Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing of Proposed Plan for the Allocation of Regulatory Responsibilities Between EDGX Exchange, Inc. and the Financial Industry Regulatory Authority, Inc., 18920-18925 [2010-8368]
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18920
Federal Register / Vol. 75, No. 70 / Tuesday, April 13, 2010 / Notices
III. Date of Effectiveness of the
Proposed Plan and Timing for
Commission Action
Pursuant to Section 17(d)(1) of the
Act 17 and Rule 17d–2 thereunder,18
after April 28, 2010, the Commission
may, by written notice, declare the plan
submitted by EDGA and FINRA, File
No. 4–597, 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
EDGA 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:
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number 4–597 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number 4–597. This file number should
be included on the subject line if e-mail
is used. To help the Commission
process and review your comments
more efficiently, please use only one
method. The Commission will post all
comments on the Commission’s Internet
Web site (https://www.sec.gov/rules/
other.shtml). Copies of the submission,
all subsequent amendments, all written
statements with respect to the proposed
17d–2 Plan that are filed with the
Commission, and all written
communications relating to the
proposed 17d–2 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the proposed
17d–2 Plan also will be available for
inspection and copying at the principal
office of the EDGA 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 4–597 and should be submitted
on or before April 28, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–8367 Filed 4–12–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61861; File No. 4–598]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Notice of Filing of Proposed Plan for
the Allocation of Regulatory
Responsibilities Between EDGX
Exchange, Inc. and the Financial
Industry Regulatory Authority, Inc.
April 7, 2010.
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 April 2,
2010, EDGX Exchange, Inc. (‘‘EDGX’’)
and the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) (together with
EDGX, the ‘‘Parties’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) a plan for the allocation
of regulatory responsibilities, dated
March 31, 2010 (the ‘‘17d–2 Plan’’). The
Commission is publishing this notice to
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 registered national
19 17
CFR 200.30–3(a)(34).
U.S.C. 78q(d).
2 17 CFR 240.17d–2.
3 15 U.S.C. 78s(g)(1).
1 15
17 15
18 17
U.S.C. 78q(d)(1).
CFR 240.17d–2.
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securities association to examine for,
and enforce compliance by, its members
and persons associated with its
members with the Act, the rules and
regulations thereunder, and the SRO’s
own rules, unless the SRO is relieved of
this responsibility pursuant to Section
17(d) 4 or Section 19(g)(2) 5 of the Act.
Without this relief, the statutory
obligation of each individual SRO could
result in a pattern of multiple
examinations of broker-dealers that
maintain memberships in more than one
SRO (‘‘common members’’). Such
regulatory duplication would add
unnecessary expenses for common
members and their SROs.
Section 17(d)(1) of the Act 6 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.7 With respect to
a common member, Section 17(d)(1)
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to examine
common members for compliance with
the financial responsibility
requirements imposed by the Act, or by
Commission or SRO rules.9 When an
SRO has been named as a common
member’s DEA, all other SROs to which
the common member belongs are
relieved of the responsibility to examine
the firm for compliance with the
applicable financial responsibility rules.
On its face, Rule 17d–1 deals only with
an SRO’s obligations to enforce member
compliance with financial responsibility
requirements. Rule 17d–1 does not
relieve an SRO from its obligation to
examine a common member for
compliance with its own rules and
provisions of the Federal securities laws
governing matters other than financial
responsibility, including sales practices
and trading activities and practices.
To address regulatory duplication in
these and other areas, the Commission
4 15
U.S.C. 78q(d).
U.S.C. 78s(g)(2).
6 15 U.S.C. 78q(d)(1).
7 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
8 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
9 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
5 15
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Federal Register / Vol. 75, No. 70 / Tuesday, April 13, 2010 / Notices
adopted Rule 17d–2 under the Act.10
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, 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.
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II. Proposed 17d–2 Plan
The proposed 17d–2 Plan is intended
to reduce regulatory duplication for
firms that are common members of both
EDGX and FINRA.11 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 17d–2 Plan delineates
the proposed regulatory responsibilities
between the Parties. Included in the
17d–2 Plan is an attachment (‘‘EDGX
Certification for 17d–2 Agreement with
FINRA’’ referred to herein as the
‘‘Certification’’) that lists every EDGX
rule and select Federal securities laws,
rules and regulations for which FINRA
would bear responsibility under the
17d–2 Plan for overseeing and enforcing
with respect to EDGX 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 EDGX that are substantially
similar to the applicable rules of FINRA,
as well as any provisions of the Federal
securities laws and the rules and
regulations thereunder delineated in the
Certification (‘‘Common Rules’’).12
10 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
11 The proposed 17d–2 Plan refers to these
common members as ‘‘Dual Members.’’ See
Paragraph 1(c) of the proposed 17d–2 Plan.
12 See paragraph 1(b) of the 17d–2 plan (defining
Common Rules). See also paragraph 1(f) of the
proposed 17d–2 Plan (defining Regulatory
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Common Rules would not include the
application of any EDGX 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–2.13 In the event that a Dual
Member is the subject of an
investigation relating to a transaction on
EDGX, the 17d–2 Plan acknowledges
that EDGX may, in its discretion,
exercise concurrent jurisdiction and
responsibility for such matter.14
Under the 17d–2 Plan, EDGX would
retain full responsibility for
surveillance, examination, investigation,
and enforcement with respect to trading
activities or practices involving EDGX’s
own marketplace, including, without
limitation, registration pursuant to its
unique rules (i.e., non-common rules);
its duties as a DEA pursuant to Rule
17d–1 under the Act; and any rules that
are not Common Rules, except for EDGX
rules for any broker-dealer subsidiary of
Direct Edge Holdings LLC.15
The text of the proposed 17d–2 Plan
is as follows:
Agreement Between FINRA and EDGX
Exchange, Inc. Pursuant to Rule 17d–2
Under the Securities Exchange Act of
1934
This Agreement, by and between the
Financial Industry Regulatory Authority
(‘‘FINRA’’) and EDGX Exchange, Inc.
