filed as an
immediately effective rule so long as
each policy issue raised by the proposed
trading rule (i) has been considered
previously by the Commission when the
Commission approved another
exchange’s trading rule (that was subject
to notice and comment) pursuant to
Section 19(b)(2) of the Exchange Act,
and (ii) the rule change resolves such
policy issue in a manner consistent with
such prior approval. The Commission
believes that filing such proposed rule
changes for immediate effectiveness not
only will reduce the time before which
an exchange could implement its new
rule or modify an existing one, but also
will eliminate the need for the
Commission to issue both a notice and
an approval order for each such filing.
The Commission notes that certain
types of proposals remain ineligible for
immediate effectiveness under Rule
19b–4(f)(6). For example, proposals that
introduce potentially anti-competitive
or unfairly discriminatory aspects to an
SRO’s operation, or otherwise conflict
with stated Commission policy, would
not be eligible for immediate
effectiveness since they would not meet
the standard of Rule 19b–4(f)(6) and the
interpretation. Similarly, proposals that
would substantially alter an exchange’s
market structure would continue to be
ineligible for immediate effectiveness.
(a) Examples of Trading Rules Eligible
for Immediate Effectiveness
Below is a partial list of the types of
trading rules that the Commission
believes are appropriate for filing as
immediately effective rule changes
under this interpretation. The
Commission emphasizes that this is a
partial—not exhaustive—list, designed
to assist exchanges in determining the
types of proposed trading rule changes
that are appropriately filed as
immediately effective.
• Protection of Limit Orders. In
approving exchange trading rules, the
42 The Commission understands, however, that
there may be a variety of reasons why an SRO may
file a proposed rule change under Section 19(b)(2),
even though the rule change would have been
appropriately filed as an immediately effective rule
filing.
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Commission carefully reviews whether
they protect limit orders that are
displayed on an exchange’s book, since
limit orders contribute to price
discovery, provide liquidity to the
market, and may narrow the quoted
spread.43 A proposed trading rule
change is eligible for immediate
effectiveness if the proposal facilitates
trading of public customer orders, or
otherwise enables them to interact with
order flow on the exchange on an
equitable basis (such as price/time
priority).
• Market Maker Obligations. The
Commission carefully reviews special
advantages provided to market makers
when it considers exchange trading rule
proposals. Market makers can play an
important role in providing liquidity to
the market, and an exchange can
appropriately reward them for that as
well as the services they provide to the
exchange’s market, so long as the
rewards are not disproportionate to the
services provided.44 For example, a
proposed trading rule change that
strengthens the market while providing
benefits to market makers is eligible for
immediate effectiveness if the benefits
conferred are offset by corresponding
responsibilities to the market that
provide customer trading interest a net
benefit.
• Preferenced Order Flow. The
Commission recognizes that exchanges
43 See Securities Exchange Act Release No.
37619A (September 6, 1996), 61 FR 48290 (S7–30–
95) (adopting Rule 11Ac1–4) (‘‘The Commission
believes that limit orders are a valuable component
of price discovery. The uniform display of such
orders will encourage tighter, deeper, and more
efficient markets.’’).
44 See, e.g., Securities Exchange Act Release Nos.
54580 (October 6, 2006), 71 FR 60781, 60782
(October 16, 2006) (SR–ISE–2006–40) (order
approving the establishment of ISE’s Second
Market); 54238 (July 28, 2006), 71 FR 44758, 44761
(August 7, 2006) (SR–NYSE Arca–2006–13)
(‘‘Market Makers receive certain benefits for
carrying out their duties. * * * The Commission
believes that a Market Maker must have an
affirmative obligation to hold itself out as willing
to buy and sell options for its own account on a
regular or continuous basis to justify this favorable
treatment.’’); 53652 (April 13, 2006), 71 FR 20422
(April 20, 2006) (SR–Amex–2005–100) (order
approving the establishment of a new class of
registered options trader called a Remote Registered
Options Trader); 52094 (July 21, 2005), 70 FR
43913, 43915 (July 29, 2005) (SR–CHX–2004–11)
(order approving a fully-automated electronic book
for the display and execution of orders in securities
that are not assigned to a specialist) (‘‘Because
market makers receive certain benefits for carrying
out their duties, the Commission believes that they
should have an affirmative obligation to hold
themselves out as willing to buy and sell securities
for their own account on a regular or continuous
basis to justify this favorable treatment.’’); and
51366 (March 14, 2005), 70 FR 13217, 13221 (March
18, 2005) (order approving the introduction of
Remote Market Makers) (‘‘In particular, the
Commission believes that RMMs’ affirmative
obligations are sufficient to justify the benefits they
receive as market makers.’’).
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compete for preferenced order flow. A
proposal to allow broker-dealers to
execute preferenced orders on an
exchange is eligible for immediate
effectiveness if the rule change provides
other market participants a reasonable
opportunity to interact with preferenced
orders and the proposal does not
impinge upon the incentive for market
participants to post competitive
quotes.45
• Trading Hours. With respect to
trading hours, the Commission believes
that proposals to modify the trading
hours of an exchange, provided there is
a sufficient degree of quotation and lastsale transparency during any extended
hours, also are eligible for immediate
effectiveness under Rule 19b–4(f)(6).46
• Conforming Rules to Approved
Changes to NMS Plan or Commission
Rule. The Commission believes that
proposed rule changes to implement
provisions of an approved national
market system plan (such as the Options
Linkage Plan 47) or a Commission rule
45 See, e.g., Securities Exchange Act Release No.
37406 (March 29, 1996), 61 FR 15322 (April 5,
1996) (SR–CSE–95–03) (‘‘The Commission has
concluded that preferencing, as supplemented by
the order handling policies, is not necessarily
inconsistent with the attainment of best execution
of customer orders, the maintenance of fair and
orderly markets, or the protection of investors and
the public interest under Section 6(b)(5) of the
Act.’’). See also, e.g., Securities Exchange Act
Release Nos. 50819 (December 8, 2004), 69 FR
75093, 75097 (December 15, 2004) (SR–ISE–2003–
06) (order approving the establishment of rules to
implement a price improvement mechanism) (‘‘The
Commission * * * has expressed its concern that
proposals by options exchanges that guarantee a
significant portion of orders to any market
participant could erode the incentive to display
aggressively priced quotes. Thus, the Commission
must weigh whether the proposed participation
right would so substantially reduce the ability of
other market participants to trade with an order that
it would reduce price competition.’’).
46 The Commission notes, however, that an
exchange proposal to modify the ‘‘regular trading
hours,’’ as defined in Rule 600(b)(64) of Regulation
NMS (17 CFR 242.600(a)(64) (defining ‘‘regular
trading hours’’ as the time between 9:30 a.m. and
4 p.m., Eastern Time)) for any NMS stocks that it
lists—which thereby has the effect of extending the
time during which all trading centers must protect
quotations pursuant to Rule 611 of Regulation NMS
(17 CFR 242.611)—must be filed under Section
19(b)(2) of the Exchange Act. The Commission
believes that, because such a proposal could
potentially raise significant competitive issues and
could affect existing SRO surveillance and oversight
programs, it must be considered by the Commission
after prior notice and comment before it becomes
operative. See Non-Controversial Rule Proposing
Release, supra note 31, 59 FR at 29394 (noting that
a proposal that would affect the surveillance or
oversight capabilities of an SRO could directly
impair the protection of investors and should be
filed under Section 19(b)(2) of the Exchange Act).
47 The Options Linkage Plan is a national market
system plan for the purpose of creating and
operating an intermarket linkage among the various
participant exchanges.
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are eligible for immediate effectiveness
under Rule 19b–4(f)(6).
(b) Opportunity for Public Comment
With Regard to Immediately Effective
Rule Filings
Although the Commission is
encouraging the exchanges to designate
additional proposed changes in the
category of trading rules as immediately
effective, the Commission is not
minimizing the importance of receiving
public comments on proposed rule
changes relating to trading rules. The
Commission emphasizes that it
continues to believe that the public
interest is served by offering the public,
investors, SRO members, and other
market participants the opportunity to
comment on SRO rule proposals. The
Commission considers all comments it
receives on each proposed rule change,
and makes available all comments to the
applicable SRO for its consideration as
well.
Comments on an immediately
effective filing help the Commission
analyze the impact of the filing and
evaluate whether to abrogate it.48
Comments also help the exchange
address legitimate concerns, in a
manner that does not delay
implementation of the proposed rule
change, while still preserving the
Commission’s ability to act to abrogate
when appropriate. For example, in
response to a comment letter that raises
significant concerns with an
immediately effective rule change, an
exchange could consider revising its
rule (by submitting either another
immediately effective proposal or a
proposed rule change that requires
notice and comment) in a manner that
reasonably addresses the issues raised
by the commenter.49 As described
below,50 an exchange will decrease the
likelihood of abrogation of an
immediately effective filing by clearly
describing the significance of the rule
change and how the proposal is
consistent with the standards applicable
to exchange rules, such as the
provisions set forth in section 6 and
section 11A of the Exchange Act.51
48 The Commission notes that no inference should
be made regarding whether an SRO’s proposed rule
change ‘‘impose[s] a significant burden on
competition’’ merely because an SRO’s competitor
objects to the rule filing.
49 If the second proposal were filed under Rule
19b–4(f)(6), the Commission could consider
waiving the five-day pre-filing period and the 30day pre-operative period to permit the revision to
the new rule to be operative as quickly as possible.
See Rule 19b–4(f)(6)(iii).
50 See infra Section IV.
51 15 U.S.C. 78f and 15 U.S.C. 78k–1, respectively.
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B. Other Types of Immediately Effective
Proposed Rule Changes
1. Filings Based on the Rules of Another
SRO, Other Than Trading Rules
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The Commission also is issuing
interpretive guidance for all SROs with
respect to ‘‘copycat’’ filings relating to
SRO rules other than trading rules that
are eligible for immediate effectiveness.
