Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing of Proposed Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and BATS Exchange, Inc., 55180-55185 [E8-22212]

Download as PDF 55180 Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices FORM SH INFORMATION TABLE—PAGE 5 FRIDAY, [Month, Day, Year] Name of issuer Short position (start of day) CUSIP Number of securities sold short (day) Value of securities sold short (day) Short position (end of day) Largest intraday short position Time of day of largest intraday short position Largest intraday short position Time of day of largest intraday short position FORM SH INFORMATION TABLE—PAGE 6 SATURDAY-SUNDAY, [Month, Day, Year] Name of issuer Short position (start of day) CUSIP [FR Doc. E8–22487 Filed 9–23–08; 8:45 am] BILLING CODE 8010–01–P Number of securities sold short (day) Value of securities sold short (day) SECURITIES AND EXCHANGE COMMISSION jlentini on PROD1PC65 with NOTICES [Release No. 34–58563; File No. 4–569] Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Notice of Filing of Proposed Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and BATS Exchange, Inc. Short position (end of day) (‘‘Act’’),1 and Rule 17d–2 thereunder,2 notice is hereby given that on August 27, 2008, BATS Exchange, Inc. (‘‘BATS’’) and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (together with BATS, the ‘‘Parties’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) a plan for the allocation of regulatory responsibilities, dated August 25, 2008 (‘‘17d–2 Plan’’ or the ‘‘Plan’’). The Commission is publishing this notice to September 17, 2008. Pursuant to section 17(d) of the Securities Exchange Act of 1934 VerDate Aug<31>2005 17:26 Sep 23, 2008 Jkt 214001 PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 1 15 2 17 E:\FR\FM\24SEN1.SGM U.S.C. 78q(d). CFR 240.17d–2. 24SEN1 Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices solicit comments on the 17d–2 Plan from interested persons. I. Introduction Section 19(g)(1) of the Act,3 among other things, requires every selfregulatory organization (‘‘SRO’’) registered as either a national securities exchange or 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) or section 19(g)(2) of the Act.4 Without this relief, the statutory obligation of each individual SRO could result in a pattern of multiple examinations of broker-dealers that maintain memberships in more than one SRO (‘‘common members’’). Such regulatory duplication would add unnecessary expenses for common members and their SROs. Section 17(d)(1) of the Act 5 was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication.6 With respect to a common member, section 17(d)(1) authorizes the Commission, by rule or order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and enforce compliance with applicable statutes, rules, and regulations, or to perform other specified regulatory functions. To implement section 17(d)(1), the Commission adopted two rules: Rule 17d–1 and Rule 17d–2 under the Act.7 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.8 When an SRO has been named as a common member’s DEA, all other SROs to which the common member belongs are relieved of the responsibility to examine the firm for compliance with the applicable financial responsibility rules. On its face, Rule 17d–1 deals only with an SRO’s obligations to enforce member compliance with financial responsibility requirements. Rule 17d–1 3 15 U.S.C. 78s(g)(1). U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively. 5 15 U.S.C. 78q(d)(1). 6 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). 7 17 CFR 240.17d–1 and 17 CFR 240.17d–2, respectively. 8 See Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18808 (May 7, 1976). jlentini on PROD1PC65 with NOTICES 4 15 VerDate Aug<31>2005 17:26 Sep 23, 2008 Jkt 214001 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.9 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 appropriate 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. Proposed Plan The proposed 17d–2 Plan is intended to reduce regulatory duplication for firms that are common members of both BATS and FINRA.10 Pursuant to the proposed 17d–2 Plan, FINRA would assume certain examination and enforcement responsibilities for common members with respect to certain applicable laws, rules, and regulations. The text of the Plan delineates the proposed regulatory responsibilities with respect to the Parties. Included in the proposed Plan is an exhibit (the ‘‘BATS Exchange Rules Certification for 17d–2 Agreement with FINRA,’’ referred to herein as the ‘‘Certification’’) that lists every BATS rule, and select federal securities laws, rules, and regulations, for which FINRA would bear responsibility under the Plan for overseeing and enforcing with respect to BATS members that are also members of FINRA and the associated persons therewith (‘‘Dual Members’’). Specifically, under the 17d–2 Plan, FINRA would assume examination and enforcement responsibility relating to 9 See Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49091 (November 8, 1976). 10 The proposed 17d–2 Plan refers to these common members as ‘‘Dual Members.’’ See Paragraph 1(c) of the proposed 17d–2 Plan. PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 55181 compliance by Dual Members with the rules of BATS that are substantially similar to the applicable rules of FINRA,11 as well as any provisions of the federal securities laws and the rules and regulations thereunder delineated in the Certification (‘‘Common Rules’’). Common Rules would not include the application of any BATS rule or FINRA rule, or any rule or regulation under the Act, to the extent that it pertains to violations of insider trading activities, because such matters are covered by a separate multiparty agreement under Rule 17d–2.12 In the event that a Dual Member is the subject of an investigation relating to a transaction on BATS, the plan acknowledges that BATS may, in its discretion, exercise concurrent jurisdiction and responsibility for such matter.13 Under the Plan, BATS would retain full responsibility for surveillance and enforcement with respect to trading activities or practices involving BATS’s own marketplace, including, without limitation, registration pursuant to its applicable rules of associated persons (i.e., registration rules that are not Common Rules); its duties as a DEA pursuant to Rule 17d–1 under the Act; and any BATS rules that are not Common Rules, except for BATS rules for any broker-dealer subsidiary of BATS Holding, Inc.14 Apparent violations of any BATS rules by any broker-dealer subsidiary of BATS Holdings, Inc. will be processed by, and enforcement proceedings in respect thereto will be conducted by, FINRA.15 The text of the proposed 17d–2 Plan is as follows: 11 See paragraph 1(b) of the proposed 17d–2 Plan (defining Common Rules). See also paragraph 1(f) of the proposed 17d–2 Plan (defining Regulatory Responsibilities). Paragraph 2 of the Plan provides that annually, or more frequently as required by changes in either BATS’s rules or FINRA rules, the parties shall review and update, if necessary, the list of Common Rules. Further, paragraph 3 of the Plan provides that BATS shall furnish FINRA with a list of Dual Members, and shall update the list no less frequently than once each calendar quarter. 12 See Securities Exchange Act Release No. 58350 (August 13, 2008), 73 FR 48247 (August 18, 2008) (File No. 4–566) (notice of filing of proposed plan). See also Securities Exchange Act Release No. 58536 (September 12, 2008) (File No. 4–566) (order approving and declaring effective the plan). The Certification identifies several Common Rules that may also be addressed in the context of regulating insider trading activities pursuant to the proposed separate multiparty agreement. 13 See paragraph 6 of the proposed 17d–2 Plan. 14 See paragraph 2 of the proposed 17d–2 Plan. 15 See paragraph 6 of the proposed 17d–2 Plan. E:\FR\FM\24SEN1.SGM 24SEN1 55182 Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices jlentini on PROD1PC65 with NOTICES Agreement Between Financial Industry Regulatory Authority, Inc. and BATS Exchange, Inc. Pursuant to Rule 17d–2 Under the Securities Exchange Act of 1934 This Agreement, by and between the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) and BATS Exchange, Inc. (‘‘BATS’’), is made this 25th day of August, 2008 (the ‘‘Agreement’’), pursuant to section 17(d) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) and Rule 17d–2 thereunder, which permits agreements between self-regulatory organizations to allocate regulatory responsibility to eliminate regulatory duplication. FINRA and BATS may be referred to individually as a ‘‘party’’ and together as the ‘‘parties.’’ Whereas, FINRA and BATS desire to reduce duplication in the examination of their Dual Members (as defined herein) and in the filing and processing of certain registration and membership records; and Whereas, FINRA and BATS desire to execute an agreement covering such subjects pursuant to the provisions of Rule 17d–2 under the Exchange Act and to file such agreement with the Securities and Exchange Commission (the ‘‘SEC’’ or ‘‘Commission’’) for its approval. Now, therefore, in consideration of the mutual covenants contained hereinafter, FINRA and BATS hereby agree as follows: 1. Definitions. Unless otherwise defined in this Agreement or the context otherwise requires, the terms used in this Agreement shall have the same meaning as they have under the Exchange Act and the rules and regulations thereunder. As used in this Agreement, the following terms shall have the following meanings: (a) ‘‘BATS Rules’’ or ‘‘FINRA Rules’’ shall mean: (i) The rules of BATS, or (ii) the rules of FINRA, respectively, as the rules of an exchange or association are defined in Exchange Act Section 3(a)(27). (b) ‘‘Common Rules’’ shall mean BATS Rules that are substantially similar to the applicable FINRA Rules and certain provisions of the Exchange Act and SEC rules set forth on Exhibit 1 in that examination for compliance with such provisions and rules would not require FINRA to develop one or more new examination standards, modules, procedures, or criteria in order to analyze the application of the provision or rule, or a Dual Member’s activity, conduct, or output in relation to such provision or rule; provided, however, Common Rules shall not VerDate Aug<31>2005 17:26 Sep 23, 2008 Jkt 214001 include the application of the SEC, BATS or FINRA rules as they pertain to violations of insider trading activities, which is covered by a separate 17d–2 Agreement by and 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. submitted to the SEC on August 12, 2008. (c) ‘‘Dual Members’’ shall mean those BATS members that are also members of FINRA and the associated persons therewith. (d) ‘‘Effective Date’’ shall have the meaning set forth in paragraph 13. (e) ‘‘Enforcement Responsibilities’’ shall mean the conduct of appropriate proceedings, in accordance with FINRA’s Code of Procedure (the NASD Rule 9000 Series) and other applicable FINRA procedural rules, to determine whether violations of Common Rules have occurred, and if such violations are deemed to have occurred, the imposition of appropriate sanctions as specified under FINRA’s Code of Procedure and sanctions guidelines. (f) ‘‘Regulatory Responsibilities’’ shall mean the examination responsibilities and Enforcement Responsibilities relating to compliance by the Dual Members with the Common Rules and the provisions of the Exchange Act and the rules and regulations thereunder, and other applicable laws, rules and regulations, each as set forth on Exhibit 1 attached hereto. 2. Regulatory and Enforcement Responsibilities. FINRA shall assume Regulatory Responsibilities and Enforcement Responsibilities for Dual Members. Attached as Exhibit 1 to this Agreement and made part hereof, BATS furnished FINRA with a current list of Common Rules and certified to FINRA that such rules that are BATS Rules are substantially similar to the corresponding FINRA Rules (the ‘‘Certification’’). FINRA hereby agrees that the rules listed in the Certification are Common Rules as defined in this Agreement. Each year following the Effective Date of this Agreement, or more frequently if required by changes in either the rules of BATS or FINRA, BATS shall submit an updated list of Common Rules to FINRA for review which shall add BATS Rules not included in the current list of Common Rules that qualify as Common Rules as defined in this Agreement; delete BATS PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 Rules included in the current list of Common Rules that no longer qualify as Common Rules as defined in this Agreement; and confirm that the remaining rules on the current list of Common Rules continue to be BATS Rules that qualify as Common Rules as defined in this Agreement. Within 30 days of receipt of such updated list, FINRA shall confirm in writing whether the rules listed in any updated list are Common Rules as defined in this Agreement. Notwithstanding anything herein to the contrary, it is explicitly understood that the term ‘‘Regulatory Responsibilities’’ does not include, and BATS shall retain full responsibility for (unless otherwise addressed by separate agreement or rule) (collectively, the ‘‘Retained Responsibilities’’) the following: (a) Surveillance, examination, investigation and enforcement with respect to trading activities or practices involving BATS’s own marketplace; (b) Registration pursuant to its applicable rules of associated persons (i.e., registration rules that are not Common Rules); (c) Discharge of its duties and obligations as a Designated Examining Authority pursuant to Rule 17d–1 under the Exchange Act; and (d) Any BATS Rules that are not Common Rules, except for BATS Rules for any broker-dealer subsidiary of BATS Holdings, Inc., as provided in paragraph 6. 3. Dual Members. Prior to the Effective Date, BATS shall furnish FINRA with a current list of Dual Members, which shall be updated no less frequently than once each quarter. 4. No Charge. There shall be no charge to BATS by FINRA for performing the Regulatory Responsibilities and Enforcement Responsibilities under this Agreement except as hereinafter provided. FINRA shall provide BATS with ninety (90) days advance written notice in the event FINRA decides to impose any charges to BATS for performing the Regulatory Responsibilities under this Agreement. If FINRA determines to impose a charge, BATS shall have the right at the time of the imposition of such charge to terminate this Agreement; provided, however, that FINRA’s Regulatory Responsibilities under this Agreement shall continue until the Commission approves the termination of this Agreement. 5. Reassignment of Regulatory Responsibilities. Notwithstanding any provision hereof, this Agreement shall be subject to any statute, or any rule or order of the Commission, or industry agreement, restructuring the regulatory E:\FR\FM\24SEN1.SGM 24SEN1 jlentini on PROD1PC65 with NOTICES Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices framework of the securities industry or reassigning Regulatory Responsibilities between self-regulatory organizations. To the extent such action is inconsistent with this Agreement, such action shall supersede the provisions hereof to the extent necessary for them to be properly effectuated and the provisions hereof in that respect shall be null and void. 6. Notification of Violations. In the event that FINRA becomes aware of apparent violations of any BATS Rules, which are not listed as Common Rules, discovered pursuant to the performance of the Regulatory Responsibilities assumed hereunder, FINRA shall notify BATS of those apparent violations for such response as BATS deems appropriate. In the event that BATS becomes aware of apparent violations of any Common Rules, discovered pursuant to the performance of the Retained Responsibilities, BATS shall notify FINRA of those apparent violations and such matters shall be handled by FINRA as provided in this Agreement. With respect to apparent violations of any BATS Rules by any broker-dealer subsidiary of BATS’ parent company, BATS Holdings, Inc., FINRA shall not make referrals to BATS pursuant to this paragraph 6. Such apparent violations shall be processed by, and enforcement proceedings in respect thereto will be conducted by, FINRA as provided in this Agreement. Each party agrees to make available promptly all files, records and witnesses necessary to assist the other in its investigation or proceedings. Apparent violations of Common Rules, FINRA Rules, federal securities laws, and rules and regulations thereunder, shall be processed by, and enforcement proceedings in respect thereto shall be conducted by FINRA as provided hereinbefore; provided, however, that in the event a Dual Member is the subject of an investigation relating to a transaction on BATS, BATS may in its discretion assume concurrent jurisdiction and responsibility. 