Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Among the American Stock Exchange LLC, Boston Stock Exchange, Inc., CBOE Stock Exchange, LLC, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange, LLC, NYSE Arca Inc., NYSE Regulation, Inc., and Philadelphia Stock Exchange, Inc., 54646-54648 [E8-22013]
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54646
Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices
interim standards are intended to
update and clarify the auditing
standards in light of SFAS No. 154 and
SFAS No. 162. In particular, these
updates and clarifications are intended
to enhance the clarity of auditor
reporting on accounting changes and
corrections of misstatements by
distinguishing between these events.
sroberts on PROD1PC70 with NOTICES
III. Discussion
The Commission received three
comment letters in response to its
request for comments on Auditing
Standard No. 6 and conforming
amendments. The comment letters came
from three registered public accounting
firms.4 All three commenters expressed
support for the Commission’s approval
of the proposed standard.
As noted above, the PCAOB’s
proposed amendment to AU section 431
deletes a reference to Rule 301 of the
AICPA’s Code of Professional
Conduct—a rule the PCAOB did not
adopt as part of its original interim
standards. Similar to comments made to
the PCAOB during its comment period,
one commenter believed concerns exist
that the Board’s action in removing a
reference to a rule the PCAOB did not
adopt might be construed as minimizing
the auditor’s responsibilities for
maintaining the confidentiality of client
information. The commenter requested
that the Commission encourage the
PCAOB to adopt a rule establishing the
auditor’s responsibility with respect to
maintaining the confidentiality of client
information.
In its adopting release, the PCAOB
discussed the concerns the comments
raised about client confidentiality and
noted its awareness of many auditors’
legal or professional obligations to
maintain the confidentiality of client
information, and made reference to the
confidentiality requirements included
in the provisions of the Uniform
Accountancy Act and the provisions of
the International Federation of
Accountants’ Code of Ethics for
Professional Accountants. The PCAOB
also noted that its decision to omit Rule
301 from its interim standards was
based on a determination that
incorporation of that rule was not
necessary to fulfill the Board’s mandate
under Section 103(a)(1) and (3) of the
Act at that time, and that it did not
reflect a decision that auditor
confidentiality requirements imposed
by other authorities were inappropriate.
Similarly, in amending AU section 431,
the PCAOB noted that it seeks neither
4 Deloitte and Touche LLP, Grant Thornton LLP,
and PricewaterhouseCoopers LLP.
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19:11 Sep 19, 2008
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to modify nor detract from existing
confidentiality requirements.
The Commission agrees with the
Board’s proposed action to remove from
its interim standards a reference to a
rule it did not adopt. However, the
Commission encourages the PCAOB to
develop and adopt a rule addressing the
auditor’s responsibility with respect to
maintaining the confidentiality of client
information.5
IV. Conclusion
On the basis of the foregoing, the
Commission finds that proposed
Auditing Standard No. 6 and the
Conforming Amendments are consistent
with the requirements of the Act and the
securities laws and are necessary and
appropriate in the public interest and
for the protection of investors.
It is therefore ordered, pursuant to
Section 107 of the Act and Section
19(b)(2) of the Exchange Act, that
proposed Auditing Standard No. 6,
Evaluating Consistency of Financial
Statements, and Conforming
Amendments (File No. PCAOB–2008–
01) be and hereby are approved.
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–22015 Filed 9–19–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58536; File No. 4–566]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Order Approving and Declaring
Effective a Plan for the Allocation of
Regulatory Responsibilities Among the
American Stock Exchange LLC,
Boston Stock Exchange, Inc., CBOE
Stock Exchange, LLC, Chicago Stock
Exchange, Inc., Financial Industry
Regulatory Authority, Inc.,
International Securities Exchange,
LLC, The NASDAQ Stock Market LLC,
National Stock Exchange, Inc., New
York Stock Exchange, LLC, NYSE Arca
Inc., NYSE Regulation, Inc., and
Philadelphia Stock Exchange, Inc.
September 12, 2008.
On August 12, 2008, the American
Stock Exchange LLC (‘‘Amex’’), Boston
Stock Exchange, Inc. (‘‘BSE’’), CBOE
5 One commenter also noted that the adoption of
Auditing Standard No. 6 would cause existing
published PCAOB Staff Questions and Answers to
require updating. The Commission encourages the
PCAOB to ensure that its guidance is up to date
with its current standards and presumes the PCAOB
will update these Questions and Answers once
these amendments are approved.