The Commission previously had stated
that filings that are ‘‘virtually identical’’
to an SRO filing already approved by
the Commission are eligible for
immediate effectiveness under Rule
19b–4(f)(6).52 The Commission now
clarifies that an SRO may designate a
proposed rule change for immediate
effectiveness even if not ‘‘virtually
identical’’ to another SRO’s rules.53
In particular, the Commission
recognizes that, while each SRO is
unique and has modified its rulebook
over time to reflect its particular
structure and terminology, all share
basic similarities such that a proposed
rule change need not be ‘‘virtually
identical’’ to the precise text of another
SRO’s rules in order for the prescribed
conduct and scope of the rule change to
be consistent with the other SRO’s rule
on which it is based. The Commission
believes that a proposed rule change
appropriately may be filed as an
immediately effective rule so long as it
is based on and similar to another SRO’s
rule and each policy issue raised by the
proposed rule (i) has been considered
previously by the Commission when the
Commission approved another
exchange’s rule (that was subject to
notice and comment), and (ii) the rule
change resolves such policy issue in a
manner consistent with such prior
approval. For this class of proposed rule
changes, in support of its designation
for immediate effectiveness, the SRO is
required under Item 8 of Form 19b–4 to
identify the original SRO rule(s) on
which its proposed rule change is based
and explain any differences between its
proposed rule change and the rule(s)
upon which it is based.54
52 See Non-Controversial Rule Adopting Release,
supra note 8, 59 FR at 66697.
53 The Commission guidance contained herein
applicable to ‘‘copycat’’ and MRVP filings that are
based on SRO rule changes previously approved by
the Commission is not intended to limit the ability
of SROs to continue to file proposals under Section
19(b)(3)(A) of the Exchange Act where such
proposals are based on another SRO’s rules that also
were effective pursuant to Section 19(b)(3)(A) of the
Act.
54 In identifying a rule on which its proposal is
based, the SRO should cite to the Commission’s
approval order for that rule. See Item 8 of Form
19b–4.
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2. Changes to an SRO’s Minor Rule
Violation Plan
The Commission also believes that
more filings relating to an SRO’s MRVP
could be appropriately filed as
immediately effective upon filing under
paragraph (f)(6) of Rule 19b–4. Based on
its experience with MRVP proposals
and various changes to those MRVPs
over the years, the Commission believes
that MRVPs have been useful elements
of SROs’ disciplinary function. The
MRVP allows an SRO to impose a
limited sanction on a member using an
abbreviated process when a full
disciplinary proceeding may not be
warranted. Proposed rule changes that
enable SROs to bring new rules into the
MRVP sanctioning process rarely raise
significant issues and promote
compliance by the SRO’s members with
the SRO’s rules and the rules of the
Commission.
The Commission previously has
stated that certain changes to an SRO’s
MRVP can be filed for immediate
effectiveness pursuant to Rule 19b–
4(f)(6) and reiterates that guidance
here.55 Moreover, consistent with
‘‘copycat’’ filings, the Commission
believes that a change to an SRO’s
MRVP appropriately may be filed as an
immediately effective rule so long as
each policy issue raised (i) has been
considered previously by the
Commission when the Commission
approved another exchange’s MRVP
rule change, and (ii) the rule change
resolves such policy issue in a manner
consistent with such prior approval.56
55 See Non-Controversial Rule Proposing Release,
supra note 31, 59 FR at 29395 (noting that a
proposed change that adds an existing rule to an
SRO’s MRVP, that is objective in nature, such as a
reporting obligation, and does not involve a
violation of the federal securities laws or the rules
thereunder, could be eligible for filing as a ‘‘noncontroversial’’ proposed rule change). See also NonControversial Rule Adopting Release, supra note 8,
59 FR at 66696 (noting that an NYSE proposal to
add violations of an NYSE rule would have been
eligible for immediate effectiveness under Rule
19b–4(f)(6)).
56 As with any immediately effective filing, the
Commission could abrogate an MRVP-related
immediately effective proposed rule change that
raises significant issues. For example, an MRVP
filing that has the effect of excusing certain rule
violations (by, for example, aggregating several
instances of violative behavior as a single offense
under the SRO’s MRVP) would not be eligible for
filing under Rule 19b–4(f)(6). In addition, when
proposing a change to its MRVP, it would be
helpful for the SRO to specify which violations
trigger sanctions, and to cite the rules of conduct
that may be enforced using the MRVP. If one of the
rules of conduct is lengthy, to facilitate ease of
reference, the SRO could consider including
citations to the necessary sub-paragraphs in the
MRVP rule. Providing a sufficient level of detail as
to the rules and violations covered by the MRVP
would help affected entities better understand the
operation of the plan and would provide specificity
useful to assist the SRO in administering its MRVP.
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40149
Immediate effectiveness of such
proposals reduces the administrative
burdens on SROs that seek to expand
the use of their MRVPs.
IV. Abrogation of Immediately Effective
Proposals
We have designed the guidance to be
principles-based because we cannot
anticipate the content and nature of
every proposed rule change that might
be filed. By its nature, therefore,
applying the guidance will involve an
element of judgment. We encourage
SROs to file immediately effective
proposed rule changes when in the
judgment of the SRO that approach is
appropriate and consistent with the
statute, rules, and this guidance.57
We acknowledge that the Commission
ultimately may determine to abrogate
the immediately effective proposed rule
change. As described in greater detail
above, pursuant to section 19(b)(3)(C), at
any time within 60 days of the date of
filing of an immediately effective
proposed rule change, the Exchange Act
permits the Commission summarily to
abrogate the rule change ‘‘if it appears
to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of [the Exchange Act].’’ 58
In connection with the interpretation,
the Commission also is removing its
delegation of authority to the Director of
the Division of Trading and Markets to
abrogate SRO rule filings. We emphasize
that abrogation does not necessarily
imply that a proposed rule change is
inconsistent with the Exchange Act.59 If
the Commission abrogates an SRO’s
proposed rule change filed for
immediate effectiveness after it became
effective but before it becomes operative
(i.e., 30 days after filing or such shorter
period as the Commission may
designate), the SRO would not have to
revert to its previous rules, because they
57 An SRO that files an immediately effective
proposed rule change with the Commission should
try to anticipate and address concerns relating to
the protection of investors, the public interest, and
the burdens on competition. See generally Items 3
and 4 of Form 19b–4. The Commission further notes
that conclusory statements made in Item 7 of Form
19b–4 could make it more difficult for the
Commission to confirm that the proposed rule
change has been properly designated. See Item 7 of
Form 19b–4 (‘‘Basis for Summary Effectiveness
Pursuant to Section 19(b)(3)(A) or for Accelerated
Effectiveness Pursuant to Section 19(b)(2) or
Section 19(b)(7)(D)’’).
58 15 U.S.C. 78s(b)(3)(C).
59 By its terms, Section 19(b)(3)(C) states that the
Commission may abrogate a proposal and ‘‘require
that the proposed rule change be refiled * * *’’
pursuant to Exchange Act Section 19(b)(1) to be
reviewed by the Commission pursuant to Section
19(b)(2).
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never ceased being operative.60 A
Commission determination to abrogate a
proposed rule change does not affect the
validity or force of the rule change
during the period it was in effect.61
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V. Amendment to Rule 200.30–3(a)(12)
The Commission believes that
explicitly outlining the mechanism for
issuance of notices of proposed SRO
rule changes will further enhance the
efficiency of the rule filing process. As
such, the Commission is modifying its
delegation of authority to the Director of
the Division of Trading and Markets.
The amended rule specifies that the
Division shall issue notices of all
proposed rule changes within 15
business days of filing thereof by the
self-regulatory organization unless the
Director of the Division personally
directs otherwise, and, if the Director
has so directed, he shall promptly notify
the Commission and either the
Commission or the Director may order
publication of the notice thereafter.62
The Commission believes that this
requirement will enhance transparency
with respect to the rule filing process,
which also will provide additional
certainty to SROs with respect to the
issuance of notices of proposed rule
changes. The Commission also expects
this requirement to significantly
improve the efficiency of the processing
of SRO proposed rule changes and the
issuance of notices of proposed rule
changes, particularly with respect to
filings subject to notice and comment
pursuant to section 19(b)(2) of the
Exchange Act. The Commission believes
that requiring the Division to issue
notice of all proposed rule changes that
are properly filed and comply with all
applicable requirements within 15
business days of filing thereof will help
SROs plan accordingly as well as assist
the Commission staff in managing their
work flow.
The Commission notes that SRO rule
change proposals will continue to be
required to be drafted with precision if
60 See 15 U.S.C. 78s(b)(3)(C). A proposed rule
change filed pursuant to Rule 19b–4(f)(6) becomes
effective upon filing, but may not become operative
until 30 days after the date of filing, or such shorter
time as the Commission may designate if consistent
with the protection of investors and the public
interest. See 17 CFR 240.19b–4(f)(6)(iii).
61 See 15 U.S.C. 78s(b)(3)(C).
62 Nevertheless, the Division may continue to
submit proposed rule changes and related matters
to the Commission for its consideration as it
considers appropriate.
The Commission notes that Commission rules
require an SRO to post its proposed rule change on
its Web site when the proposed rule change is
submitted to the Commission. Further, the
proposed rule change will be posted on the
Commission’s Web site shortly after the
Commission issues notice thereof.
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they are to provide information
necessary to elicit meaningful public
comment on the proposed rule change.
As is currently the case, a proposal that
does not comply with the requirements
of Form 19b–4 and Rule 19b–4 under
the Exchange Act will not be accepted
as filed.63
In order to provide for the possibility
that there may be unusual and
infrequent circumstances in which the
15 business day requirement is
impractical, the rule permits the
Director of the Division of Trading and
Markets in such circumstances to direct
otherwise. The rule provides that this
function cannot be subdelegated.
VI. Administrative Procedure Act,
Regulatory Flexibility Act, and
Paperwork Reduction Act
The Commission finds, in accordance
with section 553(b)(3)(A) of the
Administrative Procedure Act,64 that
the interpretive guidance issued today
and amended Commission Rule 200.30–
3(a)(12) relate solely to interpretations
and agency organization, procedure, or
practice. Accordingly, the guidance and
Rule 200.30–3(a)(12) are not subject to
the provisions of the Administrative
Procedure Act requiring notice,
opportunity for public comment, and
publication prior to their adoption.65
Further, publication of a substantive
rule not less than 30 days before its
effective date is required by the
Administrative Procedure Act except as
otherwise provided for in Section
553(d). However, interpretive rules may
take effect less than 30 days after
publication.66 In addition, because the
amended rule relates solely to the
internal processes of the Commission
with regard to the publication of
proposed rule changes filed by SROs,
the Commission finds that there is good
cause for making amended Rule 200.30–
3(a)(12) effective upon publication in
the Federal Register.67
Finally, the rule and the
Commission’s interpretation do not
contain any new or additional
collections of information as defined by
supra note 22.