7. Continued Assistance. (a) FINRA shall make available to BATS all information obtained by FINRA in the performance by it of the Regulatory Responsibilities hereunder with respect to the Dual Members subject to this Agreement. In particular, and not in limitation of the foregoing, FINRA shall furnish BATS any information it obtains about Dual Members which reflects adversely on their financial condition. BATS shall make available to FINRA any information coming to its attention that reflects adversely on the financial condition of Dual Members or indicates VerDate Aug<31>2005 17:26 Sep 23, 2008 Jkt 214001 possible violations of applicable laws, rules or regulations by such firms. (b) The parties agree that documents or information shared shall be held in confidence, and used only for the purposes of carrying out their respective regulatory obligations. Neither party shall assert regulatory or other privileges as against the other with respect to documents or information that is required to be shared pursuant to this Agreement. (c) The sharing of documents or information between the parties pursuant to this Agreement shall not be deemed a waiver as against third parties of regulatory or other privileges relating to the discovery of documents or information. 8. Statutory Disqualifications. When FINRA becomes aware of a statutory disqualification as defined in the Exchange Act with respect to a Dual Member, FINRA shall determine pursuant to Sections 15A(g) and/or Section 6(c) of the Exchange Act the acceptability or continued applicability of the person to whom such disqualification applies and keep BATS advised of its actions in this regard for such subsequent proceedings as BATS may initiate. 9. Customer Complaints. BATS shall forward to FINRA copies of all customer complaints involving Dual Members received by BATS relating to FINRA’s Regulatory Responsibilities under this Agreement. It shall be FINRA’s responsibility to review and take appropriate action in respect to such complaints. 10. Advertising. FINRA shall assume responsibility to review the advertising of Dual Members subject to the Agreement, provided that such material is filed with FINRA in accordance with FINRA’s filing procedures and is accompanied with any applicable filing fees set forth in FINRA Rules. 11. No Restrictions on Regulatory Action. Nothing contained in this Agreement shall restrict or in any way encumber the right of either party to conduct its own independent or concurrent investigation, examination or enforcement proceeding of or against Dual Members, as either party, in its sole discretion, shall deem appropriate or necessary. 12. Termination. This Agreement may be terminated by BATS or FINRA at any time upon the approval of the Commission after one (1) year’s written notice to the other party, except as provided in paragraph 4. 13. Effective Date. This Agreement shall be effective upon approval of the Commission. PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 55183 14. Arbitration. In the event of a dispute between the parties as to the operation of this Agreement, BATS and FINRA hereby agree that any such dispute shall be settled by arbitration in Washington, DC in accordance with the rules of the American Arbitration Association then in effect, or such other procedures as the parties may mutually agree upon. Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. Each party acknowledges that the timely and complete performance of its obligations pursuant to this Agreement is critical to the business and operations of the other party. In the event of a dispute between the parties, the parties shall continue to perform their respective obligations under this Agreement in good faith during the resolution of such dispute unless and until this Agreement is terminated in accordance with its provisions. Nothing in this Section 14 shall interfere with a party’s right to terminate this Agreement as set forth herein. 15. Notification of Members. BATS and FINRA shall notify Dual Members of this Agreement after the Effective Date by means of a uniform joint notice. 16. Amendment. This Agreement may be amended in writing duly approved by each party. All such amendments must be filed with and approved by the Commission before they become effective. 17. Limitation of Liability. Neither FINRA nor BATS nor any of their respective directors, governors, officers or employees shall be liable to the other party to this Agreement for any liability, loss or damage resulting from or claimed to have resulted from any delays, inaccuracies, errors or omissions with respect to the provision of Regulatory Responsibilities as provided hereby or for the failure to provide any such responsibility, except with respect to such liability, loss or damages as shall have been suffered by one or the other of FINRA or BATS and caused by the willful misconduct of the other party or their respective directors, governors, officers or employees. No warranties, express or implied, are made by FINRA or BATS with respect to any of the responsibilities to be performed by each of them hereunder. 18. Relief from Responsibility. Pursuant to sections 17(d)(1)(A) and 19(g) of the Exchange Act and Rule 17d– 2 thereunder, FINRA and BATS join in requesting the Commission, upon its approval of this Agreement or any part thereof, to relieve BATS of any and all responsibilities with respect to matters allocated to FINRA pursuant to this Agreement; provided, however, that this E:\FR\FM\24SEN1.SGM 24SEN1 55184 Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices Agreement shall not be effective until the Effective Date. 19. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and such counterparts together shall constitute one and the same instrument. In witness whereof, each party has executed or caused this Agreement to be executed on its behalf by a duly authorized officer as of the date first written above. BATS EXCHANGE, INC. By: llllllllllllllll Name: Title: FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. By: llllllllllllllll Name: Title: Exhibit 1 BATS Exchange Rules Certification for 17d–2 Agreement With FINRA BATS Exchange hereby certifies that the requirements contained in the rules listed below are identical to, or substantially similar to, the comparable FINRA (NASD) Rule, Exchange Act provision or SEC rule identified (‘‘Common Rules’’). BATS Exchange Rule: FINRA (NASD) Rule, Exchange Act Provision or SEC Rule: Rule 2.5 Interpretation and Policy .02, Continuing Education Requirement for Authorized Traders of Members. Rule 3.1 Business Conduct of Members ............................................... Rule 3.2 Violations Prohibited* .............................................................. 1120(a)(1)–(4) Rule 3.3 Use of Fraudulent Devices ...................................................... Rule 3.5(a) Advertising Practices .......................................................... Rule 3.5(b) Advertising Practices .......................................................... Rule 3.5(c) Advertising Practices ........................................................... Rule 3.5(d) Advertising Practices .......................................................... Rule 3.5(e) Advertising Practices .......................................................... Rule 3.5(f) Advertising Practices ........................................................... Rule 3.5(g) Advertising Practices .......................................................... Rule 3.5(h) Advertising Practices .......................................................... Rule 3.6 Fair Dealing with Customers ................................................... Rule 3.7(a) Recommendations to Customers ....................................... Rule 3.8(a) The Prompt Receipt and Delivery of Securities ................. Rule 3.8(b) The Prompt Receipt and Delivery of Securities ................. Rule 3.9 Charges for Services Performed ............................................. Rule 3.10 Use of Information ................................................................. Rule 3.13 Payment Designed to Influence Market Prices, Other than Paid Advertising. Rule 3.14 Disclosure on Confirmations ................................................. Rule Rule Rule Rule 3.15 3.16 3.17 3.18 Disclosure of Control ............................................................. Discretionary Accounts .......................................................... Customer’s Securities or Funds ............................................ Prohibition Against Guarantees ............................................ Rule 3.19 Sharing in Accounts; Extent Permissible .............................. Rule Rule Rule Rule Rule 4.1 5.1 5.2 5.3 5.4 Requirements .......................................................................... Written Procedures .................................................................. Responsibility of Members ...................................................... Records ................................................................................... Review of Activities ................................................................. Rule 5.5 Rule 5.6 Rule 9.3 Information Barrier Procedures ............................................... Anti-Money Laundering Compliance Program ........................ Predispute Arbitration Agreements ......................................... jlentini on PROD1PC65 with NOTICES Rule 12.11 Best Execution .................................................................... Continuing Education Requirements. 2110 Standards of Commercial Honor and Principles of Trade. 2110 Standards of Commercial Honor and Principles of Trade and 3010 Supervision.* 2120 Use of Manipulative, Deceptive or Other Fraudulent Device. 2210(d)(1)(B) Communications with the Public. 2210(d)(2)(C) Communications with the Public. 2210(d)(1) Communications with the Public. 2210(b)(1) Communications with the Public. 2210(b)(2)(A) and 2210(c) Communications with the Public. 2210(d)(2)(A) and 2210(d)(1)(E) Communications with the Public. 2210(d)(1) Communications with the Public. 2210(d)(1) Communications with the Public. IM–2310–2(b)(1), (2), (4)(A)(i), (4)(A)(iii), (4)(A)(iv), and (5). 2310(a) Recommendations to Customers (Suitability). 3370 Purchases. SEC Regulation SHO. 2430 Charges for Services Performed. 3120 Use of Information Obtained in Fiduciary Capacity. 3330 Payment Designed to Influence Market Prices, Other than Paid Advertising. 2230 Confirmations and SEC Rule 10b–10 Confirmation of Transactions. 2240 Disclosure of Control Relationship With Issuer. 2510 Discretionary Accounts. 2330(a) Customers’ Securities or Funds—Improper Use. 2330(e) Customers’ Securities or Funds—Prohibition Against Guarantees. 2330(f)(1) Customers’ Securities or Funds—Sharing in Accounts; Extent Permissible. Section 17 of the Exchange Act and the rules thereunder. 3010(b)(1) Supervision—Written Procedures.* 3010(a)(4) and (b)(4) Supervision.* 3010(a)(1), (b) and (c) Supervision.* 3010(c) & (d) Supervision—Internal Inspections/ Review of Transactions and Correspondence.* Section 15(f) of Exchange Act. 3011 Anti-Money Laundering Compliance Program. 3110(f)—Books and Records (Requirements When Using Predispute Arbitration Agreements for Customer Accounts).* 2320 Best Execution and Interpositioning. FINRA shall only have Regulatory Responsibility regarding the first phase of the BATS rule regarding prohibitions from violating the Securities Exchange Act of 1934 and the rules and regulations thereunder; responsibility for the remainder of the Rule shall remain with BATS. * FINRA shall not have any Regulatory Responsibilities for these rules as they pertain to violations of insider trading activities, which is covered by a separate 17d–2 Agreement by and 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. submitted to the SEC on August 12, 2008. VerDate Aug<31>2005 17:38 Sep 23, 2008 Jkt 214001 PO 00000 Frm 00164 Fmt 4703 Sfmt 4703 E:\FR\FM\24SEN1.SGM 24SEN1 Federal Register / Vol. 73, No. 186 / Wednesday, September 24, 2008 / Notices In addition, the following provisions shall be part of this 17d–2 Agreement: Securities Exchange Act of 1934: Section 15(f) SEC Rules: Rule 200 of Regulation SHO—Definition of ‘‘Short Sale’’ and Marking Requirements Rule 203 of Regulation SHO— Borrowing and Delivery Requirements Rule 606 of Regulation NMS— Disclosure of Order Routing Information Rule 607 of Regulation NMS—Customer Account Statements * * * * * III. Date of Effectiveness of the Proposed Plan and Timing for Commission Action Pursuant to section 17(d)(1) of the Act 16 and Rule 17d–2 thereunder,17 October 15, 2008, the Commission may, by written notice, declare the plan submitted by BATS and FINRA, File No. 4–569, to be effective if the Commission finds that the plan is necessary or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among self-regulatory organizations, or to remove impediments to and foster the development of the national market system and a national system for the clearance and settlement of securities transactions and in conformity with the factors set forth in section 17(d) of the Act. IV. Solicitation of Comments In order to assist the Commission in determining whether to approve the proposed 17d–2 Plan and to relieve BATS of the responsibilities which would be assigned to FINRA, interested persons are invited to submit written data, views, and arguments concerning the foregoing. Comments may be submitted by any of the following methods: jlentini on PROD1PC65 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number 4–569 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number 4–569. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments 16 15 17 17 U.S.C. 78q(d)(1). CFR 240.17d–2. VerDate Aug<31>2005 17:38 Sep 23, 2008 more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/ other.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed plan that are filed with the Commission, and all written communications relating to the proposed plan between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the plan also will be available for inspection and copying at the principal offices of BATS and FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number 4–569 and should be submitted on or before October 15, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Florence E. Harmon, Acting Secretary. [FR Doc. E8–22212 Filed 9–23–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, September 18, 2008, at 5:30 p.m. Commissioners and certain staff members who have an interest in the matter will attend the Closed Meeting. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions as set forth in 5 U.S.C. 552b(c)(8) and (9) and 17 CFR 200.402(a)(8) and (9), permit consideration of the scheduled matter at the Closed Meeting. Commissioner Paredes as duty officer, voted to consider the item listed for the closed meeting in closed session, and determined that no earlier notice thereof was possible. The subject matter of the Closed Meeting scheduled for Thursday, September 18, 2008, will be: Matters related to the financial markets. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: September 18, 2008. Florence E. Harmon, Acting Secretary. [FR Doc. E8–22246 Filed 9–23–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58570; File No. SR–Amex– 2008–70] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Revise Its Initial Listing Process To Eliminate the Current Appeal Process for Initial Listing Decisions, Add a New Confidential Pre-application Eligibility Review Process, and Upgrade Its Listing Requirements by Eliminating the Alternative Listing Standards September 17, 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 4, 2008, the American Stock Exchange LLC (‘‘Amex’’ or 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. Amex filed Amendment No. 1 on September 17, 2008. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change In connection with its pending acquisition by NYSE Euronext, the parent company of the New York Stock Exchange LLC (‘‘NYSE’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’), the Exchange desires to revise its initial listing process to more closely align it with the process in place at the NYSE, as well as to upgrade its listing requirements. To that end, the Exchange proposes to amend Sections 101, 201, 206 and 1 15 18 17 Jkt 214001 PO 00000 CFR 200.30–3(a)(34). Frm 00165 Fmt 4703 Sfmt 4703 55185 2 17 E:\FR\FM\24SEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 24SEN1