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Stock Exchange, LLC (‘‘CBOE’’), Chicago
Stock Exchange, Inc. (‘‘CHX’’), Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), International Securities
Exchange, LLC (‘‘ISE’’), The NASDAQ
Stock Market, LLC (‘‘NASDAQ’’),
National Stock Exchange, Inc. (‘‘NSX’’),
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE Arca Inc. (‘‘NYSE
Arca’’), NYSE Regulation, Inc. (acting
under authority delegated to it by
NYSE) (‘‘NYSE Regulation’’), and
Philadelphia Stock Exchange, Inc.
(‘‘Phlx’’) (collectively, ‘‘Participating
Organizations’’ or ‘‘Parties’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 17(d) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 17d–2 thereunder,2 a proposed
plan for the allocation of regulatory
responsibilities (‘‘Plan’’). The Plan was
published for comment on August 18,
2008.3 The Commission received no
comments on the Plan. This order
approves and declares effective the
Plan.
I. Introduction
Section 19(g)(1) of the Act,4 among
other things, requires every selfregulatory organization (‘‘SRO’’)
registered as either a national securities
exchange or national securities
association to examine for, and enforce
compliance by, its members and persons
associated with its members with the
Act, the rules and regulations
thereunder, and the SRO’s own rules,
unless the SRO is relieved of this
responsibility pursuant to Section
17(d) 5 or Section 19(g)(2) 6 of the Act.
Section 17(d)(1) of the Act 7 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication for those brokerdealers that maintain memberships in
more than one SRO (‘‘common
members’’).8 With respect to a common
member, Section 17(d)(1) authorizes the
Commission, by rule or order, to relieve
an SRO of the responsibility to receive
regulatory reports, to examine for and
enforce compliance with applicable
statutes, rules, and regulations, or to
1 15
U.S.C. 78q(d).
CFR 240.17d–2.
3 See Securities Exchange Act Release No. 58350
(August 13, 2008), 73 FR 48248 (File No. 4–566)
(‘‘Notice’’).
4 15 U.S.C. 78s(g)(1).
5 15 U.S.C. 78q(d).
6 15 U.S.C. 78s(g)(2).
7 15 U.S.C. 78q(d)(1).
8 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
2 17
E:\FR\FM\22SEN1.SGM
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Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices
perform other specified regulatory
functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.9
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to
examine common members for
compliance with the financial
responsibility requirements imposed by
the Act, or by Commission or SRO
rules.10 When an SRO has been named
as a common member’s DEA, all other
SROs to which the common member
belongs are relieved of the responsibility
to examine the firm for compliance with
the applicable financial responsibility
rules. On its face, Rule 17d–1 deals only
with an SRO’s obligations to enforce
broker dealers’ compliance with
financial responsibility requirements.
Rule 17d–1 does not relieve an SRO
from its obligation to examine a
common member for compliance with
its own rules and provisions of the
federal securities laws governing
matters other than financial
responsibility, including sales practices
and trading activities and practices.
To address regulatory duplication in
these and other areas, the Commission
adopted Rule 17d–2 under the Act.11
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, after providing for notice
and comment, it determines that the
plan is necessary or appropriate in the
public interest and for the protection of
investors, to foster cooperation and
coordination among the SROs, to
remove impediments to, and foster the
development of, a national market
system and a national clearance and
settlement system, and is in conformity
with the factors set forth in Section
17(d) of the Act. Commission approval
of a plan filed pursuant to Rule 17d–2
relieves an SRO of those regulatory
responsibilities allocated by the plan to
another SRO.