U.S.C. 553(b)(3)(A).
65 For similar reasons, the amendments do not
require analysis under the Regulatory Flexibility
Act or analysis of major rule status under the Small
Business Regulatory Enforcement Fairness Act. See
5 U.S.C. 601(2) (for purposes of Regulatory
Flexibility Act analyses, the term ‘‘rule’’ means any
rule for which the agency publishes a general notice
of proposed rulemaking); 5 U.S.C. 804(3)(C) (for
purposes of Congressional review of agency
rulemaking, the term ‘‘rule’’ does not include any
rule of agency organization, procedure, or practice
that does not substantially affect the rights or
obligations of non-agency parties).
66 See 5 U.S.C. 553(d)(2).
67 See 5 U.S.C. 553(d)(3).
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64 5
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the Paperwork Reduction Act of 1995,
as amended.68
VII. Costs and Benefits of the Proposed
Amendments
The Commission is sensitive to the
costs and benefits of its rules, and has
considered carefully the costs and the
benefits of the interpretive guidance and
the rule amendment. To the extent that
SROs decide to avail themselves of the
guidance contained in this release, the
Commission believes that more rule
changes will be filed as immediately
effective rule filings and more proposed
rule changes relating to trading rules,
MRVPs, and ‘‘copycat’’ proposals that
currently are filed under section 19(b)(2)
will take effect upon filing with the
Commission. As SROs increase their use
of section 19(b)(3)(A) to file more
proposed rule changes for immediate
effectiveness, SROs will be able to
modify their trading systems and rules
more quickly in response to competitive
pressures, while still being subject to
the protections provided by Exchange
Act section 19(b). Further, as more
proposed rule changes become effective
upon filing, the burdens on the SROs, as
well as on the Commission and its staff,
are expected to be reduced since such
proposals will be processed and take
effect more quickly, as those rule
changes would not be subject to the
issuance of a Commission order before
they may take effect. Also, to the extent
that the guidance increases the
percentage of SRO proposed rule
changes that may take effect upon filing
with the Commission, there will be
efficiencies as the processing of such
proposed rule changes requires fewer
staff resources since the Commission is
not required to issue an order approving
such proposed rule changes.
In addition, the revised rule regarding
the issuance of a notice of a proposed
rule change within 15 business days of
filing with the Commission will benefit
SROs by providing additional certainty
to them regarding the process, thereby
enabling them to plan according, and
improving the efficiency and the speed
with which the Commission processes
SRO rule filings. The Commission
believes that this rule will increase the
speed with which the Commission
handles SRO proposed rule changes.
The Commission does not expect its
guidance and the rule amendment to
increase the costs on SROs of filing
proposed rule changes with the
Commission.
Certain costs associated with the
Commission’s action today may
potentially result from the change in the
68 44
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amount of time that interested persons
will have to comment on proposed
changes to trading rules before they
become operative. In particular, to the
extent that SROs designate a greater
number of proposed rule changes for
immediate effectiveness pursuant to
section 19(b)(3)(A) where they
previously would have submitted them
pursuant to section 19(b)(2), then the
opportunity for interested persons to
comment on such proposals will now
occur after the proposal has taken effect
upon filing with the Commission, since
such proposals are not be subject to
Commission approval before they
become effective.
The Commission believes that this
potential cost is limited by a number of
factors. First, interested persons will
continue to have an opportunity to
submit written data, views, and
arguments concerning such proposed
rule changes before market participants
must comply with the new rules
because proposals that take effect upon
filing with the Commission pursuant to
Rule 19b–4(f)(6) ordinarily will not
become operative until 30 days after
filing with the Commission unless the
SRO demonstrates to the Commission
that waiver of the operative delay would
be consistent with the protection of
investors and the public interest. In
addition, the Commission summarily
may abrogate a proposed rule change. If
an SRO were to re-file the proposed rule
change pursuant to section 19(b)(2), the
proposed rule change will be published
for notice and comment.69 The
Commission’s action or inaction with
regard to abrogation will be informed by
its own views, as well as the views
expressed by commenters.
Finally, as currently is the case, a
proposed rule change may take effect
upon filing with the Commission only if
it satisfies the standards set forth in
section 19(b) of the Exchange Act and
Rule 19b–4 thereunder. Additionally,
the Commission guidance outlined
above specifies that an immediatelyeffective proposed rule change
involving a trading rule, MRVP, or
copycat proposal may not raise policy
issues that the Commission previously
has not considered in a proposed rule
change filed by another exchange that
was approved by the Commission after
notice and comment. Accordingly, since
the rule on which the new proposal is
modeled will have been previously
subject to notice and comment, the
interested persons will have had the
opportunity to comment before the prior
proposal (or proposals) became effective
and on the immediately-effective rule
filing, as well.
In addition, amended Rule 200.30–
3(a)(12) relates to internal agency
management. The Commission’s rule
amendment is intended to increase the
efficiency of the Commission’s review of
SRO proposed rule changes by outlining
the Commission’s expectations with
respect to Commission review of and
the timing of issuance of a notice of an
SRO’s proposed rule change. Any
increase in the costs of this amended
rule fall on the Commission and its staff.
In particular, the Commission will have
to concentrate staff resources on
reviewing and noticing within 15 days
the proposed rule changes submitted by
SROs. However, the ability of SROs to
devote sufficient resources to preparing
clear and complete proposals should
enable the staff to review expeditiously
a proposed rule change and issue the
notice substantially in the form
provided by the SRO when both are
clear, complete, and consistent with all
applicable requirements.
VIII. Effect on Efficiency, Competition,
and Capital Formation
Section 23(a)(2) of the Exchange
Act 70 prohibits the Commission from
adopting any rule that would impose a
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. Rule
200.30–3(a)(12) applies to the
Commission’s delegation of authority
with regard to the publication of notice
of proposed rule changes filed by SROs
pursuant to section 19(b)(1) of the
Exchange Act.71 Specifically, the
modifications to the rule, which require
the Division of Trading and Markets to
issue notice of a proposed rule change
within 15 business days of filing with
the Commission, do not impose any
burdens or costs on SROs. Further, the
interpretation likely will facilitate the
ability of SROs to modify their trading
systems and rules more quickly in
response to competitive pressures,
while still preserving the protections
provided by Exchange Act section 19(b).
The Commission expects the
interpretive guidance and amended
Rule 200.30–3(a)(12) to have a positive
effect on efficiency, competition, and
capital formation in that the exchanges
that utilize the guidance are expected to
find themselves in a better position to
compete with entities that operate
trading systems that are not subject to
the rule filing processes of section 19(b)
of the Exchange Act.
70 15
69 See
15 U.S.C. 78s(b)(3)(C).
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U.S.C. 78s(b)(1).
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40151
Furthermore, any increase in the
number of proposed rule changes that
may become effective upon filing with
the Commission should improve the
ability of SROs to amend their rules
efficiently, particularly with respect to
rules relating to trading systems and
‘‘copycat’’ proposals, which will
enhance their ability to respond to
competitive pressures by allowing them
to file changes to their systems on an
immediately effective basis. In addition,
to the extent that SROs file an
increasing number of their proposed
rule changes for immediate effectiveness
pursuant to section 19(b)(3)(A) of the
Exchange Act rather than for
Commission approval pursuant to
section 19(b)(2) of the Exchange Act,
this guidance should allow the
Commission to focus on those filings
that raise significant issues and that are
required to be submitted under section
19(b)(2) of the Exchange Act for
Commission approval.72
IX. Statutory Basis and Text of
Amendments
This amendment to 17 CFR Part
200.30–3(a)(12) is being adopted
pursuant to statutory authority granted
to the Commission, including sections
4A, 6, 11A, 15A, 15B, 17A, 19, and 23
of the Exchange Act.73
List of Subjects
17 CFR Part 200
Administrative practice and
procedures, Authority delegations
(Government agencies).
17 CFR 241
Securities.
Text of the Adopted Rules
For the reasons set out in the
preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended
as follows:
I
PART 200—ORGANIZATION;
CONDUCT AND ETHICS; AND
INFORMATION AND REQUESTS
Subpart A—Organization and Program
Management
1. The authority citation for part 200,
subpart A continues to read in part as
follows:
I
72 15 U.S.C. 78s(b)(2). The Commission notes that
the majority of rule proposals filed by SROs are
currently designated for immediate effectiveness.
For example, in 2006, SROs filed 1,018 proposed
rule changes with the Commission. Of those filings,
478 (47%) were filed pursuant to Section 19(b)(2)
and 540 (53%) were filed pursuant to Section
19(b)(3)(A).
73 15 U.S.C. 78d–1, 78f, 78k–1, 78o–3, 78o–4,
78q–1, 78s, and 78w, respectively.
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Federal Register / Vol. 73, No. 134 / Friday, July 11, 2008 / Rules and Regulations
Authority: 15 U.S.C. 77o, 77s, 77sss, 78d,
78d–1, 78d–2, 78w, 78ll(d), 78mm, 80a–37,
80b–11, and 7202, unless otherwise noted.
*
*
*
*
*
2. Section 200.19a is amended by:
I a. Revising the section heading as set
forth below;
I b. In the first sentence of the
introductory text of the section, revise
the phrase ‘‘Division of Market
Regulation’’ to read ‘‘Division of
Trading and Markets’’; and
I c. Remove the authority citation
following the section.
I
§ 200.19a Director of the Division of
Trading and Markets.
*
*
*
*
*
3. Section 200.30–1, paragraph (i),
first sentence is amended by revising
the phrase ‘‘Division of Market
Regulation’’ to read ‘‘Division of
Trading and Markets’’.
I 4. Section 200.30–3 is amended by:
I a. Revising the section heading as set
forth below;
I b. In the introductory text to the
section, revising the phrase ‘‘Division of
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I
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Market Regulation’’ to read ‘‘Division of
Trading and Markets’’;
I c. Adding two sentences to the end of
paragraph (a)(12); and
I d. removing and reserving paragraph
(a)(58).