Agencies

[Federal Register Volume 73, Number 186 (Wednesday, September 24, 2008)]
[Notices]
[Pages 55180-55185]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22212]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58563; File No. 4-569]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing of Proposed Plan for the Allocation of 
Regulatory Responsibilities Between the Financial Industry Regulatory 
Authority, Inc. and BATS Exchange, Inc.

September 17, 2008.
    Pursuant to section 17(d) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 17d-2 thereunder,\2\ notice is hereby given that 
on August 27, 2008, BATS Exchange, Inc. (``BATS'') and the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') (together with BATS, 
the ``Parties'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a plan for the allocation of regulatory 
responsibilities, dated August 25, 2008 (``17d-2 Plan'' or the 
``Plan''). The Commission is publishing this notice to

[[Page 55181]]

solicit comments on the 17d-2 Plan from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

I. Introduction

    Section 19(g)(1) of the Act,\3\ among other things, requires every 
self-regulatory organization (``SRO'') registered as either a national 
securities exchange or 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) or section 19(g)(2) of the Act.\4\ Without 
this relief, the statutory obligation of each individual SRO could 
result in a pattern of multiple examinations of broker-dealers that 
maintain memberships in more than one SRO (``common members''). Such 
regulatory duplication would add unnecessary expenses for common 
members and their SROs.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
---------------------------------------------------------------------------

    Section 17(d)(1) of the Act \5\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\6\ With 
respect to a common member, section 17(d)(1) authorizes the Commission, 
by rule or order, to relieve an SRO of the responsibility to receive 
regulatory reports, to examine for and enforce compliance with 
applicable statutes, rules, and regulations, or to perform other 
specified regulatory functions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q(d)(1).
    \6\ 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.\7\ 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.\8\ When an SRO has been named as a common member's DEA, all 
other SROs to which the common member belongs are relieved of the 
responsibility to examine the firm for compliance with the applicable 
financial responsibility rules. On its face, Rule 17d-1 deals only with 
an SRO's obligations to enforce member compliance with financial 
responsibility requirements. Rule 17d-1 does not relieve an SRO from 
its obligation to examine a common member for compliance with its own 
rules and provisions of the federal securities laws governing matters 
other than financial responsibility, including sales practices and 
trading activities and practices.
---------------------------------------------------------------------------

    \7\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \8\ 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.\9\ 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 appropriate 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.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------

II. Proposed Plan

    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are common members of both BATS and 
FINRA.\10\ Pursuant to the proposed 17d-2 Plan, FINRA would assume 
certain examination and enforcement responsibilities for common members 
with respect to certain applicable laws, rules, and regulations.
---------------------------------------------------------------------------

    \10\ The proposed 17d-2 Plan refers to these common members as 
``Dual Members.'' See Paragraph 1(c) of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    The text of the Plan delineates the proposed regulatory 
responsibilities with respect to the Parties. Included in the proposed 
Plan is an exhibit (the ``BATS Exchange Rules Certification for 17d-2 
Agreement with FINRA,'' referred to herein as the ``Certification'') 
that lists every BATS rule, and select federal securities laws, rules, 
and regulations, for which FINRA would bear responsibility under the 
Plan for overseeing and enforcing with respect to BATS members that are 
also members of FINRA and the associated persons therewith (``Dual 
Members'').
    Specifically, under the 17d-2 Plan, FINRA would assume examination 
and enforcement responsibility relating to compliance by Dual Members 
with the rules of BATS that are substantially similar to the applicable 
rules of FINRA,\11\ as well as any provisions of the federal securities 
laws and the rules and regulations thereunder delineated in the 
Certification (``Common Rules''). Common Rules would not include the 
application of any BATS rule or FINRA rule, or any rule or regulation 
under the Act, to the extent that it pertains to violations of insider 
trading activities, because such matters are covered by a separate 
multiparty agreement under Rule 17d-2.\12\ In the event that a Dual 
Member is the subject of an investigation relating to a transaction on 
BATS, the plan acknowledges that BATS may, in its discretion, exercise 
concurrent jurisdiction and responsibility for such matter.\13\
---------------------------------------------------------------------------

    \11\ See paragraph 1(b) of the proposed 17d-2 Plan (defining 
Common Rules). See also paragraph 1(f) of the proposed 17d-2 Plan 
(defining Regulatory Responsibilities). Paragraph 2 of the Plan 
provides that annually, or more frequently as required by changes in 
either BATS's rules or FINRA rules, the parties shall review and 
update, if necessary, the list of Common Rules. Further, paragraph 3 
of the Plan provides that BATS shall furnish FINRA with a list of 
Dual Members, and shall update the list no less frequently than once 
each calendar quarter.
    \12\ See Securities Exchange Act Release No. 58350 (August 13, 
2008), 73 FR 48247 (August 18, 2008) (File No. 4-566) (notice of 
filing of proposed plan). See also Securities Exchange Act Release 
No. 58536 (September 12, 2008) (File No. 4-566) (order approving and 
declaring effective the plan). The Certification identifies several 
Common Rules that may also be addressed in the context of regulating 
insider trading activities pursuant to the proposed separate 
multiparty agreement.
    \13\ See paragraph 6 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    Under the Plan, BATS would retain full responsibility for 
surveillance and enforcement with respect to trading activities or 
practices involving BATS's own marketplace, including, without 
limitation, registration pursuant to its applicable rules of associated 
persons (i.e., registration rules that are not Common Rules); its 
duties as a DEA pursuant to Rule 17d-1 under the Act; and any BATS 
rules that are not Common Rules, except for BATS rules for any broker-
dealer subsidiary of BATS Holding, Inc.\14\ Apparent violations of any 
BATS rules by any broker-dealer subsidiary of BATS Holdings, Inc. will 
be processed by, and enforcement proceedings in respect thereto will be 
conducted by, FINRA.\15\
---------------------------------------------------------------------------

    \14\ See paragraph 2 of the proposed 17d-2 Plan.
    \15\ See paragraph 6 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    The text of the proposed 17d-2 Plan is as follows:

[[Page 55182]]

Agreement Between Financial Industry Regulatory Authority, Inc. and 
BATS Exchange, Inc. Pursuant to Rule 17d-2 Under the Securities 
Exchange Act of 1934