(‘‘EDGX’’), is made this 31st day of
March, 2010 (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
Responsibilities). Paragraph 2 of the 17d–2 Plan
provides that annually, or more frequently as
required by changes in either EDGX 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 EDGX shall
furnish FINRA with a list of Dual Members, and
shall update the list no less frequently than once
each calendar quarter.
13 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 Nos.
58536 (September 12, 2008) (File No. 4–566) (order
approving and declaring effective the plan) and
58806 (October 17, 2008) (File No. 4–566) (order
approving and declaring effective an amendment to
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.
14 See paragraph 6 of the proposed 17d–2 Plan.
15 Apparent violations of such EDGX rules by any
broker-dealer subsidiary of Direct Edge Holdings
LLC will be processed by, and enforcement
proceedings will be conducted by, FINRA. See
paragraphs 2(d) and 6 of the 17d–2 Plan. As of the
date of this Agreement, Direct Edge ECN LLC is the
only broker-dealer susbsidiary of Direct Edge
Holdings LLC.
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18921
between self-regulatory organizations to
allocate regulatory responsibility to
eliminate regulatory duplication. FINRA
and EDGX may be referred to
individually as a ‘‘party’’ and together as
the ‘‘parties.’’
Whereas, FINRA and EDGX 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 EDGX 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 EDGX 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) ‘‘EDGX Rules’’ or ‘‘FINRA Rules’’
shall mean: (i) The rules of EDGX, 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 the
EDGX 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 such
provisions or rule, or a Dual Member’s
activity, conduct, or output in relation
to such rule; provided however,
Common Rules shall not include the
application of the SEC, EDGX 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., Chicago Board Options Exchange,
Inc., 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.
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Federal Register / Vol. 75, No. 70 / Tuesday, April 13, 2010 / Notices
effective October 17, 2008, as may be
amended from time to time.
(c) ‘‘Dual Members’’ shall mean those
EDGX members that are also members of
FINRA and the associated persons
therewith.
(d) ‘‘Effective Date’’ shall be the date
this Agreement is approved by the
Commission.
(e) ‘‘Enforcement Responsibilities’’
shall mean the conduct of appropriate
proceedings, in accordance with
FINRA’s Code of Procedure (the 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, EDGX
furnished FINRA with a current list of
Common Rules and certified to FINRA
that such rules are substantially similar
to the corresponding FINRA rule (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 EDGX or FINRA,
EDGX shall submit an updated list of
Common Rules to FINRA for review
which shall add EDGX Rules not
included in the current list of Common
Rules that qualify as Common Rules as
defined in this Agreement; delete EDGX
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 EDGX
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
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Responsibilities’’ does not include, and
EDGX shall retain full responsibility for
(unless otherwise addressed by separate
agreement or rule) the following:
(a) Surveillance, examination,
investigation and enforcement with
respect to trading activities or practices
involving EDGX’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, if applicable; and
(d) Any EDGX Rules that are not
Common Rules, except for EDGX Rules
for any broker-dealer subsidiary of
Direct Edge Holdings LLC, as provided
in paragraph 6.
3. Dual Members. Prior to the
Effective Date, EDGX 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 EDGX by FINRA for
performing the Regulatory
Responsibilities and Enforcement
Responsibilities under this Agreement
except as hereinafter provided. FINRA
shall provide EDGX with ninety (90)
days advance written notice in the event
FINRA decides to impose any charges to
EDGX for performing the Regulatory
Responsibilities under this Agreement.
If FINRA determines to impose a charge,
EDGX 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. Applicability of Certain Laws,
Rules, Regulations or Orders.
Notwithstanding any provision hereof,
this Agreement shall be subject to any
statute, or any rule or order of the SEC.
To the extent such statute, rule, or order
is inconsistent with one or more
provisions of this Agreement, the
statute, rule, or order shall supersede
the provision(s) hereof to the extent
necessary to be properly effectuated and
the provision(s) hereof in that respect
shall be null and void.
6. Notification of Violations.
(a) In the event that FINRA becomes
aware of apparent violations of any
EDGX Rules, which are not listed as
Common Rules, discovered pursuant to
the performance of the Regulatory
Responsibilities assumed hereunder,
FINRA shall notify EDGX of those
apparent violations for such response as
EDGX deems appropriate.
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(b) In the event that EDGX becomes
aware of apparent violations of any
Common Rules, discovered pursuant to
the performance of the Retained
Responsibilities, EDGX shall notify
FINRA of those apparent violations and
such matters shall be handled by FINRA
as provided in this Agreement.
(c) With respect to apparent violations
of any EDGX Rules by any broker-dealer
subsidiary of EDGX’s holding company,
Direct Edge Holdings LLC, FINRA shall
not make referrals to EDGX 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.
(d) Apparent violations of Common
Rules and FINRA rules 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 EDGX, EDGX may in its
discretion assume concurrent
jurisdiction and responsibility.