The revision and addition reads as
follows:
§ 200.30–3 Delegation of authority to
Director of Division of Trading and Markets.
*
*
*
*
*
(a) * * *
(12) * * * The Division shall issue
such notices of proposed rule changes
within 15 business days of filing by the
self-regulatory organization unless the
Director of the Division personally
otherwise directs. If the Director has so
directed, the Division Director shall
promptly notify the Commission and
either the Commission or the Director
may order publication of the notice
thereafter.
*
*
*
*
*
I 5. In § 200.30–4, paragraph (a)(12), the
first sentence is amended by revising
the phrase ‘‘Division of Market
PO 00000
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Regulation’’ to read ‘‘Division of
Trading and Markets’’.
I 6. In § 200.30–11, paragraph (c)(2), is
amended by revising the phrase
‘‘Division of Market Regulation’’ to read
‘‘Division of Trading and Markets’’.
I 7. In § 200.30–18, introductory text of
paragraph (h), is amended by revising
the phrase ‘‘Division of Market
Regulation’’ to read ‘‘Division of
Trading and Markets’’.
PART 241—INTERPRETATIVE
RELEASES RELATING TO THE
SECURITIES EXCHANGE ACT OF 1934
AND GENERAL RULES AND
REGULATIONS THEREUNDER
8. Part 241 is amended by adding
Release No. 58024 and the release date
of June 25, 2008 to the list of
interpretive releases.
I
By the Commission.
Dated: July 3, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–15574 Filed 7–10–08; 8:45 am]
BILLING CODE 8010–01–P
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]]>Agencies
[Federal Register Volume 73, Number 134 (Friday, July 11, 2008)]
[Rules and Regulations]
[Pages 40144-40152]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15574]
[[Page 40143]]
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Part V
Securities and Exchange Commission
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17 CFR Parts 200 and 241
Commission Guidance and Amendment to the Rules Relating to Organization
and Program Management Concerning Proposed Rule Changes Filed by Self-
Regulatory Organizations; Final Rule
Federal Register / Vol. 73, No. 134 / Friday, July 11, 2008 / Rules
and Regulations
[[Page 40144]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200 and 241
[Release No. 34-58092]
Commission Guidance and Amendment to the Rules Relating to
Organization and Program Management Concerning Proposed Rule Changes
Filed by Self-Regulatory Organizations
AGENCY: Securities and Exchange Commission.
ACTION: Final rule and interpretation.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
providing guidance regarding a rule under the Securities Exchange Act
of 1934 (``Exchange Act'') concerning filings with respect to proposed
rule changes of self-regulatory organizations (``SROs'') that the
Commission expects will streamline the process by which SROs file
proposed rule changes with the Commission and result in a broader range
of rule changes qualifying for immediate effectiveness. Further, the
Commission is amending its rules to delegate authority to the Director
of the Division of Trading and Markets. These actions are intended to
facilitate more expeditious handling of proposed rule changes submitted
by SROs pursuant to Exchange Act section 19(b).
DATES: Effective Date: July 11, 2008.
FOR FURTHER INFORMATION CONTACT: Marlon Quintanilla Paz, Senior Counsel
to the Director, at (202) 551-5703, or Richard Holley III, Senior
Special Counsel, at (202) 551-5614, Division of Trading and Markets,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-6628.
I. Introduction
Self-regulation, with oversight by the Commission, is a basic
premise of the Exchange Act. For example, Congress recognized the
regulatory role of national securities exchanges in section 6 of the
Exchange Act,\1\ requiring all existing securities exchanges to
register with the Commission and to function as self-regulatory
organizations. SROs (such as exchanges, registered national securities
associations, and clearing agencies) are subject to various
requirements under the Exchange Act, including the requirement in
section 19(b) and Rule 19b-4 thereunder \2\ to file their proposed rule
changes with the Commission. Commission review and the public comment
process are intended, among other things, to help ensure that SROs
carry out the purposes of the Exchange Act.\3\
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\1\ 15 U.S.C. 78f.
\2\ 15 U.S.C. 78s(b) and 17 CFR 240.19b-4, respectively. See
also Form 19b-4. The rule filing requirements of Section 19(b) also
apply to other SROs, such as national securities associations,
clearing agencies, and the Municipal Securities Rulemaking Board
(``MSRB'').
\3\ See Section 19 of the Exchange Act, 15 U.S.C. 78s. See also
Market 2000: An Examination Of Current Equity Market Developments,
Study VI, Division of Market Regulation, U.S. Securities and
Exchange Commission (January 1994).
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National securities exchanges registered under section 6(a) of the
Exchange Act \4\ face increased competitive pressures from entities
that trade the same or similar financial instruments, such as foreign
exchanges, futures exchanges,\5\ electronic communications networks
(``ECNs''), and alternative trading systems (``ATSs''). These
competitors, however, can change their trading rules or trade new
products with greater ease and without the required Commission
review.\6\
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\4\ 15 U.S.C. 78f(a).
\5\ Certain futures exchanges are also registered as national
securities exchanges under Section 6(g) of the Exchange Act, 15
U.S.C. 78f(g), solely for the purpose of trading security futures
products.
\6\ While a security futures exchange registered under Section
6(g) of the Exchange Act is required to file certain proposed rule
changes with the Commission, few such filings must receive
Commission approval under Section 19(b)(2). If they must be filed at
all, most may be filed under Section 19(b)(3)(A) of the Exchange
Act. See 15 U.S.C. 78f(g)(4)(B).
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The Commission previously has stated its belief that, ``investors
are best served by a regulatory structure that facilitates fair and
vigorous competition among market participants and fosters investor
protection'' and that, ``[e]nhancing the SROs'' ability to implement
and to respond quickly to changes in the marketplace should encourage
innovation and better services to investors. * * *'' \7\ Consequently,
the Commission periodically has revised the SRO rule filing
requirements to balance the needs of the exchanges in a competitive
financial marketplace against maintaining the statutorily required
Commission oversight of the SROs and the SRO rule change process.
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\7\ Securities Exchange Act Release No. 43860 (January 19,
2001), 66 FR 8912 (February 5, 2001) (S7-03-01) (``Rule 19b-6
Proposing Release'').
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In 1994, the Commission adopted amendments to Rule 19b-4 to allow
certain non-controversial proposed rule changes and proposed rule
changes for minor systems changes to ``become immediately effective''
upon filing and without Commission approval.\8\ In 1998, the Commission
again amended Rule 19b-4 to allow for the listing and trading of
certain derivative securities products without prior submission of a
proposed rule change under section 19(b).\9\ The 1998 rulemaking was
intended to speed the introduction of new derivative securities
products and enable exchanges to remain competitive with foreign and
over-the-counter derivatives markets that are not subject to section
19(b).
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\8\ See Securities Exchange Act Release No. 35123 (December 20,
1994), 59 FR 66692 (December 28, 1994) (S7-17-94) (``Non-
Controversial Rule Adopting Release'').
\9\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (S7-13-98) (``New Products
Adopting Release'').
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In 2001, the Commission proposed comprehensive changes to the SRO
rule filing process.\10\ The Commission proposed to completely replace
Rule 19b-4, the rule governing the requirements for SRO rule filings,
with proposed new Rule 19b-6. Proposed Rule 19b-6, among other things,
would have defined terms used in proposed Rule 19b-6 to allow most
exchange trading rules, other than proposals involving fundamental
market structure changes, to be immediately effective upon filing with
the Commission pursuant to section 19(b)(3)(A) of the Exchange Act. The
Commission also proposed related changes that would have imposed a
number of new obligations on SROs filing proposed rule changes with the
Commission. For example, in proposed Rule 19b-6, the Commission would
have required, among other things, that a senior SRO official certify
the accuracy and completeness of the proposal. The Commission also
proposed to eliminate the 30-day operational date and the five-day pre-
filing requirement for non-controversial rule filings.
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\10\ See Rule 19b-6 Proposing Release, supra note 7.
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The Commission received 21 comment letters on proposed Rule 19b-6,
many of which opposed various aspects of the proposal, though for
widely divergent reasons. Four commenters explicitly supported the
proposal to make certain trading rules effective upon filing.\11\
Several SROs believed that the proposal provided only minor benefits
that were potentially outweighed by new burdensome requirements.\12\ A
few
[[Page 40145]]
commenters believed that the category of trading rules eligible for
immediate effectiveness was too narrow, or that more objective
standards were needed to determine what qualifies as a trading
rule.\13\ In contrast, other commenters were concerned that the
proposal might reduce the opportunity to comment on proposed rule
changes,\14\ and that the Commission might be hesitant to abrogate
immediately effective filings.\15\ Several commenters explicitly
opposed making certain types of trading rules immediately effective,
noting that such rule changes may have particular importance to the
public or have a major impact on market participants.\16\ Several
commenters also opposed the proposal to remove the operative delay \17\
from Rule 19b-4(f)(6).\18\ In addition, several commenters expressed
support for Commission issuance of notice of a proposed rule change
within 10 business days or such longer period as the SRO consents.\19\
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\11\ See Comment letters from Nasdaq (dated April 6, 2001); the
Pacific Exchange (dated April 24, 2001); Bloomberg Tradebook LLC
(dated April 5, 2001); and the Chicago Stock Exchange (dated April
5, 2001).
\12\ See, e.g., Comment letters from The Options Clearing
Corporation (dated April 6, 2001); the Philadelphia Stock Exchange
(dated April 6, 2001); the Chicago Stock Exchange (dated April 5,
2001); the International Securities Exchange (dated March 23, 2001);
and the Chicago Board Options Exchange (dated April 11, 2001).
\13\ See, e.g., Comment letters from Credit Suisse First Boston
(dated March 26, 2001); the International Securities Exchange (dated
March 23, 2001); the Philadelphia Stock Exchange (dated April 6,
2001); the Pacific Exchange (dated April 24, 2001); Nasdaq (dated
April 6, 2001); the Chicago Board Options Exchange (dated April 11,
2001); the Chicago Stock Exchange (dated April 5, 2001); and the
Mercatus Center of George Mason University (dated April 9, 2001).
