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-Y Exchange, Inc., 57998-58002 [2010-23772]

Download as PDF 57998 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) James E. Rivera, Associate Administrator for Disaster Assistance. [FR Doc. 2010–23801 Filed 9–22–10; 8:45 am] BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62935; File No. 4–613] 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–Y Exchange, Inc. September 17, 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 September 3, 2010, BATS–Y Exchange, Inc. (‘‘BYX’’) and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (together with BYX, the ‘‘Parties’’) filed with the Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) a plan for the allocation of regulatory responsibilities, dated September 3, 2010 (‘‘17d–2 Plan’’ or the ‘‘Plan’’). The Commission is publishing this notice to solicit comments on the 17d–2 Plan from interested persons. srobinson on DSKHWCL6B1PROD with NOTICES 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. 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) and 15 U.S.C. 78s(g)(2), respectively. 2 17 VerDate Mar<15>2010 16:52 Sep 22, 2010 Jkt 220001 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 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 5 15 U.S.C. 78q(d)(1). Securities Act Amendments of 1975, Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 249, S. Rep. No. 94– 75, 94th Cong., 1st Session 32 (1975). 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). 9 See Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49091 (November 8, 1976). 6 See PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 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 BYX 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–Y Exchange Rules Certification for 17d–2 Agreement with FINRA,’’ referred to herein as the ‘‘Certification’’) that lists every BYX 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 BYX 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 BYX 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 BYX 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 10 The proposed 17d–2 Plan refers to these common members as ‘‘Dual Members.’’ See Paragraph 1(c) of the proposed 17d–2 Plan. 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 BYX 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 BYX 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 E:\FR\FM\23SEN1.SGM 23SEN1 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices Member is the subject of an investigation relating to a transaction on BYX, the plan acknowledges that BYX may, in its discretion, exercise concurrent jurisdiction and responsibility for such matter.13 Under the Plan, BYX would retain full responsibility for surveillance and enforcement with respect to trading activities or practices involving BYX’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 BYX rules that are not Common Rules, except for BYX rules for any broker-dealer subsidiary of BYX’s parent company, BATS Global Markets, Inc.14 Apparent violations of any BYX rules by any broker-dealer subsidiary of BATS Global Markets 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:16 srobinson on DSKHWCL6B1PROD with NOTICES AGREEMENT BETWEEN FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. AND BATS Y–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 Y–Exchange, Inc. (‘‘BYX’’), is made this 3rd day of September, 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 BYX may be referred to individually as a ‘‘party’’ and together as the ‘‘parties.’’ Whereas, FINRA and BYX 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 BYX 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 BYX hereby agree as follows: 1. Definitions. Unless otherwise defined in this Agreement or the context otherwise 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. 16 The Commission notes that the Proposed 17d– 2 Plan does not contain a paragraph number 18 and skips from 17 to 19. VerDate Mar<15>2010 16:52 Sep 22, 2010 Jkt 220001 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) ‘‘BYX Rules’’ or ‘‘FINRA Rules’’ shall mean: (i) the rules of BYX, 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 BYX 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, BYX 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, BATS Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 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., NASDAQ OMX BX, Inc. and NASDAQ OMX PHLX, Inc. approved by the SEC on April 15, 2010 as the same may be amended from time to time. (c) ‘‘Dual Members’’ shall mean those BYX 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, BYX furnished FINRA with a current list of Common Rules and certified to FINRA that such rules that are BYX Rules are substantially similar to the corresponding FINRA Rules (the ‘‘Certification’’). FINRA PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 57999 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 BYX or FINRA, BYX shall submit an updated list of Common Rules to FINRA for review which shall add BYX Rules not included in the current list of Common Rules that qualify as Common Rules as defined in this Agreement; delete BYX 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 BYX 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 BYX 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 BYX’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 BYX Rules that are not Common Rules, except for BYX Rules for any brokerdealer subsidiary of BATS Global Markets, Inc., as provided in paragraph 6. 3. Dual Members. Prior to the Effective Date, BYX 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 BYX by FINRA for performing the Regulatory Responsibilities and Enforcement Responsibilities under this Agreement except as hereinafter provided. FINRA shall provide BYX with ninety (90) days advance written notice in the event FINRA decides to impose any charges to BYX for performing the Regulatory Responsibilities under this Agreement. If FINRA determines to impose a charge, BYX 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 Commission. To the extent such statute, rule or order is inconsistent with this Agreement, the statute, rule or order shall supersede the provision(s) hereof to the extent necessary for them to be properly effectuated and the provision(s) hereof in that respect shall be null and void. E:\FR\FM\23SEN1.SGM 23SEN1 srobinson on DSKHWCL6B1PROD with NOTICES 58000 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 6. Notification of Violations. (a) In the event that FINRA becomes aware of apparent violations of any BYX Rules, which are not listed as Common Rules, discovered pursuant to the performance of the Regulatory Responsibilities assumed