    This Agreement, by and between the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and BATS Exchange, Inc. (``BATS''), is made 
this 25th day of August, 2008 (the ``Agreement''), pursuant to section 
17(d) of the Securities Exchange Act of 1934 (the ``Exchange Act'') and 
Rule 17d-2 thereunder, which permits agreements between self-regulatory 
organizations to allocate regulatory responsibility to eliminate 
regulatory duplication. FINRA and BATS may be referred to individually 
as a ``party'' and together as the ``parties.''
    Whereas, FINRA and BATS desire to reduce duplication in the 
examination of their Dual Members (as defined herein) and in the filing 
and processing of certain registration and membership records; and
    Whereas, FINRA and BATS desire to execute an agreement covering 
such subjects pursuant to the provisions of Rule 17d-2 under the 
Exchange Act and to file such agreement with the Securities and 
Exchange Commission (the ``SEC'' or ``Commission'') for its approval.
    Now, therefore, in consideration of the mutual covenants contained 
hereinafter, FINRA and BATS hereby agree as follows:
    1. Definitions. Unless otherwise defined in this Agreement or the 
context otherwise requires, the terms used in this Agreement shall have 
the same meaning as they have under the Exchange Act and the rules and 
regulations thereunder. As used in this Agreement, the following terms 
shall have the following meanings:
    (a) ``BATS Rules'' or ``FINRA Rules'' shall mean: (i) The rules of 
BATS, or (ii) the rules of FINRA, respectively, as the rules of an 
exchange or association are defined in Exchange Act Section 3(a)(27).
    (b) ``Common Rules'' shall mean BATS Rules that are substantially 
similar to the applicable FINRA Rules and certain provisions of the 
Exchange Act and SEC rules set forth on Exhibit 1 in that examination 
for compliance with such provisions and rules would not require FINRA 
to develop one or more new examination standards, modules, procedures, 
or criteria in order to analyze the application of the provision or 
rule, or a Dual Member's activity, conduct, or output in relation to 
such provision or rule; provided, however, Common Rules shall not 
include the application of the SEC, BATS or FINRA rules as they pertain 
to violations of insider trading activities, which is covered by a 
separate 17d-2 Agreement by and 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. 
submitted to the SEC on August 12, 2008.
    (c) ``Dual Members'' shall mean those BATS members that are also 
members of FINRA and the associated persons therewith.
    (d) ``Effective Date'' shall have the meaning set forth in 
paragraph 13.
    (e) ``Enforcement Responsibilities'' shall mean the conduct of 
appropriate proceedings, in accordance with FINRA's Code of Procedure 
(the NASD Rule 9000 Series) and other applicable FINRA procedural 
rules, to determine whether violations of Common Rules have occurred, 
and if such violations are deemed to have occurred, the imposition of 
appropriate sanctions as specified under FINRA's Code of Procedure and 
sanctions guidelines.
    (f) ``Regulatory Responsibilities'' shall mean the examination 
responsibilities and Enforcement Responsibilities relating to 
compliance by the Dual Members with the Common Rules and the provisions 
of the Exchange Act and the rules and regulations thereunder, and other 
applicable laws, rules and regulations, each as set forth on Exhibit 1 
attached hereto.
    2. Regulatory and Enforcement Responsibilities. FINRA shall assume 
Regulatory Responsibilities and Enforcement Responsibilities for Dual 
Members. Attached as Exhibit 1 to this Agreement and made part hereof, 
BATS furnished FINRA with a current list of Common Rules and certified 
to FINRA that such rules that are BATS Rules are substantially similar 
to the corresponding FINRA Rules (the ``Certification''). FINRA hereby 
agrees that the rules listed in the Certification are Common Rules as 
defined in this Agreement. Each year following the Effective Date of 
this Agreement, or more frequently if required by changes in either the 
rules of BATS or FINRA, BATS shall submit an updated list of Common 
Rules to FINRA for review which shall add BATS Rules not included in 
the current list of Common Rules that qualify as Common Rules as 
defined in this Agreement; delete BATS Rules included in the current 
list of Common Rules that no longer qualify as Common Rules as defined 
in this Agreement; and confirm that the remaining rules on the current 
list of Common Rules continue to be BATS Rules that qualify as Common 
Rules as defined in this Agreement. Within 30 days of receipt of such 
updated list, FINRA shall confirm in writing whether the rules listed 
in any updated list are Common Rules as defined in this Agreement. 
Notwithstanding anything herein to the contrary, it is explicitly 
understood that the term ``Regulatory Responsibilities'' does not 
include, and BATS shall retain full responsibility for (unless 
otherwise addressed by separate agreement or rule) (collectively, the 
``Retained Responsibilities'') the following:
    (a) Surveillance, examination, investigation and enforcement with 
respect to trading activities or practices involving BATS's own 
marketplace;
    (b) Registration pursuant to its applicable rules of associated 
persons (i.e., registration rules that are not Common Rules);
    (c) Discharge of its duties and obligations as a Designated 
Examining Authority pursuant to Rule 17d-1 under the Exchange Act; and
    (d) Any BATS Rules that are not Common Rules, except for BATS Rules 
for any broker-dealer subsidiary of BATS Holdings, Inc., as provided in 
paragraph 6.
    3. Dual Members. Prior to the Effective Date, BATS shall furnish 
FINRA with a current list of Dual Members, which shall be updated no 
less frequently than once each quarter.
    4. No Charge. There shall be no charge to BATS by FINRA for 
performing the Regulatory Responsibilities and Enforcement 
Responsibilities under this Agreement except as hereinafter provided. 
FINRA shall provide BATS with ninety (90) days advance written notice 
in the event FINRA decides to impose any charges to BATS for performing 
the Regulatory Responsibilities under this Agreement. If FINRA 
determines to impose a charge, BATS shall have the right at the time of 
the imposition of such charge to terminate this Agreement; provided, 
however, that FINRA's Regulatory Responsibilities under this Agreement 
shall continue until the Commission approves the termination of this 
Agreement.
    5. Reassignment of Regulatory Responsibilities. Notwithstanding any 
provision hereof, this Agreement shall be subject to any statute, or 
any rule or order of the Commission, or industry agreement, 
restructuring the regulatory