(e) Each party agrees to make
available promptly all files, records and
witnesses necessary to assist the other
in its investigation or proceedings.
7. Continued Assistance.
(a) FINRA shall make available to
EDGX all information obtained by
FINRA in the performance by it of the
Regulatory Responsibilities hereunder
in respect to the Dual Members subject
to this Agreement. In particular, and not
in limitation of the foregoing, FINRA
shall furnish EDGX any information it
obtains about Dual Members which
reflects adversely on their financial
condition. EDGX 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 against third parties of
regulatory or other privileges relating to
the discovery of documents or
information.
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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 EDGX
advised of its actions in this regard for
such subsequent proceedings as EDGX
may initiate.
9. Customer Complaints. EDGX shall
forward to FINRA copies of all customer
complaints involving Dual Members
received by EDGX 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 EDGX 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. Arbitration. In the event of a
dispute between the parties as to the
operation of this Agreement, EDGX 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 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 Section 13 shall
interfere with a party’s right to
terminate this Agreement as set forth
herein.
14. Notification of Members. EDGX
and FINRA shall notify Dual Members
of this Agreement after the Effective
Date by means of a uniform joint notice.
15. 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.
16. Limitation of Liability. Neither
FINRA nor EDGX 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 EDGX 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 EDGX with respect to any
of the responsibilities to be performed
by each of them hereunder.
17. Relief From Responsibility.
Pursuant to Sections 17(d)(1)(A) and
19(g) of the Exchange Act and Rule
Rule 2.5, Interpretation and Policy .04, The Regulatory Element of
Continuing Education Requirement for Authorized Traders of Members.
Rule 3.1 Business Conduct of Members .................................................
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Rule 3.2 Violations Prohibited 16 ..............................................................
Rule 3.3 Use of Fraudulent Devices ........................................................
Rule
Rule
Rule
Rule
3.5(a) Advertising Practices
3.5(b) Advertising Practices
3.5(c) Advertising Practices
3.5(d) Advertising Practices
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.............................................................
.............................................................
.............................................................
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18923
17d–2 thereunder, FINRA and EDGX
join in requesting the Commission,
upon its approval of this Agreement or
any part thereof, to relieve EDGX of any
and all responsibilities with respect to
matters allocated to FINRA pursuant to
this Agreement; provided, however, that
this Agreement shall not be effective
until the Effective Date.
18. 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.
19. 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.
EDGX EXCHANGE, INC.
By: lllllllllllllllllll
Name:
Title:
FINANCIAL INDUSTRY REGULATORY
AUTHORITY
By: lllllllllllllllllll
Name:
Title:
EDGX Exchange, Inc. Certification
EDGX Certification for 17d–2 Agreement
With FINRA
EDGX Exchange, Inc. 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’’).
NASD Rule 1120(a)(1)–(4) Continuing Education Requirements.
FINRA Rule 2010 Standards of Commercial Honor and Principles of
Trade.*
FINRA Rule 2010 Standards of Commercial Honor and Principles of
Trade and 3010 Supervision.*
FINRA Rule 2020 Use of Manipulative, Deceptive or Other Fraudulent
Device.
NASD Rule 2210(d)(1)(B) Communications with the Public.
NASD Rule 2210(d)(2)(C) Communications with the Public.
NASD Rule 2210(d)(1) Communications with the Public.
NASD Rule 2210(b)(1) Communications with the Public.
Sfmt 4703
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18924
Federal Register / Vol. 75, No. 70 / Tuesday, April 13, 2010 / Notices
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
Rule
Rule
Rule
Rule
Rule
Rule
Rule
3.7(a) Recommendations to Customers ..........................................
3.8(a) The Prompt Receipt and Delivery of Securities ....................
3.8(b) The Prompt Receipt and Delivery of Securities ....................
3.9 Charges for Services Performed ...............................................
3.10 Use of Information ...................................................................
3.11 Publication of Transactions and Quotations ............................
3.12 Offers at Stated Prices ............................................................
3.14 Disclosure on Confirmations ....................................................
Rule 3.15 Disclosure of Control ...............................................................
Rule 3.16 Discretionary Accounts ............................................................
Rule 3.17 Customer’s Securities or Funds ..............................................
Rule 3.18 Prohibition Against Guarantees ...............................................
Rule 3.19 Sharing in Accounts; Extent Permissible ................................
Rule 4.1 Requirements .............................................................................
Rule 4.3 Record of Written Complaints ...................................................
Rule 4.4 Disclosure of Financial Condition ..............................................
Rule
Rule
Rule
Rule
Rule
Rule
Rule
5.1
5.2
5.3
5.4
5.5
5.6
9.3
Written Procedures ....................................................................
Responsibility of Members ........................................................
Records ......................................................................................
Review of Activities ....................................................................
Information Barrier Procedures .................................................
Anti-Money Laundering Compliance Program ..........................
Predispute Arbitration Agreements ............................................
Rule
Rule
Rule
Rule
Rule
12.3 Excessive Sales by a Member ................................................
12.5 Dissemination of False Information .........................................
12.11 Best Execution .......................................................................
12.13 Trading Ahead of Research Reports .....................................
13.3 Forwarding of Issuer Materials ................................................
NASD Rule 2210(b)(2)(A) and 2210(c) Communications with the Public.
NASD Rule 2210(d)(2)(A) and 2210(d)(1)(E)
Communications with the Public.
NASD Rule 2210(d)(1) Communications with the Public.