II. The Plan
sroberts on PROD1PC70 with NOTICES
The proposed Plan is designed to
eliminate regulatory duplication by
allocating regulatory responsibility over
9 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
10 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
11 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
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19:11 Sep 19, 2008
Jkt 214001
Common NYSE Members 12 or Common
FINRA Members,13 as applicable,
(collectively, ‘‘Common Members’’) for
the surveillance, investigation, and
enforcement of common insider trading
rules (‘‘Common Rules’’).14 The Plan
assigns regulatory responsibility over
Common NYSE Members to NYSE
Regulation for surveillance,
investigation, and enforcement of
insider trading by broker-dealers, and
their associated persons, with respect to
NYSE-listed stocks and NYSE Arcalisted stocks, irrespective of the
marketplace(s) maintained by the
Participating Organizations on which
the relevant trading may occur. The
Plan assigns regulatory responsibility
over Common FINRA Members to
FINRA for surveillance, investigation,
and enforcement of insider trading by
broker-dealers, and their associated
persons, with respect to NASDAQ-listed
stocks and Amex-listed stocks, as well
as any CHX solely-listed stock,
irrespective of the marketplace(s)
maintained by the Participating
Organizations on which the relevant
trading may occur. The full text of the
Plan and Exhibits A, B, and C thereto
can be found in the Notice.
In addition to the Plan, the
Participating Organizations have
entered into two regulatory services
agreements that address investigation
and enforcement in situations that
involve trading in equity securities by
non-Common Members, as Rule 17d–2
covers only situations involving
Common Members. The first agreement
is between NYSE Regulation (acting as
the regulatory services provider),
FINRA, and each of the exchanges
(‘‘NYSE Regulation Agreement’’). The
second agreement is between FINRA
(acting as the regulatory services
provider), NYSE Regulation, and each of
the exchanges (‘‘FINRA Agreement’’).
The agreements provide for the
investigation and enforcement of
suspected insider trading against brokerdealers and their associated persons that
(i) are not Common Members of NYSE
in the case of insider trading in NYSElisted stocks and NYSE–Arca listed
stocks; or (ii) are not Common Members
of FINRA in the case of insider trading
in NASDAQ-listed stocks, Amex-listed
stocks, and any CHX solely-listed stock.
12 Common NYSE Members include members of
the NYSE and at least one of the Participating
Organizations.
13 Common FINRA Members are members of
FINRA and at least one of the Participating
Organizations.
14 Common Rules are defined as: (i) Federal
securities laws and rules promulgated by the
Commission pertaining to insider trading, and (ii)
the rules of the Participating Organizations that are
related to insider trading. See Exhibit A to the Plan.
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Fmt 4703
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54647
Under the agreements, NYSE
Regulation and FINRA, respectively,
will provide to the exchanges ‘‘Core
Services’’ related and limited to the
investigation and enforcement activities
for non-Common Members where these
activities relate to insider trading of
equity securities listed on the NYSE or
NYSE Arca in the case of the NYSE
Regulation Agreement, and to the
insider trading of equity securities listed
on the Nasdaq or Amex, and any CHX
solely-listed security in the case of the
FINRA Agreement. The Core Services
provided under the agreements are
rendered (a) only upon completion of a
surveillance review under the 17d–2
Plan, and (b) at the request of the
relevant exchange. Pursuant to the Plan,
NYSE Regulation and FINRA will
conduct surveillance, investigation, and
enforcement for insider trading for
Common NYSE Members and Common
FINRA Members, respectively.
Surveillance for non-Common Members
is excluded from the Plan and remains
the responsibility of the SROs in which
such non-Common Members maintain
membership. However, due to the
nature of insider trading surveillance
technology and processes, the
surveillance conducted by NYSE
Regulation and FINRA will encompass
non-Common Members as the
surveillance function does not
differentiate between Common and nonCommon Members. Accordingly, the
investigation and enforcement services
performed under the agreements will
arise from surveillance undertaken by
NYSE Regulation and FINRA.
III. Discussion
The Commission finds that the
proposed Plan is consistent with the
factors set forth in Section 17(d) of the
Act 15 and Rule 17d–2 thereunder 16 in
that the proposed Plan is necessary or
appropriate in the public interest and
for the protection of investors, fosters
cooperation and coordination among
SROs, and removes impediments to and
fosters the development of the national
market system. In particular, the
Commission believes that the proposed
Plan should reduce unnecessary
regulatory duplication by allocating
regulatory responsibility for the
surveillance, investigation, and
enforcement of Common Rules over
Common NYSE Members, with respect
to NYSE-listed stocks and NYSE Arcalisted stocks, to NYSE and over
Common FINRA Members, with respect
to NASDAQ-listed stocks, Amex-listed
stocks, and any CHX solely-listed stock,
15 15
16 17
E:\FR\FM\22SEN1.SGM
U.S.C. 78q(d).