\14\ See, e.g., Comment letters from the Investment Company
Institute (dated April 6, 2001); Bloomberg Tradebook LLC (dated
April 5, 2001); Brunelle & Hadjikow (dated April 4, 2001); the
Consumer Federation of America (dated April 6, 2001); the Securities
Industry Association (dated April 6, 2001); and the American Council
of Life Insurers (dated April 10, 2001). See discussion below in
Section III.A.2(b) regarding the importance of public comment to the
SRO proposed rule change process.
\15\ See, e.g., Comment letters from Credit Suisse First Boston
(dated March 26, 2001); the Council of Institutional Investors
(dated March 26, 2001); the Investment Company Institute (dated
April 6, 2001); and the Consumer Federation of America (dated April
6, 2001). See discussion below in Section IV regarding abrogation of
immediately effective proposals.
\16\ See, e.g., Comment letters from the Securities Industry
Association (dated April 6, 2001) and Brunelle & Hadjikow (dated
April 4, 2001). These commenters believed that entities that are
familiar with the technology and operation of SRO trading systems
should be given an opportunity to comment on proposed changes to
such systems. See Section III.A.2(b), below (``Opportunity for
Public Comment With Regard to Immediately Effective Rule Filings'').
\17\ A proposed rule change designated immediately effective
normally becomes operative upon filing with the Commission, except
for a proposal submitted pursuant to Rule 19b-4(f)(6), which becomes
operative 30 days after the date of filing with the Commission or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest. 17 CFR 240.19b-
4(f)(6)(iii).
\18\ See, e.g., Comment letters from the Investment Company
Institute (dated April 6, 2001); the State of Wisconsin Investment
Board (dated March 28, 2001); Brunelle & Hadjikow (dated April 4,
2001); the Consumer Federation of America (dated April 6, 2001); the
Securities Industry Association (dated April 6, 2001); and the
American Council of Life Insurers (dated April 10, 2001). One
commenter suggested that a delay between the effective and operative
date would allow the Commission to abrogate a rule with a minimum of
disruption to an SRO's operations. See Comment letter from the State
of Wisconsin Investment Board (dated March 28, 2001).
\19\ See Comment letters from Credit Suisse First Boston (dated
March 26, 2001); the Chicago Stock Exchange (dated April 5, 2001);
the Philadelphia Stock Exchange (dated April 6, 2001); Nasdaq (dated
April 6, 2001); the Securities Industry Association (dated April 6,
2001); the Pacific Exchange (dated April 24, 2001); the Government
Securities Clearing Corporation (dated March 20, 2001); NASD Dispute
Resolution and NASD Regulation (dated May 3, 2001). One commenter
suggested that the Commission publish notice of a proposed rule
change within ten calendar days, not business days, and recommended
that there be a mechanism to ensure compliance with the requirement.
See Comment letter from the Chicago Board Options Exchange (dated
April 11, 2001).
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The Commission has considered thoroughly all of these comments. The
Commission is not taking action today on proposed Rule 19b-6 nor with
regard to any of the other related changes,\20\ but the Commission's
action in this release is consistent with the objectives underlying the
Rule 19b-6 proposal and takes into account the varying views expressed
in the comments.
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\20\ For example, the Commission is taking no further action at
this time on the Rule 19b-6 proposal to require certifications or to
remove the pre-filing or operative delay from Rule 19b-4(f)(6) under
the Exchange Act.
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The Commission notes that the guidance and rule adopted herein do
not alter the existing legal obligations for SROs filing proposed rule
changes. The Commission today is not modifying or replacing Rule 19b-4,
nor is it imposing related obligations on SROs with regard to the rule
filing process and, therefore, the Commission believes that the
additional requirements proposed in the Rule 19b-6 Proposing Release
are not necessary at this time. As discussed below, the guidance in
this release addresses a much narrower part of the SRO rule filing
process and imposes no new obligations on SROs.
The Commission believes that it is now appropriate to issue
guidance related to the filing of certain immediately effective
proposed rule changes by SROs and to adopt a rule amendment designed to
streamline further the SRO proposed rule change process. Specifically,
the Commission today is (1) providing an interpretation of the
Commission's views as to which SRO rule filings could be filed as
immediately effective and (2) modifying only its own internal
processes.
II. Background on the Current Rule Filing Process
Section 19(b)(1) of the Exchange Act requires an SRO to file with
the Commission any proposed rule change,\21\ which must be
``accompanied by a concise general statement of the basis and purpose
of such proposed rule change'' and be submitted electronically on Form
19b-4, in accordance with the General Instructions thereto.\22\ Exhibit
1 of Form 19b-4 requires an SRO to prepare the notice of its proposed
rule change for publication in the Federal Register.\23\ A proposed
rule change may not take effect unless it is approved by the Commission
\24\ or becomes immediately effective upon filing pursuant to section
19(b)(3)(A) of the Exchange Act.\25\
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\21\ Section 19(b)(1) of the Exchange Act defines a ``proposed
rule change'' as ``any proposed rule, or any proposed change in,
addition to, or deletion from the rules of'' an SRO. 15 U.S.C.
78s(b)(1). Section 3(a)(27) of the Exchange Act defines ``rules'' to
include ``the constitution, articles of incorporation, bylaws, and
rules, or instruments corresponding to the foregoing * * * and such
of the stated policies, practices, and interpretations of such
exchange, association, or clearing agency as the Commission, by
rule, may determine to be necessary or appropriate in the public
interest or for the protection of investors to be deemed to be rules
of such exchange, association, or clearing agency.'' 15 U.S.C.
78c(a)(27).
\22\ 17 CFR 249.819. Among other things, the General
Instructions to Form 19b-4 specify that an SRO's proposal must be
clear and complete before it will be accepted as filed by the
Commission. See General Instruction B to Form 19b-4 (``This form,
including the exhibits, is intended to elicit information necessary
for the public to provide meaningful comment on the proposed rule
change and for the Commission to determine whether the proposed rule
change is consistent with the requirements of the [Exchange] Act and
the rules and regulations thereunder * * * The [SRO] must provide
all the information called for by the form, including the exhibits,
and must present the information in a clear and comprehensible
manner * * * Any filing that does not comply with the requirements
of this form may be returned to the [SRO] at any time before the
issuance of the notice of filing. Any filing so returned shall for
all purposes be deemed not to have been filed with the
Commission''). See also Rule 0-3 under the Exchange Act, 17 CFR
240.0-3 (``The date on which papers are actually received by the
Commission shall be the date of filing thereof if all of the
requirements with respect to the filing have been complied with. * *
*'').
\23\ If the conditions of Rule 19b-4 and Form 19b-4 are
satisfied, a proposed rule change submitted electronically via the
Commission's Electronic Form Filing System on or before 5:30 p.m.
Eastern Time on a business day is deemed ``filed'' on that business
day, and all filings submitted after 5:30 p.m. Eastern Time are
deemed filed on the next business day. See Rule 19b-4(k), 17 CFR
240.19b-4(k).
\24\ See 15 U.S.C. 78s(b)(2).
\25\ 15 U.S.C. 78s(b)(3)(A).
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A. Proposals Subject to Commission Approval
For those proposals that are subject to Commission approval,
section 19(b)(2) of the Exchange Act specifies the standards and time
periods for Commission action either to approve a proposed rule change
or to institute proceedings to determine whether a
[[Page 40146]]
proposed rule change should be disapproved.\26\ After expiration of the
applicable comment period and due consideration of any comment letters
received, the Commission shall approve a proposed rule change if it
finds such proposed rule change is consistent with the requirements of
the Exchange Act and the rules and regulations thereunder applicable to
the SRO.\27\ The Commission shall disapprove a proposed rule change if
it cannot make such a finding.\28\
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\26\ See 15 U.S.C. 78s(b)(2). The Commission must either approve
or institute disapproval proceedings within thirty-five days of the
date of publication of notice of the filing in the Federal Register,
or within such longer period as the Commission may designate (up to
ninety days of such date if it finds such longer period to be
appropriate and publishes its reasons for so finding) or as to which
the SRO consents. See id.
\27\ The Commission may approve a proposed rule change on an
accelerated basis prior to the 30th day after publication of the
notice in the Federal Register if it finds good cause and publishes
its reasons for so doing. See id.
\28\ See id.
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B. Immediately Effective Proposals
Section 19(b)(3)(A) of the Exchange Act provides that,
notwithstanding the provisions of section 19(b)(2), a proposed rule
change may take effect upon filing with the Commission if designated by
the SRO as:
(i) Constituting a stated policy, practice, or interpretation with
respect to the meaning, administration, or enforcement of an existing
rule of the self-regulatory organization;
(ii) Establishing or changing a due, fee, or other charge imposed
by the self-regulatory organization; or
(iii) Concerned solely with the administration of the self-
regulatory organization or other matters which the Commission, by rule
* * * may specify * * *.\29\
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\29\ 15 U.S.C. 78s(b)(3)(A).
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Section 19(b)(3)(A)(iii) of the Exchange Act grants the Commission
authority to expand the scope of proposed rule changes entitled to
qualify for immediate effectiveness to other matters which the
Commission, by rule, consistent with the public interest and the
purposes of section 19(b) of the Exchange Act, may specify. Rule 19b-
4(f) under the Exchange Act \30\ specifies the following types of
proposed rule changes that may take effect upon filing with the
Commission pursuant to section 19(b)(3)(A) if properly designated by an
SRO as:
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\30\ 17 CFR 240.19b-4(f).