NASD Rule 2210(d)(1) Communications with the Public.
NASD Rule IM–2310–2(b)(1), (2), (4)(A)(i), (4)(A)(iii), (4)(A)(iv), and (5)
Fair Dealing with Customers.
NASD Rule 2310(a) Recommendations to Customers (Suitability).
NASD Rule 3370 Purchases.
SEC Regulation SHO.
NASD Rule 2430 Charges for Services Performed.
FINRA Rule 2060 Use of Information Obtained in Fiduciary Capacity.
FINRA Rule 5210 Publication of Transactions and Quotations.
FINRA Rule 5220 Offers at Stated Prices.
NASD Rule 2230 Confirmations and SEA Rule 10b–10 Confirmation of
Transactions.
FINRA Rule 2262 Disclosure of Control Relationship with Issuer.
NASD Rule 2510 Discretionary Accounts.
FINRA Rule 2150(a) Improper Use of Customers’ Securities or Funds;
Prohibition Against Guarantees and Sharing in Accounts.
FINRA Rule 2150(b) Improper Use of Customers’ Securities or Funds;
Prohibition Against Guarantees and Sharing in Accounts.
FINRA Rule 2150(c)(1) Improper Use of Customers’ Securities or
Funds; Prohibition Against Guarantees and Sharing in Accounts.
Section 17 of the Exchange Act and the Rules Thereunder.
NASD Rule 3110(d) and (e) Books and Records.**
NASD Rule 2270 Disclosure of Financial Condition to Customers &
SEA Rule 17a–5(c).
NASD Rule 3010(b)(1) Supervision—Written Procedures.*
NASD Rule 3010(a)(4) and (b)(4) Supervision.*
NASD Rule 3010(a)(1), (b) and (c) Supervision.*
NASD Rule 3010(c)(1) Supervision—Internal Inspections.*
Section 15(f) of Exchange Act.
FINRA Rule 3310 Anti-Money Laundering Compliance Program.
NASD Rule 3110(f) Books and Records (Requirements When Using
Predispute Arbitration Agreements for Customer Accounts).
FINRA Rule 6140(c) Other Trading Practices.***
FINRA Rule 6140(e) Other Trading Practices.***
NASD Rule 2320 Best Execution and Interpositioning.
FINRA Rule 5280 Trading Ahead of Research Reports.
FINRA Rule 2251 Forwarding of Proxy and Other Issuer-Related Materials.
16 FINRA shall only have Regulatory Responsibility regarding the first phrase of the EDGX 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 EDGX.
In addition, the following provisions shall
be part of this 17d–2 Agreement:
sroberts on DSKD5P82C1PROD with NOTICES
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.
* 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., Chicago Board Options
Exchange, Inc., 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. effective October 17, 2008, as
may be amended from time to time.
VerDate Nov<24>2008
17:33 Apr 12, 2010
Jkt 220001
** FINRA shall only have any Regulatory
Responsibilities for the first three years
regarding EDGX’s five year requirement of
keeping and preserving a file of all written
complaints of customers and action taken by
the Member in respect thereof.
*** FINRA shall not have any Regulatory
Responsibilities for these rules as they
pertain to trading practices involving
securities that do not meet the definition of
NMS stock as defined in Rule 600(b)(47) of
SEC Regulation NMS.
*
*
*
*
*
III. Date of Effectiveness of the
Proposed Plan and Timing for
Commission Action
Pursuant to Section 17(d)(1) of the
Act 17 and Rule 17d–2 thereunder,18
after April 28, 2010, the Commission
may, by written notice, declare the plan
submitted by EDGX and FINRA, File
No. 4–598, to be effective if the
Commission finds that the plan is
17 15
18 17
PO 00000
U.S.C. 78q(d)(1).
CFR 240.17d–2.
Frm 00142
Fmt 4703
Sfmt 4703
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
EDGX 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:
E:\FR\FM\13APN1.SGM
13APN1
Federal Register / Vol. 75, No. 70 / Tuesday, April 13, 2010 / Notices
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number 4–598 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number 4–598. This file number should
be included on the subject line if e-mail
is used. To help the Commission
process and review your comments
more efficiently, please use only one
method. The Commission will post all
comments on the Commission’s Internet
Web site (https://www.sec.gov/rules/
other.shtml). Copies of the submission,
all subsequent amendments, all written
statements with respect to the proposed
17d–2 Plan that are filed with the
Commission, and all written
communications relating to the
proposed 17d–2 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of the proposed
17d–2 Plan also will be available for
inspection and copying at the principal
office of the EDGX 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 4–598 and should be submitted
on or before April 28, 2010.
sroberts on DSKD5P82C1PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–8368 Filed 4–12–10; 8:45 am]
BILLING CODE 8011–01–P
19 17
CFR 200.30–3(a)(34).
VerDate Nov<24>2008
17:33 Apr 12, 2010
Jkt 220001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61853; File No. 4–596]
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
International Securities Exchange, LLC
and the Financial Industry Regulatory
Authority, Inc. Concerning Ballista
Securities LLC
April 6, 2010.
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 March 19,
2010, the International Securities
Exchange, LLC (‘‘ISE’’) and the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (together with the ISE, the
‘‘Parties’’) filed with the Securities and
Exchange Commission (‘‘Commission’’) a
plan for the allocation of regulatory
responsibilities (the ‘‘17d–2 Plan’’). The
Commission is publishing this notice to
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) 4 or Section 19(g)(2) 5 of the Act.