[[Page 55183]]

framework of the securities industry or reassigning Regulatory 
Responsibilities between self-regulatory organizations. To the extent 
such action is inconsistent with this Agreement, such action shall 
supersede the provisions hereof to the extent necessary for them to be 
properly effectuated and the provisions hereof in that respect shall be 
null and void.
    6. Notification of Violations. In the event that FINRA becomes 
aware of apparent violations of any BATS Rules, which are not listed as 
Common Rules, discovered pursuant to the performance of the Regulatory 
Responsibilities assumed hereunder, FINRA shall notify BATS of those 
apparent violations for such response as BATS deems appropriate. In the 
event that BATS becomes aware of apparent violations of any Common 
Rules, discovered pursuant to the performance of the Retained 
Responsibilities, BATS shall notify FINRA of those apparent violations 
and such matters shall be handled by FINRA as provided in this 
Agreement. With respect to apparent violations of any BATS Rules by any 
broker-dealer subsidiary of BATS' parent company, BATS Holdings, Inc., 
FINRA shall not make referrals to BATS pursuant to this paragraph 6. 
Such apparent violations shall be processed by, and enforcement 
proceedings in respect thereto will be conducted by, FINRA as provided 
in this Agreement. Each party agrees to make available promptly all 
files, records and witnesses necessary to assist the other in its 
investigation or proceedings. Apparent violations of Common Rules, 
FINRA Rules, federal securities laws, and rules and regulations 
thereunder, shall be processed by, and enforcement proceedings in 
respect thereto shall be conducted by FINRA as provided hereinbefore; 
provided, however, that in the event a Dual Member is the subject of an 
investigation relating to a transaction on BATS, BATS may in its 
discretion assume concurrent jurisdiction and responsibility.
    7. Continued Assistance.
    (a) FINRA shall make available to BATS all information obtained by 
FINRA in the performance by it of the Regulatory Responsibilities 
hereunder with respect to the Dual Members subject to this Agreement. 
In particular, and not in limitation of the foregoing, FINRA shall 
furnish BATS any information it obtains about Dual Members which 
reflects adversely on their financial condition. BATS shall make 
available to FINRA any information coming to its attention that 
reflects adversely on the financial condition of Dual Members or 
indicates possible violations of applicable laws, rules or regulations 
by such firms.
    (b) The parties agree that documents or information shared shall be 
held in confidence, and used only for the purposes of carrying out 
their respective regulatory obligations. Neither party shall assert 
regulatory or other privileges as against the other with respect to 
documents or information that is required to be shared pursuant to this 
Agreement.
    (c) The sharing of documents or information between the parties 
pursuant to this Agreement shall not be deemed a waiver as against 
third parties of regulatory or other privileges relating to the 
discovery of documents or information.
    8. Statutory Disqualifications. When FINRA becomes aware of a 
statutory disqualification as defined in the Exchange Act with respect 
to a Dual Member, FINRA shall determine pursuant to Sections 15A(g) 
and/or Section 6(c) of the Exchange Act the acceptability or continued 
applicability of the person to whom such disqualification applies and 
keep BATS advised of its actions in this regard for such subsequent 
proceedings as BATS may initiate.
    9. Customer Complaints. BATS shall forward to FINRA copies of all 
customer complaints involving Dual Members received by BATS relating to 
FINRA's Regulatory Responsibilities under this Agreement. It shall be 
FINRA's responsibility to review and take appropriate action in respect 
to such complaints.
    10. Advertising. FINRA shall assume responsibility to review the 
advertising of Dual Members subject to the Agreement, provided that 
such material is filed with FINRA in accordance with FINRA's filing 
procedures and is accompanied with any applicable filing fees set forth 
in FINRA Rules.
    11. No Restrictions on Regulatory Action. Nothing contained in this 
Agreement shall restrict or in any way encumber the right of either 
party to conduct its own independent or concurrent investigation, 
examination or enforcement proceeding of or against Dual Members, as 
either party, in its sole discretion, shall deem appropriate or 
necessary.
    12. Termination. This Agreement may be terminated by BATS or FINRA 
at any time upon the approval of the Commission after one (1) year's 
written notice to the other party, except as provided in paragraph 4.
    13. Effective Date. This Agreement shall be effective upon approval 
of the Commission.
    14. Arbitration. In the event of a dispute between the parties as 
to the operation of this Agreement, BATS and FINRA hereby agree that 
any such dispute shall be settled by arbitration in Washington, DC in 
accordance with the rules of the American Arbitration Association then 
in effect, or such other procedures as the parties may mutually agree 
upon. Judgment on the award rendered by the arbitrator(s) may be 
entered in any court having jurisdiction. Each party acknowledges that 
the timely and complete performance of its obligations pursuant to this 
Agreement is critical to the business and operations of the other 
party. In the event of a dispute between the parties, the parties shall 
continue to perform their respective obligations under this Agreement 
in good faith during the resolution of such dispute unless and until 
this Agreement is terminated in accordance with its provisions. Nothing 
in this Section 14 shall interfere with a party's right to terminate 
this Agreement as set forth herein.
    15. Notification of Members. BATS and FINRA shall notify Dual 
Members of this Agreement after the Effective Date by means of a 
uniform joint notice.
    16. Amendment. This Agreement may be amended in writing duly 
approved by each party. All such amendments must be filed with and 
approved by the Commission before they become effective.
    17. Limitation of Liability. Neither FINRA nor BATS nor any of 
their respective directors, governors, officers or employees shall be 
liable to the other party to this Agreement for any liability, loss or 
damage resulting from or claimed to have resulted from any delays, 
inaccuracies, errors or omissions with respect to the provision of 
Regulatory Responsibilities as provided hereby or for the failure to 
provide any such responsibility, except with respect to such liability, 
loss or damages as shall have been suffered by one or the other of 
FINRA or BATS and caused by the willful misconduct of the other party 
or their respective directors, governors, officers or employees. No 
warranties, express or implied, are made by FINRA or BATS with respect 
to any of the responsibilities to be performed by each of them 
hereunder.
    18. Relief from Responsibility. Pursuant to sections 17(d)(1)(A) 
and 19(g) of the Exchange Act and Rule 17d-2 thereunder, FINRA and BATS 
join in requesting the Commission, upon its approval of this Agreement 
or any part thereof, to relieve BATS of any and all responsibilities 
with respect to matters allocated to FINRA pursuant to this Agreement; 
provided, however, that this

[[Page 55184]]

Agreement shall not be effective until the Effective Date.
    19. Severability. Any term or provision of this Agreement that is 
invalid or unenforceable in any jurisdiction shall, as to such 
jurisdiction, be ineffective to the extent of such invalidity or 
unenforceability without rendering invalid or unenforceable the 
remaining terms and provisions of this Agreement or affecting the 
validity or enforceability of any of the terms or provisions of this 
Agreement in any other jurisdiction.
    20. Counterparts. This Agreement may be executed in one or more 
counterparts, each of which shall be deemed an original, and such 
counterparts together shall constitute one and the same instrument.
    In witness whereof, each party has executed or caused this 
Agreement to be executed on its behalf by a duly authorized officer as 
of the date first written above.
BATS EXCHANGE, INC.

By:--------------------------------------------------------------------

Name:
Title:

FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.

By:--------------------------------------------------------------------

Name:
Title:

Exhibit 1

BATS Exchange Rules Certification for 17d-2 Agreement With FINRA

    BATS Exchange hereby certifies that the requirements contained in 
the rules listed below are identical to, or substantially similar to, 
the comparable FINRA (NASD) Rule, Exchange Act provision or SEC rule 
identified (``Common Rules'').