CFR 240.17d–2.
22SEN1
54648
Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices
to FINRA. Accordingly, the proposed
Plan promotes efficiency by
consolidating these regulatory functions
in a single SRO based on the listing
market for a stock, with regard to
Common NYSE Members and Common
FINRA Members.
In addition, the Commission notes
that the Plan provides that the costs for
insider trading surveillance would be
shared among the Participating
Organizations based on their relative
trade volume, subject to certain
minimum payment amounts for smaller
markets. Modifications to the fees
assessed the Participating Organizations
pursuant to the cost allocation
methodologies established in the Plan
do not require an amendment to the
Plan; however, any modifications to the
cost allocation methodologies would
require approval by the Commission.
The Commission believes that the Plan
provides a reasonable method to
allocate among the Parties expenses
reasonably incurred by the SRO having
regulatory responsibilities under the
Plan.17
The Commission also notes that
because under Rule 17d–2 regulatory
responsibility may be allocated from
one SRO to another SRO only for
Common Members, the Participating
Organizations have entered into two
regulatory services agreements with
NYSE Regulation and FINRA,
respectively, to address investigation
and enforcement of suspected insider
trading involving members who are
neither Common NYSE Members nor
Common FINRA Members.18 The
Commission is neither approving nor
disapproving the terms of the regulatory
services agreements. However, the
Commission does note that under these
regulatory services agreements the
ultimate responsibility and primary
liability for self-regulatory obligations
would remain with each exchange and
association, rather than the SRO
retained to perform such functions.
sroberts on PROD1PC70 with NOTICES
IV. Conclusion
This Order gives effect to the Plan
filed with the Commission in File No.
4–566. The Parties shall notify all
members affected by the Plan of their
rights and obligations under the Plan.
It is therefore ordered, pursuant to
Section 17(d) of the Act,19 that the Plan
in File No. 4–566 by and among Amex,
BSE, CBOE, CHX, FINRA, ISE,
NASDAQ, NSX, NYSE, NYSE Arca,
17 17
CFR 240.17d–2(b).
only of the NYSE would be the
responsibility of NYSE; members only of FINRA
would be the responsibility of FINRA.
19 15 U.S.C. 78q(d).
18 Members
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19:11 Sep 19, 2008
Jkt 214001
NYSE Regulation, and Phlx filed
pursuant to Rule 17d–2 is hereby
approved and declared effective.
It is further ordered that the
Participating Organizations are relieved
of those regulatory responsibilities
allocated to NYSE and FINRA under the
Plan in File No. 4–566.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–22013 Filed 9–19–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58547; File No. SR–BSE–
2008–45]
Self-Regulatory Organizations; Boston
Stock Exchange, Incorporated; Notice
of Filing of Proposed Rule Change To
Amend By-Laws
September 15, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 5, 2008, the Boston Stock
Exchange (the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
by-laws to make certain changes that the
Exchange committed to make in SR–
BSE–2008–23.3 The text of the proposed
rule change is available from the
principal office of the Exchange, at the
Commission’s Public Reference Room,
and is also available at https://
nasdaqtrader.com/Trader.aspx?id=
Boston_Stock_Exchange.
20 17
CFR 200.30–3(a)(34).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 58324
(August 7, 2008), 73 FR 46936 (August 12, 2008);
Securities Exchange Act Release No. 57757 (May 1,
2008), 73 FR 26159 (May 8, 2008) (SR–BSE–2008–
23).
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On August 29, 2008, the Exchange
was acquired by The NASDAQ OMX
Group, Inc. (‘‘NASDAQ OMX’’). In SR–
BSE–2008–23, the Exchange’s filing
seeking approval of this acquisition, the
Exchange committed that it would,
immediately following closing of the
acquisition, seek Board of Directors and
Commission approval for several
changes to its By-Laws. The changes,
which were requested by Commission
staff, could not be included in SR–BSE–
2008–23 because Article XX of the
Exchange’s former Constitution, which
was replaced by the new By-Laws at the
closing, provided that the Exchange’s
members must approve amendments to
the Exchange’s Constitution. The
Exchange’s members voted, on
December 7, 2007, to approve the ByLaws as originally submitted in SR–
BSE–2008–23, and it would have been
impracticable and unduly expensive to
seek a second member vote for approval
of these additional changes prior to
closing. The changes in question are as
follows:
• In Article I, the Exchange is
amending the definition of ‘‘Voting
Date’’ to make it clear that the Exchange
Board of Directors must annually select
a Voting Date for the selection of
Member Representative Directors,
although a vote will actually occur on
that date only if members have
nominated candidates for election other
than those nominated by the Exchange’s
Member Nominating Committee.