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(1) Constituting a stated policy, practice, or interpretation with
respect to the meaning, administration, or enforcement of an existing
rule;
(2) Establishing or changing a due, fee, or other charge applicable
to a member;
(3) Concerned solely with the administration of the self-regulatory
organization;
(4) Effecting a change in an existing service of a registered
clearing agency that: (i) Does not adversely affect the safeguarding of
securities or funds in the custody or control of the clearing agency or
for which it is responsible; and (ii) does not significantly affect the
respective rights or obligations of the clearing agency or persons
using the service;
(5) Effecting a change in an existing order-entry or trading system
of a self-regulatory organization that: (i) Does not significantly
affect the protection of investors or the public interest; (ii) does
not impose any significant burden on competition; and (iii) does not
have the effect of limiting the access to or availability of the
system; or
(6) Effecting a change that: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest; provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule change
(the ``pre-filing''), or such shorter time as designated by the
Commission.\31\
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\31\ The five-day period commences from the date the Commission
receives the SRO's pre-filing. The pre-filing requirement was
designed to serve as an opportunity for Commission staff to
``discuss with the SRO whether there exists an adequate basis upon
which the proposed rule change may properly qualify'' for immediate
effectiveness under Rule 19b-4(f)(6), and allows the SRO to ``elicit
guidance from Commission staff to help the SRO identify those
aspects of a proposed rule change that the Commission deems
important'' in order to ``help the SRO articulate in its subsequent
filing the purpose and effects of the proposed rule change, which in
turn should further facilitate and expedite the filing process.''
Securities Exchange Act Release No. 34140 (June 1, 1994), 59 FR
29393, 29395 (June 7, 1994) (S7-17-94) (``Non-Controversial Rule
Proposing Release''). The Commission also notes that it has enhanced
its electronic system through which SROs file proposed rule changes
to allow the electronic submission of pre-filings.
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As with a proposed rule change filed pursuant to section 19(b)(2)
of the Exchange Act, the Commission publishes notice in the Federal
Register of a proposed rule change designated for immediate
effectiveness under section 19(b)(3)(A).\32\ An immediately effective
filing becomes operative upon filing with the Commission, except for a
proposal submitted pursuant to Rule 19b-4(f)(6), which becomes
operative 30 days after the date of filing with the Commission or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.\33\
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\32\ An SRO must designate the basis for immediate effectiveness
of the proposed rule change in Item 7 of Form 19b-4. See Item 7 of
Form 19b-4 (``Basis for Summary Effectiveness Pursuant to Section
19(b)(3)(A) or for Accelerated Effectiveness Pursuant to Section
19(b)(2) or Section 19(b)(7)(D)'').
\33\ With respect to amendments to filings designated for
immediate effectiveness pursuant to Rule 19b-4(f)(6), the Commission
has stated that ``any substantive amendment would trigger a new 30-
day period, assuming the changes do not render the filing ineligible
for this category.'' Non-Controversial Rule Adopting Release, supra
note 8, 59 FR at 66695. The Commission staff, however, has
``discretion to accept editorial changes without triggering a new
30-day period.'' Id. Such proposals should not require extensive
amendments, since ``[a] filing requiring further substantive
amendments may indicate that it is not appropriate for the expedited
treatment afforded by the noncontroversial category.'' Id.
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Further, the Exchange Act provides that at any time within 60 days
of the date of filing of a proposed rule change designated for
immediate effectiveness under section 19(b)(3)(A) of the Exchange Act
and Rule 19b-4(f) thereunder, the Commission summarily may abrogate the
proposed rule change and require that the SRO re-file the proposal
under section 19(b)(2) of the Exchange Act ``if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of [the Exchange Act].'' \34\
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\34\ 15 U.S.C. 78s(b)(3)(C).
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III. Interpretive Guidance on the Rule Filing Process
The Commission today takes several actions, discussed in greater
detail below, intended to facilitate more expeditious handling of
proposed rule changes submitted by SROs. The Commission is providing
interpretive guidance regarding the range of proposed changes to
exchange trading rules that qualify for immediate effectiveness
pursuant to Exchange Act Rule 19b-4(f)(6) as not significantly
affecting the protection of investors or the public interest and not
imposing any significant burden on competition.\35\ The Commission
anticipates that the guidance will result in exchanges filing a broader
range of proposed changes to trading rules for immediate effectiveness
under Rule 19b-4(f)(6).
[[Page 40147]]
Additionally, the Commission is providing guidance on proposed rule
changes relating to an SRO's minor rule violation plan (``MRVP'') and
``copycat'' filings relating to SRO rules other than trading rules. The
guidance provided herein as it relates to proposed changes to trading
rules is directed at SROs that operate trading systems (i.e., the
national securities exchanges). The additional guidance is applicable
to all SROs, including exchanges, national securities associations,
clearing agencies, and the MSRB.
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\35\ See Rule 19b-4(f)(6), 17 CFR 240.19b-4(f)(6).
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Further, as discussed in section V below, the Commission is
adopting an amendment to Rule 200.30-3(a)(12) relating to the
delegation of authority to the Director of the Division of Trading and
Markets regarding the publication of proposed rule changes.\36\ Amended
Rule 200.30-3(a)(12) applies with regard to all SRO rule filings.
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\36\ To assist the Commission in processing proposed rule
changes expeditiously, the Commission emphasizes the obligation of
each SRO to prepare proposed rule changes that are clear and
complete. See supra note 22 and accompanying text. The Commission
encourages SROs to devote sufficient resources to the rule filing
process to assure quality work product to enable the Commission to
evaluate efficiently whether the proposed rule change is consistent
with the Exchange Act and applicable rules and regulations
thereunder as well as the SRO's own rules.
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A. Interpretive Guidance on Immediately Effective Proposed Rule Changes
The national securities exchanges' need to implement quickly new
trading rules has become increasingly critical, particularly given the
evolving role of securities exchanges, innovations in U.S. and cross-
border trading, and the increasingly competitive financial marketplace.
Specifically, the Commission recognizes that the national securities
exchanges registered under section 6(a) of the Exchange Act \37\ face
increased competitive pressures from entities that trade the same or
similar financial instruments--such as foreign exchanges, futures
exchanges, ECNs, and ATSs. These competitors can change their trading
rules or trade new products with greater ease, and without filing them
with the Commission.
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\37\ 15 U.S.C. 78f(a).
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Accordingly, to inform exchanges' understanding of the range of
exchange trading rules eligible for immediate effectiveness and to
encourage exchanges to consider filing a broader range of proposed
changes to trading rules that do not ``significantly affect the
protection of investors or the public interest'' \38\ or do not
``impose any significant burden on competition,'' \39\ and thus qualify
for immediate effectiveness under Rule 19b-4(f)(6), the Commission is
providing the interpretive guidance set forth in this release.
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\38\ 17 CFR 240.19b-4(f)(6)(i).
\39\ 17 CFR 240.19b-4(f)(6)(ii).
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1. Previous Commission Guidance on Immediately Effective Proposals
As discussed above, Rule 19b-4(f)(6) permits a proposed rule change
to become immediately effective if, among other things, it is properly
designated by an SRO as effecting a change that does not significantly
affect the protection of investors or the public interest, and does not
impose any significant burden on competition. Further, an immediately
effective rule pursuant to Rule 19b-4(f)(6), by its terms, may not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate, if consistent with the
protection of investors and the public interest, provided that the SRO
has given the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change, or such shorter time as designated
by the Commission.
When adding paragraph (f)(6) to Rule 19b-4 in 1994, the Commission
referred to it as the ``noncontroversial category'' and noted that it
was intended to accommodate proposed rule changes that were generally
``less likely to engender adverse comments or require the degree of
review attendant with more controversial filings.'' \40\ Accordingly,
the Commission contemplated that proposals eligible for filing under
paragraph (f)(6) of Rule 19b-4 would generally be ``inherently simple
and concise'' and ``otherwise require little in the way of extended
review or analysis by the Commission.'' \41\
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\40\ Non-Controversial Rule Adopting Release, supra note 8, 59
FR at 66696.
\41\ Id. at 66695.
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2. Interpretation of Rule 19b-4(f)(6) for Rule Proposals Involving
Exchange Trading Rules
The rule filing process, by which national securities exchanges are
required to file their proposed rule changes with the Commission,
currently allows the exchanges to implement many of their proposed rule
changes relating to trading rules on an expedited basis. The Commission
believes that more rule filings pertaining to the operation of an SRO's
trading systems qualify for immediate effectiveness than are currently
filed as such. A number of proposed rule changes that could qualify for
immediate effectiveness under section 19(b)(3)(A) of the Exchange Act
are filed, instead, ``regular way'' under section 19(b)(2), thus
requiring the Commission to issue a notice and an approval order.\42\
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\42\ The Commission understands, however, that there may be a
variety of reasons why an SRO may file a proposed rule change under
Section 19(b)(2), even though the rule change would have been
appropriately filed as an immediately effective rule filing.
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The Commission believes that a proposed trading rule change
appropriately may be filed as an immediately effective rule so long as
each policy issue raised by the proposed trading rule (i) has been
considered previously by the Commission when the Commission approved
another exchange's trading rule (that was subject to notice and
comment) pursuant to Section 19(b)(2) of the Exchange Act, and (ii) the
rule change resolves such policy issue in a manner consistent with such
prior approval. The Commission believes that filing such proposed rule
changes for immediate effectiveness not only will reduce the time
before which an exchange could implement its new rule or modify an
existing one, but also will eliminate the need for the Commission to
issue both a notice and an approval order for each such filing.
The Commission notes that certain types of proposals remain
ineligible for immediate effectiveness under Rule 19b-4(f)(6). For
example, proposals that introduce potentially anti-competitive or
unfairly discriminatory aspects to an SRO's operation, or otherwise
conflict with stated Commission policy, would not be eligible for
immediate effectiveness since they would not meet the standard of Rule
19b-4(f)(6) and the interpretation. Similarly, proposals that would
substantially alter an exchange's market structure would continue to be
ineligible for immediate effectiveness.
(a) Examples of Trading Rules Eligible for Immediate Effectiveness
Below is a partial list of the types of trading rules that the
Commission believes are appropriate for filing as immediately effective
rule changes under this interpretation. The Commission emphasizes that
this is a partial--not exhaustive--list, designed to assist exchanges
in determining the types of proposed trading rule changes that are
appropriately filed as immediately effective.
Protection of Limit Orders. In approving exchange trading
rules, the
[[Page 40148]]
Commission carefully reviews whether they protect limit orders that are
displayed on an exchange's book, since limit orders contribute to price
discovery, provide liquidity to the market, and may narrow the quoted
spread.\43\ A proposed trading rule change is eligible for immediate
effectiveness if the proposal facilitates trading of public customer
orders, or otherwise enables them to interact with order flow on the
exchange on an equitable basis (such as price/time priority).