------------------------------------------------------------------------
                                         FINRA (NASD) Rule, Exchange Act
          BATS Exchange Rule:                 Provision or SEC Rule:
------------------------------------------------------------------------
Rule 2.5 Interpretation and Policy .02,  1120(a)(1)-(4) Continuing
 Continuing Education Requirement for     Education Requirements.
 Authorized Traders of Members.
Rule 3.1 Business Conduct of Members...  2110 Standards of Commercial
                                          Honor and Principles of Trade.
Rule 3.2 Violations Prohibited*........  2110 Standards of Commercial
                                          Honor and Principles of Trade
                                          and 3010 Supervision.*
Rule 3.3 Use of Fraudulent Devices.....  2120 Use of Manipulative,
                                          Deceptive or Other Fraudulent
                                          Device.
Rule 3.5(a) Advertising Practices......  2210(d)(1)(B) Communications
                                          with the Public.
Rule 3.5(b) Advertising Practices......  2210(d)(2)(C) Communications
                                          with the Public.
Rule 3.5(c) Advertising Practices......  2210(d)(1) Communications with
                                          the Public.
Rule 3.5(d) Advertising Practices......  2210(b)(1) Communications with
                                          the Public.
Rule 3.5(e) Advertising Practices......  2210(b)(2)(A) and 2210(c)
                                          Communications with the
                                          Public.
Rule 3.5(f) Advertising Practices......  2210(d)(2)(A) and 2210(d)(1)(E)
                                          Communications with the
                                          Public.
Rule 3.5(g) Advertising Practices......  2210(d)(1) Communications with
                                          the Public.
Rule 3.5(h) Advertising Practices......  2210(d)(1) Communications with
                                          the Public.
Rule 3.6 Fair Dealing with Customers...  IM-2310-2(b)(1), (2),
                                          (4)(A)(i), (4)(A)(iii),
                                          (4)(A)(iv), and (5).
Rule 3.7(a) Recommendations to           2310(a) Recommendations to
 Customers.                               Customers (Suitability).
Rule 3.8(a) The Prompt Receipt and       3370 Purchases.
 Delivery of Securities.
Rule 3.8(b) The Prompt Receipt and       SEC Regulation SHO.
 Delivery of Securities.
Rule 3.9 Charges for Services Performed  2430 Charges for Services
                                          Performed.
Rule 3.10 Use of Information...........  3120 Use of Information
                                          Obtained in Fiduciary
                                          Capacity.
Rule 3.13 Payment Designed to Influence  3330 Payment Designed to
 Market Prices, Other than Paid           Influence Market Prices, Other
 Advertising.                             than Paid Advertising.
Rule 3.14 Disclosure on Confirmations..  2230 Confirmations and SEC Rule
                                          10b-10 Confirmation of
                                          Transactions.
Rule 3.15 Disclosure of Control........  2240 Disclosure of Control
                                          Relationship With Issuer.
Rule 3.16 Discretionary Accounts.......  2510 Discretionary Accounts.
Rule 3.17 Customer's Securities or       2330(a) Customers' Securities
 Funds.                                   or Funds--Improper Use.
Rule 3.18 Prohibition Against            2330(e) Customers' Securities
 Guarantees.                              or Funds--Prohibition Against
                                          Guarantees.
Rule 3.19 Sharing in Accounts; Extent    2330(f)(1) Customers'
 Permissible.                             Securities or Funds--Sharing
                                          in Accounts; Extent
                                          Permissible.
Rule 4.1 Requirements..................  Section 17 of the Exchange Act
                                          and the rules thereunder.
Rule 5.1 Written Procedures............  3010(b)(1) Supervision--Written
                                          Procedures.*
Rule 5.2 Responsibility of Members.....  3010(a)(4) and (b)(4)
                                          Supervision.*
Rule 5.3 Records.......................  3010(a)(1), (b) and (c)
                                          Supervision.*
Rule 5.4 Review of Activities..........  3010(c) & (d) Supervision--
                                          Internal Inspections/ Review
                                          of Transactions and
                                          Correspondence.*
Rule 5.5 Information Barrier Procedures  Section 15(f) of Exchange Act.
Rule 5.6 Anti-Money Laundering           3011 Anti-Money Laundering
 Compliance Program.                      Compliance Program.
Rule 9.3 Predispute Arbitration          3110(f)--Books and Records
 Agreements.                              (Requirements When Using
                                          Predispute Arbitration
                                          Agreements for Customer
                                          Accounts).*
Rule 12.11 Best Execution..............   2320 Best Execution and
                                          Interpositioning.
------------------------------------------------------------------------
FINRA shall only have Regulatory Responsibility regarding the first
  phase of the BATS rule regarding prohibitions from violating the
  Securities Exchange Act of 1934 and the rules and regulations
  thereunder; responsibility for the remainder of the Rule shall remain
  with BATS.
* FINRA shall not have any Regulatory Responsibilities for these rules
  as they pertain to violations of insider trading activities, which is
  covered by a separate 17d-2 Agreement by and 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. submitted to the SEC on August 12, 2008.


[[Page 55185]]

    In addition, the following provisions shall be part of this 17d-2 
Agreement:
    Securities Exchange Act of 1934:
    Section 15(f)
    SEC Rules:

Rule 200 of Regulation SHO--Definition of ``Short Sale'' and Marking 
Requirements
Rule 203 of Regulation SHO--Borrowing and Delivery Requirements
Rule 606 of Regulation NMS--Disclosure of Order Routing Information
Rule 607 of Regulation NMS--Customer Account Statements
* * * * *

III. Date of Effectiveness of the Proposed Plan and Timing for 
Commission Action

    Pursuant to section 17(d)(1) of the Act \16\ and Rule 17d-2 
thereunder,\17\ October 15, 2008, the Commission may, by written 
notice, declare the plan submitted by BATS and FINRA, File No. 4-569, 
to be effective if the Commission finds that the plan is necessary or 
appropriate in the public interest and for the protection of investors, 
to foster cooperation and coordination among self-regulatory 
organizations, or to remove impediments to and foster the development 
of the national market system and a national system for the clearance 
and settlement of securities transactions and in conformity with the 
factors set forth in section 17(d) of the Act.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78q(d)(1).
    \17\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    In order to assist the Commission in determining whether to approve 
the proposed 17d-2 Plan and to relieve BATS of the responsibilities 
which would be assigned to FINRA, interested persons are invited to 
submit written data, views, and arguments concerning the foregoing. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number 4-569 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.

All submissions should refer to File Number 4-569. This file number 
should be included on the subject line if e-mail is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed plan that are filed with the 
Commission, and all written communications relating to the proposed 
plan between the Commission and any person, other than those that may 
be withheld from the public in accordance with the provisions of 5 
U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of the plan also will be 
available for inspection and copying at the principal offices of BATS 
and FINRA. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number 4-569 
and should be submitted on or before October 15, 2008.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(34).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22212 Filed 9-23-08; 8:45 am]
BILLING CODE 8010-01-P