Without this relief, the statutory
obligation of each individual SRO could
result in a pattern of multiple
examinations of broker-dealers that
maintain memberships in more than one
SRO (‘‘common members’’). Such
regulatory duplication would add
unnecessary expenses for common
members and their SROs.
Section 17(d)(1) of the Act 6 was
intended, in part, to eliminate
unnecessary multiple examinations and
regulatory duplication.7 With respect to
a common member, Section 17(d)(1)
1 15
U.S.C. 78q(d).
CFR 240.17d–2.
3 15 U.S.C. 78s(g)(1).
4 15 U.S.C. 78q(d).
5 15 U.S.C. 78s(g)(2).
6 15 U.S.C. 78q(d)(1).
7 See Securities Act Amendments of 1975, Report
of the Senate Committee on Banking, Housing, and
Urban Affairs to Accompany S. 249, S. Rep. No. 94–
75, 94th Cong., 1st Session 32 (1975).
2 17
PO 00000
Frm 00143
Fmt 4703
Sfmt 4703
18925
authorizes the Commission, by rule or
order, to relieve an SRO of the
responsibility to receive regulatory
reports, to examine for and enforce
compliance with applicable statutes,
rules, and regulations, or to perform
other specified regulatory functions.
To implement Section 17(d)(1), the
Commission adopted two rules: Rule
17d–1 and Rule 17d–2 under the Act.8
Rule 17d–1 authorizes the Commission
to name a single SRO as the designated
examining authority (‘‘DEA’’) to examine
common members for compliance with
the financial responsibility
requirements imposed by the Act, or by
Commission or SRO rules.9 When an
SRO has been named as a common
member’s DEA, all other SROs to which
the common member belongs are
relieved of the responsibility to examine
the firm for compliance with the
applicable financial responsibility rules.
On its face, Rule 17d–1 deals only with
an SRO’s obligations to enforce member
compliance with financial responsibility
requirements. Rule 17d–1 does not
relieve an SRO from its obligation to
examine a common member for
compliance with its own rules and
provisions of the Federal securities laws
governing matters other than financial
responsibility, including sales practices
and trading activities and practices.
To address regulatory duplication in
these and other areas, the Commission
adopted Rule 17d–2 under the Act.10
Rule 17d–2 permits SROs to propose
joint plans for the allocation of
regulatory responsibilities with respect
to their common members. Under
paragraph (c) of Rule 17d–2, the
Commission may declare such a plan
effective if, 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.
8 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
respectively.
9 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
10 See Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8, 1976)
(‘‘Rule 17d–2 Adopting Release’’).
E:\FR\FM\13APN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 70 (Tuesday, April 13, 2010)]
[Notices]
[Pages 18920-18925]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8368]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61861; File No. 4-598]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing of Proposed Plan for the Allocation of
Regulatory Responsibilities Between EDGX Exchange, Inc. and the
Financial Industry Regulatory Authority, Inc.
April 7, 2010.
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 April 2, 2010, EDGX Exchange, Inc. (``EDGX'') and the Financial
Industry Regulatory Authority, Inc. (``FINRA'') (together with EDGX,
the ``Parties'') filed with the Securities and Exchange Commission
(``Commission'') a plan for the allocation of regulatory
responsibilities, dated March 31, 2010 (the ``17d-2 Plan''). The
Commission is publishing this notice to 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 registered 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) \4\ or Section 19(g)(2) \5\ of
the Act. Without this relief, the statutory obligation of each
individual SRO could result in a pattern of multiple examinations of
broker-dealers that maintain memberships in more than one SRO (``common
members''). Such regulatory duplication would add unnecessary expenses
for common members and their SROs.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(g)(1).
\4\ 15 U.S.C. 78q(d).
\5\ 15 U.S.C. 78s(g)(2).
---------------------------------------------------------------------------
Section 17(d)(1) of the Act \6\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication.\7\ With
respect to a common member, Section 17(d)(1) authorizes the Commission,
by rule or order, to relieve an SRO of the responsibility to receive
regulatory reports, to examine for and enforce compliance with
applicable statutes, rules, and regulations, or to perform other
specified regulatory functions.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78q(d)(1).
\7\ See Securities Act Amendments of 1975, Report of the Senate
Committee on Banking, Housing, and Urban Affairs to Accompany S.
249, S. Rep. No. 94-75, 94th Cong., 1st Session 32 (1975).
---------------------------------------------------------------------------
To implement Section 17(d)(1), the Commission adopted two rules:
Rule 17d-1 and Rule 17d-2 under the Act.\8\ Rule 17d-1 authorizes the
Commission to name a single SRO as the designated examining authority
(``DEA'') to examine common members for compliance with the financial
responsibility requirements imposed by the Act, or by Commission or SRO
rules.\9\ When an SRO has been named as a common member's DEA, all
other SROs to which the common member belongs are relieved of the
responsibility to examine the firm for compliance with the applicable
financial responsibility rules. On its face, Rule 17d-1 deals only with
an SRO's obligations to enforce member compliance with financial
responsibility requirements. Rule 17d-1 does not relieve an SRO from
its obligation to examine a common member for compliance with its own
rules and provisions of the Federal securities laws governing matters
other than financial responsibility, including sales practices and
trading activities and practices.
---------------------------------------------------------------------------
\8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\9\ See Securities Exchange Act Release No. 12352 (April 20,
1976), 41 FR 18808 (May 7, 1976).