hereunder, FINRA shall notify BYX of those apparent violations for such response as BYX deems appropriate. (b) In the event that BYX becomes aware of apparent violations of any Common Rules, discovered pursuant to the performance of the Retained Responsibilities, BYX 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 BYX Rules by any broker-dealer subsidiary of BYX’s parent company, BATS Global Markets, Inc., FINRA shall not make referrals to BYX 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. (c) Apparent violations of Common 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 BYX, BYX may in its discretion assume concurrent jurisdiction and responsibility. (d) 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 BYX 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 BYX any information it obtains about Dual Members which reflects adversely on their financial condition. BYX 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 VerDate Mar<15>2010 16:52 Sep 22, 2010 Jkt 220001 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 BYX advised of its actions in this regard for such subsequent proceedings as BYX may initiate. 9. Customer Complaints. BYX shall forward to FINRA copies of all customer complaints involving Dual Members received by BYX 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 BYX 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, BYX 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 13 shall interfere with a party’s right to terminate this Agreement as set forth herein. 14. Notification of Members. BYX 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. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 16. Limitation of Liability. Neither FINRA nor BYX 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 BYX 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 BYX 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 BYX join in requesting the Commission, upon its approval of this Agreement or any part thereof, to relieve BYX 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. 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 Y–EXCHANGE, INC. By: lllllllllllllllllll Name: lllllllllllllllll Title: llllllllllllllllll FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. By: lllllllllllllllllll Name: lllllllllllllllll Title: llllllllllllllllll BATS Y–Exchange, Inc. (‘‘BYX’’) Rules Certification for 17d–2 Agreement With FINRA BYX hereby certifies that the requirements contained in the rules listed below are identical to, or substantially similar to, the comparable FINRA Rule, NASD Rule, Exchange Act provision or SEC rule identified (‘‘Common Rules’’). E:\FR\FM\23SEN1.SGM 23SEN1 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 2010 / Notices 58001 BYX Rule: FINRA Rule, NASD Rule, Exchange Act Provision or SEC Rule: Rule 2.5, Interpretation and Policy .02 Continuing Education Requirement for Authorized Traders of Members. Rule 2.5, Interpretation and Policy .04 Termination of Employment ....... NASD Rule 1120(a)(1)–(4) Continuing Education Requirements Rule 2.6 (g) Application Procedures for Membership or to become an Associated Person of a Member. Rule 3.1 Business Conduct of Members ................................................. Rule 3.2 Violations Prohibited 1 ................................................................ Rule 3.3 Use of Fraudulent Devices ........................................................ Rule Rule Rule Rule Rule Rule 3.5(a) Advertising Practices ............................................................. 3.5(b) Advertising Practices ............................................................. 3.5(c) Advertising Practices ............................................................. 3.5(d) Advertising Practices ............................................................. 3.5(e) Advertising Practices ............................................................. 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 Rule 3.21 Customer Disclosures .............................................................. 4.1 Requirements ............................................................................. 5.1 Written Procedures .................................................................... 5.2 Responsibility of Members ........................................................ 5.3 Records ...................................................................................... 5.4 Review of Activities .................................................................... Rule 5.6 Anti-Money Laundering Compliance Program .......................... Rule 9.3 Predispute Arbitration Agreements ............................................ srobinson on DSKHWCL6B1PROD with NOTICES Rule 12.11 Best Execution ....................................................................... Rule 12.13 Trading Ahead of Research Reports ..................................... FINRA By-Laws of the Corporation, Article V, Section 3 Notification by Member to the Corporation and Associated Person of Termination; Amendments to Notification FINRA By-Laws of the Corporation, Article IV, Section 1(c) Application for Membership FINRA Rule 2010 Standards of Commercial Honor and Principles of Trade FINRA Rule 2010 Standards of Commercial Honor and Principles of Trade and NASD Rule 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 2 NASD Rule 2210(d)(1) Communications with the Public NASD Rule 2210(b)(1) Communications with the Public 3 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) and (b) 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 5230 Payment Designed to Influence Market Prices, Other than Paid Advertising 4 NASD Rule 2230 Confirmations and SEC Rule 10b–10 Confirmation of Transactions FINRA Rule 2262 Disclosure of Control Relationship With Issuer NASD Rule 2510 Discretionary Accounts FINRA Rule 2150(a) Customers’ Securities or Funds—Improper Use FINRA Rule 2150(b) Customers’ Securities or Funds—Prohibition Against Guarantees FINRA Rule 2150(c) Customers’ Securities or Funds—Sharing in Accounts; Extent Permissible FINRA Rule 2265 Extended Hours Trading Risk Disclosure Section 17 of the Exchange Act and the rules thereunder 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) & (d) Supervision—Internal Inspections/Review of Transactions and Correspondence* FINRA Rule 3310 Anti-Money Laundering Compliance Program NASD Rule 3110(f) Books and Records; Requirements When Using Predispute Arbitration Agreements for Customer Accounts* NASD Rule 2320 Best Execution and Interpositioning FINRA Rule 5280 Trading Ahead of Research Reports 1 FINRA shall only have Regulatory Responsibility regarding the first phrase of the BYX 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 BYX. 2 FINRA shall only have Regulatory Responsibility with regard to market letters and sales literature to the extent the rule requires the disclosure of the name of the Member. 