Accordingly, the amended definition
reads: ‘‘ ‘Voting Date’ means the date
selected by the Board on an annual
basis, on which Exchange Members may
vote with respect to Member
Representative Directors in the event of
a Contested Vote.’’
E:\FR\FM\22SEN1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 184 (Monday, September 22, 2008)]
[Notices]
[Pages 54646-54648]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22013]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58536; File No. 4-566]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving and Declaring Effective a Plan for the
Allocation of Regulatory Responsibilities Among the American Stock
Exchange LLC, Boston Stock Exchange, Inc., CBOE Stock Exchange, LLC,
Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority,
Inc., International Securities Exchange, LLC, The NASDAQ Stock Market
LLC, National Stock Exchange, Inc., New York Stock Exchange, LLC, NYSE
Arca Inc., NYSE Regulation, Inc., and Philadelphia Stock Exchange, Inc.
September 12, 2008.
On August 12, 2008, the American Stock Exchange LLC (``Amex''),
Boston Stock Exchange, Inc. (``BSE''), CBOE Stock Exchange, LLC
(``CBOE''), Chicago Stock Exchange, Inc. (``CHX''), Financial Industry
Regulatory Authority, Inc. (``FINRA''), International Securities
Exchange, LLC (``ISE''), The NASDAQ Stock Market, LLC (``NASDAQ''),
National Stock Exchange, Inc. (``NSX''), New York Stock Exchange LLC
(``NYSE''), NYSE Arca Inc. (``NYSE Arca''), NYSE Regulation, Inc.
(acting under authority delegated to it by NYSE) (``NYSE Regulation''),
and Philadelphia Stock Exchange, Inc. (``Phlx'') (collectively,
``Participating Organizations'' or ``Parties'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 17(d) of the Securities Exchange Act of 1934 (``Act''),\1\ and
Rule 17d-2 thereunder,\2\ a proposed plan for the allocation of
regulatory responsibilities (``Plan''). The Plan was published for
comment on August 18, 2008.\3\ The Commission received no comments on
the Plan. This order approves and declares effective the Plan.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
\3\ See Securities Exchange Act Release No. 58350 (August 13,
2008), 73 FR 48248 (File No. 4-566) (``Notice'').
---------------------------------------------------------------------------
I. Introduction
Section 19(g)(1) of the Act,\4\ among other things, requires every
self-regulatory organization (``SRO'') registered as either a national
securities exchange or national securities association to examine for,
and enforce compliance by, its members and persons associated with its
members with the Act, the rules and regulations thereunder, and the
SRO's own rules, unless the SRO is relieved of this responsibility
pursuant to Section 17(d) \5\ or Section 19(g)(2) \6\ of the Act.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(g)(1).
\5\ 15 U.S.C. 78q(d).
\6\ 15 U.S.C. 78s(g)(2).
---------------------------------------------------------------------------
Section 17(d)(1) of the Act \7\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication for those
broker-dealers that maintain memberships in more than one SRO (``common
members'').\8\ With respect to a common member, Section 17(d)(1)
authorizes the Commission, by rule or order, to relieve an SRO of the
responsibility to receive regulatory reports, to examine for and
enforce compliance with applicable statutes, rules, and regulations, or
to
[[Page 54647]]
perform other specified regulatory functions.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78q(d)(1).
\8\ See Securities Act Amendments of 1975, Report of the Senate
Committee on Banking, Housing, and Urban Affairs to Accompany S.
249, S. Rep. No. 94-75, 94th Cong., 1st Session 32 (1975).