---------------------------------------------------------------------------
To address regulatory duplication in these and other areas, the
Commission
[[Page 18921]]
adopted Rule 17d-2 under the Act.\10\ Rule 17d-2 permits SROs to
propose joint plans for the allocation of regulatory responsibilities
with respect to their common members. Under paragraph (c) of Rule 17d-
2, the Commission may declare such a plan effective if, 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.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------
II. Proposed 17d-2 Plan
The proposed 17d-2 Plan is intended to reduce regulatory
duplication for firms that are common members of both EDGX and
FINRA.\11\ 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.
---------------------------------------------------------------------------
\11\ 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 17d-2 Plan delineates the proposed regulatory
responsibilities between the Parties. Included in the 17d-2 Plan is an
attachment (``EDGX Certification for 17d-2 Agreement with FINRA''
referred to herein as the ``Certification'') that lists every EDGX rule
and select Federal securities laws, rules and regulations for which
FINRA would bear responsibility under the 17d-2 Plan for overseeing and
enforcing with respect to EDGX 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 EDGX that are substantially similar to the applicable
rules of FINRA, as well as any provisions of the Federal securities
laws and the rules and regulations thereunder delineated in the
Certification (``Common Rules'').\12\ Common Rules would not include
the application of any EDGX 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.\13\ In the event that a
Dual Member is the subject of an investigation relating to a
transaction on EDGX, the 17d-2 Plan acknowledges that EDGX may, in its
discretion, exercise concurrent jurisdiction and responsibility for
such matter.\14\
---------------------------------------------------------------------------
\12\ See paragraph 1(b) of the 17d-2 plan (defining Common
Rules). See also paragraph 1(f) of the proposed 17d-2 Plan (defining
Regulatory Responsibilities). Paragraph 2 of the 17d-2 Plan provides
that annually, or more frequently as required by changes in either
EDGX 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 EDGX shall furnish FINRA with a list of Dual
Members, and shall update the list no less frequently than once each
calendar quarter.
\13\ 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
Nos. 58536 (September 12, 2008) (File No. 4-566) (order approving
and declaring effective the plan) and 58806 (October 17, 2008) (File
No. 4-566) (order approving and declaring effective an amendment to
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.
\14\ See paragraph 6 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------
Under the 17d-2 Plan, EDGX would retain full responsibility for
surveillance, examination, investigation, and enforcement with respect
to trading activities or practices involving EDGX's own marketplace,
including, without limitation, registration pursuant to its unique
rules (i.e., non-common rules); its duties as a DEA pursuant to Rule
17d-1 under the Act; and any rules that are not Common Rules, except
for EDGX rules for any broker-dealer subsidiary of Direct Edge Holdings
LLC.\15\
---------------------------------------------------------------------------
\15\ Apparent violations of such EDGX rules by any broker-dealer
subsidiary of Direct Edge Holdings LLC will be processed by, and
enforcement proceedings will be conducted by, FINRA. See paragraphs
2(d) and 6 of the 17d-2 Plan. As of the date of this Agreement,
Direct Edge ECN LLC is the only broker-dealer susbsidiary of Direct
Edge Holdings LLC.
---------------------------------------------------------------------------
The text of the proposed 17d-2 Plan is as follows:
Agreement Between FINRA and EDGX Exchange, Inc. Pursuant to Rule 17d-2
Under the Securities Exchange Act of 1934
This Agreement, by and between the Financial Industry Regulatory
Authority (``FINRA'') and EDGX Exchange, Inc. (``EDGX''), is made this
31st day of March, 2010 (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 EDGX may be referred to individually
as a ``party'' and together as the ``parties.''
Whereas, FINRA and EDGX 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 EDGX 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 EDGX 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) ``EDGX Rules'' or ``FINRA Rules'' shall mean: (i) The rules of
EDGX, 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 the EDGX 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 such provisions or rule, or a Dual Member's activity, conduct, or
output in relation to such rule; provided however, Common Rules shall
not include the application of the SEC, EDGX 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., Chicago Board Options Exchange, Inc.,
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.
[[Page 18922]]
effective October 17, 2008, as may be amended from time to time.
(c) ``Dual Members'' shall mean those EDGX members that are also
members of FINRA and the associated persons therewith.
(d) ``Effective Date'' shall be the date this Agreement is approved
by the Commission.
(e) ``Enforcement Responsibilities'' shall mean the conduct of
appropriate proceedings, in accordance with FINRA's Code of Procedure
(the 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,
EDGX furnished FINRA with a current list of Common Rules and certified
to FINRA that such rules are substantially similar to the corresponding
FINRA rule (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 EDGX or
FINRA, EDGX shall submit an updated list of Common Rules to FINRA for
review which shall add EDGX Rules not included in the current list of
Common Rules that qualify as Common Rules as defined in this Agreement;
delete EDGX 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 EDGX 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 EDGX shall retain
full responsibility for (unless otherwise addressed by separate
agreement or rule) the following:
(a) Surveillance, examination, investigation and enforcement with
respect to trading activities or practices involving EDGX'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, if
applicable; and
(d) Any EDGX Rules that are not Common Rules, except for EDGX Rules
for any broker-dealer subsidiary of Direct Edge Holdings LLC, as
provided in paragraph 6.
3. Dual Members. Prior to the Effective Date, EDGX 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 EDGX by FINRA for
performing the Regulatory Responsibilities and Enforcement
Responsibilities under this Agreement except as hereinafter provided.