3 FINRA shall not have Regulatory Responsibility with regard to the requirement that all market letters be approved prior to use. 4 FINRA shall not have Regulatory Responsibility with regard to the prohibitions set forth under subsection (a) of FINRA Rule 5230 to the extent subsections (b)(2) or (b)(3) of the rule apply. * 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, BATS Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 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., NASDAQ OMX BX, Inc. and NASDAQ OMX PHLX, Inc. approved by the SEC on April 15, 2010, as the same may be amended from time to time. In addition, the following provisions shall be part of this 17d–2 Agreement: Securities Exchange Act of 1934: Section 15(f) SEC Rules: VerDate Mar<15>2010 16:52 Sep 22, 2010 Jkt 220001 Rule 200 of Regulation SHO— Definition of ‘‘Short Sale’’ and Marking Requirements Rule 203 of Regulation SHO— Borrowing and Delivery Requirements PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 Rule 606 of Regulation NMS— Disclosure of Order Routing Information Rule 607 of Regulation NMS— Customer Account Statements E:\FR\FM\23SEN1.SGM 23SEN1 58002 Federal Register / Vol. 75, No. 184 / Thursday, September 23, 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 October 8, 2010, the Commission may, by written notice, declare the plan submitted by BYX and FINRA, File No. 4–613, 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 BYX 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: srobinson on DSKHWCL6B1PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number 4–613 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number 4–613. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/rules/ other.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed plan that are filed with the Commission, and all written communications relating to the proposed plan between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be 17 15 18 17 U.S.C. 78q(d)(1). CFR 240.17d–2. VerDate Mar<15>2010 16:52 Sep 22, 2010 Jkt 220001 available for Web site viewing and printing in the Commission’s Public Reference Room, on official business days between the hours of 10 am and 3 pm. Copies of the plan also will be available for inspection and copying at the principal offices of BYX 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 4–613 and should be submitted on or before October 8, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–23772 Filed 9–22–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62928; File No.SR–EDGA– 2010–09] Self-Regulatory Organizations; EDGA Exchange, Inc.; Order Approving a Proposed Rule Change Relating to a Revenue Sharing Program With Correlix, Inc. September 17, 2010. On July 28, 2010, EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to establish a revenue sharing program with Correlix, Inc. (‘‘Correlix’’). The proposed rule change was published for comment in the Federal Register on August 13, 2010.3 The Commission received no comment letters on the proposal. This order approves the proposed rule change. In its proposal, EDGA described realtime analytical tools offered by Correlix to measure the latency of orders to and from the System, and also described the terms of the pricing and the revenue sharing agreement between Correlix and the Exchange. In addition, the Exchange represented that under the agreement, EDGA will receive 30% of the total monthly subscription fees received by Correlix from parties who have 19 17 CFR 200.30–3(a)(34). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 62683 (August 10, 2010), 75 FR 50017. 1 15 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 contracted directly with Correlix to use their RaceTeam latency measurement service for the Exchange. According to the Exchange, EDGA will not bill or contract with any Correlix RaceTeam customer directly. Pricing for the Correlix RaceTeam product for the Exchange varies depending on the depth of latency information requested, the number of unique MPIDs subscribed by the customer, and the number of ports available for monitoring by Correlix. For boundary-level Exchange latency information,4 the fee will be an initial $1,500 monthly base fee for the first 25 ports associated in aggregate with any of the MPIDs selected by the Member for latency monitoring. For each additional 25 ports associated in aggregate with any of the MPIDs selected by the Member for latency monitoring, an additional monthly charge of $750 will be assessed. For match-level Exchange latency information,5 the fee will be an initial $2,000 monthly base fee for the first 25 ports associated in aggregate with any of the MPIDs selected for latency monitoring, and an additional $1,000 per month for each additional 25 ports associated in aggregate with any of the MPIDs selected for latency monitoring. According to the Exchange, Correlix will see an individualized unique Exchange-generated identifier that will allow Correlix RaceTeam to determine round-trip order time,6 from the time the order reaches the Exchange extranet, through the Exchange matching engine, and back out of the Exchange extranet. In its proposal, the Exchange represented that the RaceTeam product offering does not measure latency outside of the Exchange extranet. Further, EDGA stated that the unique identifier serves as a technological information barrier so that the RaceTeam data collector will only be able to view data for Correlix RaceTeam subscriber firms related to latency. Accordingly, Correlix will not see subscriber’s individual order detail such as security, price or size; individual 4 The time that elapses from an order message’s receipt by an Exchange device until the time that a matching engine acknowledgement with respect to such order message is transmitted from the Exchange device back to the user. For market data, the time measurement will be from the time that the market data engine receives a market data update until the time that the market data update is transmitted from the Exchange device back to the user. 5 In addition to the boundary-level Exchange latency information, match level information will also provide further elapsed time detail for messaging between Exchange internal systems. 6 According to EDGA, the product measures latency of orders regardless of whether the orders are rejected, executed, or partially executed. E:\FR\FM\23SEN1.SGM 23SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 184 (Thursday, September 23, 2010)]
[Notices]
[Pages 57998-58002]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23772]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62935; File No. 4-613]