---------------------------------------------------------------------------
To implement Section 17(d)(1), the Commission adopted two rules:
Rule 17d-1 and Rule 17d-2 under the Act.\9\ Rule 17d-1 authorizes the
Commission to name a single SRO as the designated examining authority
(``DEA'') to examine common members for compliance with the financial
responsibility requirements imposed by the Act, or by Commission or SRO
rules.\10\ When an SRO has been named as a common member's DEA, all
other SROs to which the common member belongs are relieved of the
responsibility to examine the firm for compliance with the applicable
financial responsibility rules. On its face, Rule 17d-1 deals only with
an SRO's obligations to enforce broker dealers' compliance with
financial responsibility requirements. Rule 17d-1 does not relieve an
SRO from its obligation to examine a common member for compliance with
its own rules and provisions of the federal securities laws governing
matters other than financial responsibility, including sales practices
and trading activities and practices.
---------------------------------------------------------------------------
\9\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\10\ See Securities Exchange Act Release No. 12352 (April 20,
1976), 41 FR 18808 (May 7, 1976).
---------------------------------------------------------------------------
To address regulatory duplication in these and other areas, the
Commission adopted Rule 17d-2 under the Act.\11\ Rule 17d-2 permits
SROs to propose joint plans for the allocation of regulatory
responsibilities with respect to their common members. Under paragraph
(c) of Rule 17d-2, the Commission may declare such a plan effective if,
after providing for notice and comment, it determines that the plan is
necessary or appropriate in the public interest and for the protection
of investors, to foster cooperation and coordination among the SROs, to
remove impediments to, and foster the development of, a national market
system and a national clearance and settlement system, and is in
conformity with the factors set forth in Section 17(d) of the Act.
Commission approval of a plan filed pursuant to Rule 17d-2 relieves an
SRO of those regulatory responsibilities allocated by the plan to
another SRO.
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------
II. The Plan
The proposed Plan is designed to eliminate regulatory duplication
by allocating regulatory responsibility over Common NYSE Members \12\
or Common FINRA Members,\13\ as applicable, (collectively, ``Common
Members'') for the surveillance, investigation, and enforcement of
common insider trading rules (``Common Rules'').\14\ The Plan assigns
regulatory responsibility over Common NYSE Members to NYSE Regulation
for surveillance, investigation, and enforcement of insider trading by
broker-dealers, and their associated persons, with respect to NYSE-
listed stocks and NYSE Arca-listed stocks, irrespective of the
marketplace(s) maintained by the Participating Organizations on which
the relevant trading may occur. The Plan assigns regulatory
responsibility over Common FINRA Members to FINRA for surveillance,
investigation, and enforcement of insider trading by broker-dealers,
and their associated persons, with respect to NASDAQ-listed stocks and
Amex-listed stocks, as well as any CHX solely-listed stock,
irrespective of the marketplace(s) maintained by the Participating
Organizations on which the relevant trading may occur. The full text of
the Plan and Exhibits A, B, and C thereto can be found in the Notice.
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\12\ Common NYSE Members include members of the NYSE and at
least one of the Participating Organizations.
\13\ Common FINRA Members are members of FINRA and at least one
of the Participating Organizations.
\14\ Common Rules are defined as: (i) Federal securities laws
and rules promulgated by the Commission pertaining to insider
trading, and (ii) the rules of the Participating Organizations that
are related to insider trading. See Exhibit A to the Plan.
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In addition to the Plan, the Participating Organizations have
entered into two regulatory services agreements that address
investigation and enforcement in situations that involve trading in
equity securities by non-Common Members, as Rule 17d-2 covers only
situations involving Common Members. The first agreement is between
NYSE Regulation (acting as the regulatory services provider), FINRA,
and each of the exchanges (``NYSE Regulation Agreement''). The second
agreement is between FINRA (acting as the regulatory services
provider), NYSE Regulation, and each of the exchanges (``FINRA
Agreement''). The agreements provide for the investigation and
enforcement of suspected insider trading against broker-dealers and
their associated persons that (i) are not Common Members of NYSE in the
case of insider trading in NYSE-listed stocks and NYSE-Arca listed
stocks; or (ii) are not Common Members of FINRA in the case of insider
trading in NASDAQ-listed stocks, Amex-listed stocks, and any CHX
solely-listed stock.