FINRA shall provide EDGX with ninety (90) days advance written notice
in the event FINRA decides to impose any charges to EDGX for performing
the Regulatory Responsibilities under this Agreement. If FINRA
determines to impose a charge, EDGX 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. Applicability of Certain Laws, Rules, Regulations or Orders.
Notwithstanding any provision hereof, this Agreement shall be subject
to any statute, or any rule or order of the SEC. To the extent such
statute, rule, or order is inconsistent with one or more provisions of
this Agreement, the statute, rule, or order shall supersede the
provision(s) hereof to the extent necessary to be properly effectuated
and the provision(s) hereof in that respect shall be null and void.
6. Notification of Violations.
(a) In the event that FINRA becomes aware of apparent violations of
any EDGX Rules, which are not listed as Common Rules, discovered
pursuant to the performance of the Regulatory Responsibilities assumed
hereunder, FINRA shall notify EDGX of those apparent violations for
such response as EDGX deems appropriate.
(b) In the event that EDGX becomes aware of apparent violations of
any Common Rules, discovered pursuant to the performance of the
Retained Responsibilities, EDGX shall notify FINRA of those apparent
violations and such matters shall be handled by FINRA as provided in
this Agreement.
(c) With respect to apparent violations of any EDGX Rules by any
broker-dealer subsidiary of EDGX's holding company, Direct Edge
Holdings LLC, FINRA shall not make referrals to EDGX 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.
(d) Apparent violations of Common Rules and FINRA rules 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 EDGX, EDGX may in its discretion assume concurrent
jurisdiction and responsibility.
(e) Each party agrees to make available promptly all files, records
and witnesses necessary to assist the other in its investigation or
proceedings.
7. Continued Assistance.
(a) FINRA shall make available to EDGX all information obtained by
FINRA in the performance by it of the Regulatory Responsibilities
hereunder in respect to the Dual Members subject to this Agreement. In
particular, and not in limitation of the foregoing, FINRA shall furnish
EDGX any information it obtains about Dual Members which reflects
adversely on their financial condition. EDGX 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 against third
parties of regulatory or other privileges relating to the discovery of
documents or information.
[[Page 18923]]
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 EDGX advised of its actions in this regard for such subsequent
proceedings as EDGX may initiate.
9. Customer Complaints. EDGX shall forward to FINRA copies of all
customer complaints involving Dual Members received by EDGX 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 EDGX 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. Arbitration. In the event of a dispute between the parties as
to the operation of this Agreement, EDGX 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 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
Section 13 shall interfere with a party's right to terminate this
Agreement as set forth herein.
14. Notification of Members. EDGX and FINRA shall notify Dual
Members of this Agreement after the Effective Date by means of a
uniform joint notice.
15. 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.
16. Limitation of Liability. Neither FINRA nor EDGX 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 EDGX 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 EDGX with respect
to any of the responsibilities to be performed by each of them
hereunder.
17. Relief From Responsibility. Pursuant to Sections 17(d)(1)(A)
and 19(g) of the Exchange Act and Rule 17d-2 thereunder, FINRA and EDGX
join in requesting the Commission, upon its approval of this Agreement
or any part thereof, to relieve EDGX of any and all responsibilities
with respect to matters allocated to FINRA pursuant to this Agreement;
provided, however, that this Agreement shall not be effective until the
Effective Date.
18. 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.
19. 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.
EDGX EXCHANGE, INC.
By:--------------------------------------------------------------------
Name:
Title:
FINANCIAL INDUSTRY REGULATORY AUTHORITY
By:--------------------------------------------------------------------
Name:
Title:
EDGX Exchange, Inc. Certification
EDGX Certification for 17d-2 Agreement With FINRA
EDGX Exchange, Inc. 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'').
------------------------------------------------------------------------
------------------------------------------------------------------------
Rule 2.5, Interpretation and Policy NASD Rule 1120(a)(1)-(4)
.04, The Regulatory Element of Continuing Education
Continuing Education Requirement for Requirements.
Authorized Traders of Members.
Rule 3.1 Business Conduct of Members... FINRA Rule 2010 Standards of
Commercial Honor and
Principles of Trade.*
Rule 3.2 Violations Prohibited \16\.... FINRA Rule 2010 Standards of
Commercial Honor and
Principles of Trade and 3010
Supervision.*
Rule 3.3 Use of Fraudulent Devices..... FINRA Rule 2020 Use of
Manipulative, Deceptive or
Other Fraudulent Device.
Rule 3.5(a) Advertising Practices...... NASD Rule 2210(d)(1)(B)
Communications with the
Public.
Rule 3.5(b) Advertising Practices...... NASD Rule 2210(d)(2)(C)
Communications with the
Public.
Rule 3.5(c) Advertising Practices...... NASD Rule 2210(d)(1)
Communications with the
Public.
Rule 3.5(d) Advertising Practices...... NASD Rule 2210(b)(1)
Communications with the
Public.
[[Page 18924]]
Rule 3.5(e) Advertising Practices...... NASD Rule 2210(b)(2)(A) and
2210(c) Communications with
the Public.
Rule 3.5(f) Advertising Practices...... NASD Rule 2210(d)(2)(A) and
2210(d)(1)(E)
Communications with the Public.
Rule 3.5(g) Advertising Practices...... NASD Rule 2210(d)(1)
Communications with the
Public.
Rule 3.5(h) Advertising Practices...... NASD Rule 2210(d)(1)
Communications with the
Public.