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\43\ See Securities Exchange Act Release No. 37619A (September
6, 1996), 61 FR 48290 (S7-30-95) (adopting Rule 11Ac1-4) (``The
Commission believes that limit orders are a valuable component of
price discovery. The uniform display of such orders will encourage
tighter, deeper, and more efficient markets.'').
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Market Maker Obligations. The Commission carefully reviews
special advantages provided to market makers when it considers exchange
trading rule proposals. Market makers can play an important role in
providing liquidity to the market, and an exchange can appropriately
reward them for that as well as the services they provide to the
exchange's market, so long as the rewards are not disproportionate to
the services provided.\44\ For example, a proposed trading rule change
that strengthens the market while providing benefits to market makers
is eligible for immediate effectiveness if the benefits conferred are
offset by corresponding responsibilities to the market that provide
customer trading interest a net benefit.
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\44\ See, e.g., Securities Exchange Act Release Nos. 54580
(October 6, 2006), 71 FR 60781, 60782 (October 16, 2006) (SR-ISE-
2006-40) (order approving the establishment of ISE's Second Market);
54238 (July 28, 2006), 71 FR 44758, 44761 (August 7, 2006) (SR-NYSE
Arca-2006-13) (``Market Makers receive certain benefits for carrying
out their duties. * * * The Commission believes that a Market Maker
must have an affirmative obligation to hold itself out as willing to
buy and sell options for its own account on a regular or continuous
basis to justify this favorable treatment.''); 53652 (April 13,
2006), 71 FR 20422 (April 20, 2006) (SR-Amex-2005-100) (order
approving the establishment of a new class of registered options
trader called a Remote Registered Options Trader); 52094 (July 21,
2005), 70 FR 43913, 43915 (July 29, 2005) (SR-CHX-2004-11) (order
approving a fully-automated electronic book for the display and
execution of orders in securities that are not assigned to a
specialist) (``Because market makers receive certain benefits for
carrying out their duties, the Commission believes that they should
have an affirmative obligation to hold themselves out as willing to
buy and sell securities for their own account on a regular or
continuous basis to justify this favorable treatment.''); and 51366
(March 14, 2005), 70 FR 13217, 13221 (March 18, 2005) (order
approving the introduction of Remote Market Makers) (``In
particular, the Commission believes that RMMs' affirmative
obligations are sufficient to justify the benefits they receive as
market makers.'').
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Preferenced Order Flow. The Commission recognizes that
exchanges compete for preferenced order flow. A proposal to allow
broker-dealers to execute preferenced orders on an exchange is eligible
for immediate effectiveness if the rule change provides other market
participants a reasonable opportunity to interact with preferenced
orders and the proposal does not impinge upon the incentive for market
participants to post competitive quotes.\45\
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\45\ See, e.g., Securities Exchange Act Release No. 37406 (March
29, 1996), 61 FR 15322 (April 5, 1996) (SR-CSE-95-03) (``The
Commission has concluded that preferencing, as supplemented by the
order handling policies, is not necessarily inconsistent with the
attainment of best execution of customer orders, the maintenance of
fair and orderly markets, or the protection of investors and the
public interest under Section 6(b)(5) of the Act.''). See also,
e.g., Securities Exchange Act Release Nos. 50819 (December 8, 2004),
69 FR 75093, 75097 (December 15, 2004) (SR-ISE-2003-06) (order
approving the establishment of rules to implement a price
improvement mechanism) (``The Commission * * * has expressed its
concern that proposals by options exchanges that guarantee a
significant portion of orders to any market participant could erode
the incentive to display aggressively priced quotes. Thus, the
Commission must weigh whether the proposed participation right would
so substantially reduce the ability of other market participants to
trade with an order that it would reduce price competition.'').
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Trading Hours. With respect to trading hours, the
Commission believes that proposals to modify the trading hours of an
exchange, provided there is a sufficient degree of quotation and last-
sale transparency during any extended hours, also are eligible for
immediate effectiveness under Rule 19b-4(f)(6).\46\
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\46\ The Commission notes, however, that an exchange proposal to
modify the ``regular trading hours,'' as defined in Rule 600(b)(64)
of Regulation NMS (17 CFR 242.600(a)(64) (defining ``regular trading
hours'' as the time between 9:30 a.m. and 4 p.m., Eastern Time)) for
any NMS stocks that it lists--which thereby has the effect of
extending the time during which all trading centers must protect
quotations pursuant to Rule 611 of Regulation NMS (17 CFR 242.611)--
must be filed under Section 19(b)(2) of the Exchange Act. The
Commission believes that, because such a proposal could potentially
raise significant competitive issues and could affect existing SRO
surveillance and oversight programs, it must be considered by the
Commission after prior notice and comment before it becomes
operative. See Non-Controversial Rule Proposing Release, supra note
31, 59 FR at 29394 (noting that a proposal that would affect the
surveillance or oversight capabilities of an SRO could directly
impair the protection of investors and should be filed under Section
19(b)(2) of the Exchange Act).
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Conforming Rules to Approved Changes to NMS Plan or
Commission Rule. The Commission believes that proposed rule changes to
implement provisions of an approved national market system plan (such
as the Options Linkage Plan \47\) or a Commission rule are eligible for
immediate effectiveness under Rule 19b-4(f)(6).
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\47\ The Options Linkage Plan is a national market system plan
for the purpose of creating and operating an intermarket linkage
among the various participant exchanges.
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(b) Opportunity for Public Comment With Regard to Immediately Effective
Rule Filings
Although the Commission is encouraging the exchanges to designate
additional proposed changes in the category of trading rules as
immediately effective, the Commission is not minimizing the importance
of receiving public comments on proposed rule changes relating to
trading rules. The Commission emphasizes that it continues to believe
that the public interest is served by offering the public, investors,
SRO members, and other market participants the opportunity to comment
on SRO rule proposals. The Commission considers all comments it
receives on each proposed rule change, and makes available all comments
to the applicable SRO for its consideration as well.
Comments on an immediately effective filing help the Commission
analyze the impact of the filing and evaluate whether to abrogate
it.\48\ Comments also help the exchange address legitimate concerns, in
a manner that does not delay implementation of the proposed rule
change, while still preserving the Commission's ability to act to
abrogate when appropriate. For example, in response to a comment letter
that raises significant concerns with an immediately effective rule
change, an exchange could consider revising its rule (by submitting
either another immediately effective proposal or a proposed rule change
that requires notice and comment) in a manner that reasonably addresses
the issues raised by the commenter.\49\ As described below,\50\ an
exchange will decrease the likelihood of abrogation of an immediately
effective filing by clearly describing the significance of the rule
change and how the proposal is consistent with the standards applicable
to exchange rules, such as the provisions set forth in section 6 and
section 11A of the Exchange Act.\51\
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\48\ The Commission notes that no inference should be made
regarding whether an SRO's proposed rule change ``impose[s] a
significant burden on competition'' merely because an SRO's
competitor objects to the rule filing.
\49\ If the second proposal were filed under Rule 19b-4(f)(6),
the Commission could consider waiving the five-day pre-filing period
and the 30-day pre-operative period to permit the revision to the
new rule to be operative as quickly as possible. See Rule 19b-
4(f)(6)(iii).
\50\ See infra Section IV.
\51\ 15 U.S.C. 78f and 15 U.S.C. 78k-1, respectively.
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[[Page 40149]]
B. Other Types of Immediately Effective Proposed Rule Changes
1. Filings Based on the Rules of Another SRO, Other Than Trading Rules
The Commission also is issuing interpretive guidance for all SROs
with respect to ``copycat'' filings relating to SRO rules other than
trading rules that are eligible for immediate effectiveness. The
Commission previously had stated that filings that are ``virtually
identical'' to an SRO filing already approved by the Commission are
eligible for immediate effectiveness under Rule 19b-4(f)(6).\52\ The
Commission now clarifies that an SRO may designate a proposed rule
change for immediate effectiveness even if not ``virtually identical''
to another SRO's rules.\53\
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\52\ See Non-Controversial Rule Adopting Release, supra note 8,
59 FR at 66697.
\53\ The Commission guidance contained herein applicable to
``copycat'' and MRVP filings that are based on SRO rule changes
previously approved by the Commission is not intended to limit the
ability of SROs to continue to file proposals under Section
19(b)(3)(A) of the Exchange Act where such proposals are based on
another SRO's rules that also were effective pursuant to Section
19(b)(3)(A) of the Act.
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In particular, the Commission recognizes that, while each SRO is
unique and has modified its rulebook over time to reflect its
particular structure and terminology, all share basic similarities such
that a proposed rule change need not be ``virtually identical'' to the
precise text of another SRO's rules in order for the prescribed conduct
and scope of the rule change to be consistent with the other SRO's rule
on which it is based. The Commission believes that a proposed rule
change appropriately may be filed as an immediately effective rule so
long as it is based on and similar to another SRO's rule and each
policy issue raised by the proposed rule (i) has been considered
previously by the Commission when the Commission approved another
exchange's rule (that was subject to notice and comment), and (ii) the
rule change resolves such policy issue in a manner consistent with such
prior approval. For this class of proposed rule changes, in support of
its designation for immediate effectiveness, the SRO is required under
Item 8 of Form 19b-4 to identify the original SRO rule(s) on which its
proposed rule change is based and explain any differences between its
proposed rule change and the rule(s) upon which it is based.\54\
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\54\ In identifying a rule on which its proposal is based, the
SRO should cite to the Commission's approval order for that rule.
See Item 8 of Form 19b-4.
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2. Changes to an SRO's Minor Rule Violation Plan
The Commission also believes that more filings relating to an SRO's
MRVP could be appropriately filed as immediately effective upon filing
under paragraph (f)(6) of Rule 19b-4. Based on its experience with MRVP
proposals and various changes to those MRVPs over the years, the
Commission believes that MRVPs have been useful elements of SROs'
disciplinary function. The MRVP allows an SRO to impose a limited
sanction on a member using an abbreviated process when a full
disciplinary proceeding may not be warranted. Proposed rule changes
that enable SROs to bring new rules into the MRVP sanctioning process
rarely raise significant issues and promote compliance by the SRO's
members with the SRO's rules and the rules of the Commission.