Under the agreements, NYSE Regulation and FINRA, respectively, will
provide to the exchanges ``Core Services'' related and limited to the
investigation and enforcement activities for non-Common Members where
these activities relate to insider trading of equity securities listed
on the NYSE or NYSE Arca in the case of the NYSE Regulation Agreement,
and to the insider trading of equity securities listed on the Nasdaq or
Amex, and any CHX solely-listed security in the case of the FINRA
Agreement. The Core Services provided under the agreements are rendered
(a) only upon completion of a surveillance review under the 17d-2 Plan,
and (b) at the request of the relevant exchange. Pursuant to the Plan,
NYSE Regulation and FINRA will conduct surveillance, investigation, and
enforcement for insider trading for Common NYSE Members and Common
FINRA Members, respectively. Surveillance for non-Common Members is
excluded from the Plan and remains the responsibility of the SROs in
which such non-Common Members maintain membership. However, due to the
nature of insider trading surveillance technology and processes, the
surveillance conducted by NYSE Regulation and FINRA will encompass non-
Common Members as the surveillance function does not differentiate
between Common and non-Common Members. Accordingly, the investigation
and enforcement services performed under the agreements will arise from
surveillance undertaken by NYSE Regulation and FINRA.
III. Discussion
The Commission finds that the proposed Plan is consistent with the
factors set forth in Section 17(d) of the Act \15\ and Rule 17d-2
thereunder \16\ in that the proposed Plan is necessary or appropriate
in the public interest and for the protection of investors, fosters
cooperation and coordination among SROs, and removes impediments to and
fosters the development of the national market system. In particular,
the Commission believes that the proposed Plan should reduce
unnecessary regulatory duplication by allocating regulatory
responsibility for the surveillance, investigation, and enforcement of
Common Rules over Common NYSE Members, with respect to NYSE-listed
stocks and NYSE Arca-listed stocks, to NYSE and over Common FINRA
Members, with respect to NASDAQ-listed stocks, Amex-listed stocks, and
any CHX solely-listed stock,
[[Page 54648]]
to FINRA. Accordingly, the proposed Plan promotes efficiency by
consolidating these regulatory functions in a single SRO based on the
listing market for a stock, with regard to Common NYSE Members and
Common FINRA Members.
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\15\ 15 U.S.C. 78q(d).
\16\ 17 CFR 240.17d-2.
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In addition, the Commission notes that the Plan provides that the
costs for insider trading surveillance would be shared among the
Participating Organizations based on their relative trade volume,
subject to certain minimum payment amounts for smaller markets.
Modifications to the fees assessed the Participating Organizations
pursuant to the cost allocation methodologies established in the Plan
do not require an amendment to the Plan; however, any modifications to
the cost allocation methodologies would require approval by the
Commission. The Commission believes that the Plan provides a reasonable
method to allocate among the Parties expenses reasonably incurred by
the SRO having regulatory responsibilities under the Plan.\17\
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\17\ 17 CFR 240.17d-2(b).
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The Commission also notes that because under Rule 17d-2 regulatory
responsibility may be allocated from one SRO to another SRO only for
Common Members, the Participating Organizations have entered into two
regulatory services agreements with NYSE Regulation and FINRA,
respectively, to address investigation and enforcement of suspected
insider trading involving members who are neither Common NYSE Members
nor Common FINRA Members.\18\ The Commission is neither approving nor
disapproving the terms of the regulatory services agreements. However,
the Commission does note that under these regulatory services
agreements the ultimate responsibility and primary liability for self-
regulatory obligations would remain with each exchange and association,
rather than the SRO retained to perform such functions.
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\18\ Members only of the NYSE would be the responsibility of
NYSE; members only of FINRA would be the responsibility of FINRA.
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IV. Conclusion
This Order gives effect to the Plan filed with the Commission in
File No. 4-566. The Parties shall notify all members affected by the
Plan of their rights and obligations under the Plan.
It is therefore ordered, pursuant to Section 17(d) of the Act,\19\
that the Plan in File No. 4-566 by and among Amex, BSE, CBOE, CHX,
FINRA, ISE, NASDAQ, NSX, NYSE, NYSE Arca, NYSE Regulation, and Phlx
filed pursuant to Rule 17d-2 is hereby approved and declared effective.
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\19\ 15 U.S.C. 78q(d).
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It is further ordered that the Participating Organizations are
relieved of those regulatory responsibilities allocated to NYSE and
FINRA under the Plan in File No. 4-566.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22013 Filed 9-19-08; 8:45 am]
BILLING CODE 8010-01-P