Rule 3.6 Fair Dealing with Customers... NASD Rule IM-2310-2(b)(1), (2),
(4)(A)(i), (4)(A)(iii),
(4)(A)(iv), and (5) Fair
Dealing with Customers.
Rule 3.7(a) Recommendations to NASD Rule 2310(a)
Customers. Recommendations to Customers
(Suitability).
Rule 3.8(a) The Prompt Receipt and NASD Rule 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 NASD Rule 2430 Charges for
Services Performed.
Rule 3.10 Use of Information........... FINRA Rule 2060 Use of
Information Obtained in
Fiduciary Capacity.
Rule 3.11 Publication of Transactions FINRA Rule 5210 Publication of
and Quotations. Transactions and Quotations.
Rule 3.12 Offers at Stated Prices...... FINRA Rule 5220 Offers at
Stated Prices.
Rule 3.14 Disclosure on Confirmations.. NASD Rule 2230 Confirmations
and SEA Rule 10b-10
Confirmation of Transactions.
Rule 3.15 Disclosure of Control........ FINRA Rule 2262 Disclosure of
Control Relationship with
Issuer.
Rule 3.16 Discretionary Accounts....... NASD Rule 2510 Discretionary
Accounts.
Rule 3.17 Customer's Securities or FINRA Rule 2150(a) Improper Use
Funds. of Customers' Securities or
Funds; Prohibition Against
Guarantees and Sharing in
Accounts.
Rule 3.18 Prohibition Against FINRA Rule 2150(b) Improper Use
Guarantees. of Customers' Securities or
Funds; Prohibition Against
Guarantees and Sharing in
Accounts.
Rule 3.19 Sharing in Accounts; Extent FINRA Rule 2150(c)(1) Improper
Permissible. Use of Customers' Securities
or Funds; Prohibition Against
Guarantees and Sharing in
Accounts.
Rule 4.1 Requirements.................. Section 17 of the Exchange Act
and the Rules Thereunder.
Rule 4.3 Record of Written Complaints.. NASD Rule 3110(d) and (e) Books
and Records.**
Rule 4.4 Disclosure of Financial NASD Rule 2270 Disclosure of
Condition. Financial Condition to
Customers & SEA Rule 17a-5(c).
Rule 5.1 Written Procedures............ NASD Rule 3010(b)(1)
Supervision--Written
Procedures.*
Rule 5.2 Responsibility of Members..... NASD Rule 3010(a)(4) and (b)(4)
Supervision.*
Rule 5.3 Records....................... NASD Rule 3010(a)(1), (b) and
(c) Supervision.*
Rule 5.4 Review of Activities.......... NASD Rule 3010(c)(1)
Supervision--Internal
Inspections.*
Rule 5.5 Information Barrier Procedures Section 15(f) of Exchange Act.
Rule 5.6 Anti-Money Laundering FINRA Rule 3310 Anti-Money
Compliance Program. Laundering Compliance Program.
Rule 9.3 Predispute Arbitration NASD Rule 3110(f) Books and
Agreements. Records (Requirements When
Using Predispute Arbitration
Agreements for Customer
Accounts).
Rule 12.3 Excessive Sales by a Member.. FINRA Rule 6140(c) Other
Trading Practices.***
Rule 12.5 Dissemination of False FINRA Rule 6140(e) Other
Information. Trading Practices.***
Rule 12.11 Best Execution.............. NASD Rule 2320 Best Execution
and Interpositioning.
Rule 12.13 Trading Ahead of Research FINRA Rule 5280 Trading Ahead
Reports. of Research Reports.
Rule 13.3 Forwarding of Issuer FINRA Rule 2251 Forwarding of
Materials. Proxy and Other Issuer-Related
Materials.
------------------------------------------------------------------------
\16\ FINRA shall only have Regulatory Responsibility regarding the first
phrase of the EDGX 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 EDGX.
In addition, the following provisions shall be part of this 17d-
2 Agreement:
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.
* 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., Chicago
Board Options Exchange, Inc., 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.
effective October 17, 2008, as may be amended from time to time.
** FINRA shall only have any Regulatory Responsibilities for the
first three years regarding EDGX's five year requirement of keeping
and preserving a file of all written complaints of customers and
action taken by the Member in respect thereof.
*** FINRA shall not have any Regulatory Responsibilities for
these rules as they pertain to trading practices involving
securities that do not meet the definition of NMS stock as defined
in Rule 600(b)(47) of SEC Regulation NMS.
* * * * *
III. Date of Effectiveness of the Proposed Plan and Timing for
Commission Action
Pursuant to Section 17(d)(1) of the Act \17\ and Rule 17d-2
thereunder,\18\ after April 28, 2010, the Commission may, by written
notice, declare the plan submitted by EDGX and FINRA, File No. 4-598,
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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78q(d)(1).
\18\ 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 EDGX 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:
[[Page 18925]]
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number 4-598 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number 4-598. This file number
should be included on the subject line if e-mail is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (https://www.sec.gov/rules/other.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed 17d-2 Plan that are filed with
the Commission, and all written communications relating to the proposed
17d-2 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 Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the proposed 17d-2 Plan also will be available for
inspection and copying at the principal office of the EDGX 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 4-598 and should
be submitted on or before April 28, 2010.
---------------------------------------------------------------------------
\19\ 17 CFR 200.30-3(a)(34).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8368 Filed 4-12-10; 8:45 am]
BILLING CODE 8011-01-P