The Commission previously has stated that certain changes to an
SRO's MRVP can be filed for immediate effectiveness pursuant to Rule
19b-4(f)(6) and reiterates that guidance here.\55\ Moreover, consistent
with ``copycat'' filings, the Commission believes that a change to an
SRO's MRVP appropriately may be filed as an immediately effective rule
so long as each policy issue raised (i) has been considered previously
by the Commission when the Commission approved another exchange's MRVP
rule change, and (ii) the rule change resolves such policy issue in a
manner consistent with such prior approval.\56\ Immediate effectiveness
of such proposals reduces the administrative burdens on SROs that seek
to expand the use of their MRVPs.
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\55\ See Non-Controversial Rule Proposing Release, supra note
31, 59 FR at 29395 (noting that a proposed change that adds an
existing rule to an SRO's MRVP, that is objective in nature, such as
a reporting obligation, and does not involve a violation of the
federal securities laws or the rules thereunder, could be eligible
for filing as a ``non-controversial'' proposed rule change). See
also Non-Controversial Rule Adopting Release, supra note 8, 59 FR at
66696 (noting that an NYSE proposal to add violations of an NYSE
rule would have been eligible for immediate effectiveness under Rule
19b-4(f)(6)).
\56\ As with any immediately effective filing, the Commission
could abrogate an MRVP-related immediately effective proposed rule
change that raises significant issues. For example, an MRVP filing
that has the effect of excusing certain rule violations (by, for
example, aggregating several instances of violative behavior as a
single offense under the SRO's MRVP) would not be eligible for
filing under Rule 19b-4(f)(6). In addition, when proposing a change
to its MRVP, it would be helpful for the SRO to specify which
violations trigger sanctions, and to cite the rules of conduct that
may be enforced using the MRVP. If one of the rules of conduct is
lengthy, to facilitate ease of reference, the SRO could consider
including citations to the necessary sub-paragraphs in the MRVP
rule. Providing a sufficient level of detail as to the rules and
violations covered by the MRVP would help affected entities better
understand the operation of the plan and would provide specificity
useful to assist the SRO in administering its MRVP.
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IV. Abrogation of Immediately Effective Proposals
We have designed the guidance to be principles-based because we
cannot anticipate the content and nature of every proposed rule change
that might be filed. By its nature, therefore, applying the guidance
will involve an element of judgment. We encourage SROs to file
immediately effective proposed rule changes when in the judgment of the
SRO that approach is appropriate and consistent with the statute,
rules, and this guidance.\57\
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\57\ An SRO that files an immediately effective proposed rule
change with the Commission should try to anticipate and address
concerns relating to the protection of investors, the public
interest, and the burdens on competition. See generally Items 3 and
4 of Form 19b-4. The Commission further notes that conclusory
statements made in Item 7 of Form 19b-4 could make it more difficult
for the Commission to confirm that the proposed rule change has been
properly designated. See Item 7 of Form 19b-4 (``Basis for Summary
Effectiveness Pursuant to Section 19(b)(3)(A) or for Accelerated
Effectiveness Pursuant to Section 19(b)(2) or Section
19(b)(7)(D)'').
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We acknowledge that the Commission ultimately may determine to
abrogate the immediately effective proposed rule change. As described
in greater detail above, pursuant to section 19(b)(3)(C), at any time
within 60 days of the date of filing of an immediately effective
proposed rule change, the Exchange Act permits the Commission summarily
to abrogate the rule change ``if it appears to the Commission that such
action is necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes of
[the Exchange Act].'' \58\
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\58\ 15 U.S.C. 78s(b)(3)(C).
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In connection with the interpretation, the Commission also is
removing its delegation of authority to the Director of the Division of
Trading and Markets to abrogate SRO rule filings. We emphasize that
abrogation does not necessarily imply that a proposed rule change is
inconsistent with the Exchange Act.\59\ If the Commission abrogates an
SRO's proposed rule change filed for immediate effectiveness after it
became effective but before it becomes operative (i.e., 30 days after
filing or such shorter period as the Commission may designate), the SRO
would not have to revert to its previous rules, because they
[[Page 40150]]
never ceased being operative.\60\ A Commission determination to
abrogate a proposed rule change does not affect the validity or force
of the rule change during the period it was in effect.\61\
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\59\ By its terms, Section 19(b)(3)(C) states that the
Commission may abrogate a proposal and ``require that the proposed
rule change be refiled * * *'' pursuant to Exchange Act Section
19(b)(1) to be reviewed by the Commission pursuant to Section
19(b)(2).
\60\ See 15 U.S.C. 78s(b)(3)(C). A proposed rule change filed
pursuant to Rule 19b-4(f)(6) becomes effective upon filing, but may
not become operative until 30 days after the date of filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest. See 17 CFR 240.19b-
4(f)(6)(iii).
\61\ See 15 U.S.C. 78s(b)(3)(C).
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V. Amendment to Rule 200.30-3(a)(12)
The Commission believes that explicitly outlining the mechanism for
issuance of notices of proposed SRO rule changes will further enhance
the efficiency of the rule filing process. As such, the Commission is
modifying its delegation of authority to the Director of the Division
of Trading and Markets. The amended rule specifies that the Division
shall issue notices of all proposed rule changes within 15 business
days of filing thereof by the self-regulatory organization unless the
Director of the Division personally directs otherwise, and, if the
Director has so directed, he shall promptly notify the Commission and
either the Commission or the Director may order publication of the
notice thereafter.\62\
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\62\ Nevertheless, the Division may continue to submit proposed
rule changes and related matters to the Commission for its
consideration as it considers appropriate.
The Commission notes that Commission rules require an SRO to
post its proposed rule change on its Web site when the proposed rule
change is submitted to the Commission. Further, the proposed rule
change will be posted on the Commission's Web site shortly after the
Commission issues notice thereof.
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The Commission believes that this requirement will enhance
transparency with respect to the rule filing process, which also will
provide additional certainty to SROs with respect to the issuance of
notices of proposed rule changes. The Commission also expects this
requirement to significantly improve the efficiency of the processing
of SRO proposed rule changes and the issuance of notices of proposed
rule changes, particularly with respect to filings subject to notice
and comment pursuant to section 19(b)(2) of the Exchange Act. The
Commission believes that requiring the Division to issue notice of all
proposed rule changes that are properly filed and comply with all
applicable requirements within 15 business days of filing thereof will
help SROs plan accordingly as well as assist the Commission staff in
managing their work flow.
The Commission notes that SRO rule change proposals will continue
to be required to be drafted with precision if they are to provide
information necessary to elicit meaningful public comment on the
proposed rule change. As is currently the case, a proposal that does
not comply with the requirements of Form 19b-4 and Rule 19b-4 under the
Exchange Act will not be accepted as filed.\63\
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\63\ See supra note 22.
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In order to provide for the possibility that there may be unusual
and infrequent circumstances in which the 15 business day requirement
is impractical, the rule permits the Director of the Division of
Trading and Markets in such circumstances to direct otherwise. The rule
provides that this function cannot be subdelegated.
VI. Administrative Procedure Act, Regulatory Flexibility Act, and
Paperwork Reduction Act
The Commission finds, in accordance with section 553(b)(3)(A) of
the Administrative Procedure Act,\64\ that the interpretive guidance
issued today and amended Commission Rule 200.30-3(a)(12) relate solely
to interpretations and agency organization, procedure, or practice.
Accordingly, the guidance and Rule 200.30-3(a)(12) are not subject to
the provisions of the Administrative Procedure Act requiring notice,
opportunity for public comment, and publication prior to their
adoption.\65\
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\64\ 5 U.S.C. 553(b)(3)(A).
\65\ For similar reasons, the amendments do not require analysis
under the Regulatory Flexibility Act or analysis of major rule
status under the Small Business Regulatory Enforcement Fairness Act.
See 5 U.S.C. 601(2) (for purposes of Regulatory Flexibility Act
analyses, the term ``rule'' means any rule for which the agency
publishes a general notice of proposed rulemaking); 5 U.S.C.
804(3)(C) (for purposes of Congressional review of agency
rulemaking, the term ``rule'' does not include any rule of agency
organization, procedure, or practice that does not substantially
affect the rights or obligations of non-agency parties).
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Further, publication of a substantive rule not less than 30 days
before its effective date is required by the Administrative Procedure
Act except as otherwise provided for in Section 553(d). However,
interpretive rules may take effect less than 30 days after
publication.\66\ In addition, because the amended rule relates solely
to the internal processes of the Commission with regard to the
publication of proposed rule changes filed by SROs, the Commission
finds that there is good cause for making amended Rule 200.30-3(a)(12)
effective upon publication in the Federal Register.\67\
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\66\ See 5 U.S.C. 553(d)(2).
\67\ See 5 U.S.C. 553(d)(3).
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Finally, the rule and the Commission's interpretation do not
contain any new or additional collections of information as defined by
the Paperwork Reduction Act of 1995, as amended.\68\
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\68\ 44 U.S.C. 3501.
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VII. Costs and Benefits of the Proposed Amendments
The Commission is sensitive to the costs and benefits of its rules,
and has considered carefully the costs and the benefits of the
interpretive guidance and the rule amendment. To the extent that SROs
decide to avail themselves of the guidance contained in this release,
the Commission believes that more rule changes will be filed as
immediately effective rule filings and more proposed rule changes
relating to trading rules, MRVPs, and ``copycat'' proposals that
currently are filed under section 19(b)(2) will take effect upon filing
with the Commission. As SROs increase their use of section 19(b)(3)(A)
to file more proposed rule changes for immediate effectiveness, SROs
will be able to modify their trading systems and rules more quickly in
response to competitive pressures, while still being subject to the
protections provided by Exchange Act section 19(b). Further, as more
proposed rule changes become effective upon filing, the burdens on the
SROs, as well as on the Commission and its staff, are expected to be
reduced since such proposals will be processed and take effect more
quickly, as those rule changes would not be subject to the issuance of
a Commission order before they may take effect. Also, to the extent
that the guidance increases the percentage of SRO proposed rule changes
that may take effect upon filing with the Commission, there will be
efficiencies as the processing of such proposed rule changes requires
fewer staff resources since the Commission is not required to issue an
order approving such proposed rule changes.
In addition, the revised rule regarding the issuance of a notice of
a proposed rule change within 15 business day