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-Y Exchange, Inc.

September 17, 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 September 3, 2010, BATS-Y Exchange, Inc. (``BYX'') and the Financial
Industry Regulatory Authority, Inc. (``FINRA'') (together with BYX, the
``Parties'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') a plan for the allocation of regulatory
responsibilities, dated September 3, 2010 (``17d-2 Plan'' or the
``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 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 BYX 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-Y Exchange Rules Certification for 17d-2
Agreement with FINRA,'' referred to herein as the ``Certification'')
that lists every BYX 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 BYX 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 BYX 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 BYX 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

[[Page 57999]]

Member is the subject of an investigation relating to a transaction on
BYX, the plan acknowledges that BYX 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 BYX 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 BYX 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, BYX would retain full responsibility for
surveillance and enforcement with respect to trading activities or
practices involving BYX'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 BYX rules
that are not Common Rules, except for BYX rules for any broker-dealer
subsidiary of BYX's parent company, BATS Global Markets, Inc.\14\
Apparent violations of any BYX rules by any broker-dealer subsidiary of
BATS Global Markets 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:\16\
---------------------------------------------------------------------------

\16\ The Commission notes that the Proposed 17d-2 Plan does not
contain a paragraph number 18 and skips from 17 to 19.
---------------------------------------------------------------------------

AGREEMENT BETWEEN FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. AND
BATS Y-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 Y-Exchange, Inc. (``BYX''), is
made this 3rd day of September, 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 BYX may be referred to individually as a ``party'' and together
as the ``parties.''
Whereas, FINRA and BYX 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 BYX 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 BYX 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) ``BYX Rules'' or ``FINRA Rules'' shall mean: (i) the rules
of BYX, 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 BYX 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, BYX 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, BATS Exchange, Inc., Chicago
Board Options Exchange, Inc., Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX 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., NASDAQ OMX BX,
Inc. and NASDAQ OMX PHLX, Inc. approved by the SEC on April 15, 2010
as the same may be amended from time to time.
(c) ``Dual Members'' shall mean those BYX 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, BYX furnished FINRA with a current list of Common Rules
and certified to FINRA that such rules that are BYX 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 BYX or
FINRA, BYX shall submit an updated list of Common Rules to FINRA for
review which shall add BYX Rules not included in the current list of
Common Rules that qualify as Common Rules as defined in this
Agreement; delete BYX 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 BYX 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 BYX 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 BYX'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 BYX Rules that are not Common Rules, except for BYX
Rules for any broker-dealer subsidiary of BATS Global Markets, Inc.,
as provided in paragraph 6.
3. Dual Members. Prior to the Effective Date, BYX 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 BYX by FINRA for
performing the Regulatory Responsibilities and Enforcement
Responsibilities under this Agreement except as hereinafter
provided. FINRA shall provide BYX with ninety (90) days advance
written notice in the event FINRA decides to impose any charges to
BYX for performing the Regulatory Responsibilities under this
Agreement. If FINRA determines to impose a charge, BYX 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 Commission. To
the extent such statute, rule or order is inconsistent with this
Agreement, the statute, rule or order shall supersede the
provision(s) hereof to the extent necessary for them to be properly
effectuated and the provision(s) hereof in that respect shall be
null and void.

[[Page 58000]]

6. Notification of Violations.
(a) In the event that FINRA becomes aware of apparent violations
of any BYX Rules, which are not listed as Common Rules, discovered
pursuant to the performance of the Regulatory Responsibilities
assumed hereunder, FINRA shall notify BYX of those apparent
violations for such response as BYX deems appropriate.
(b) In the event that BYX becomes aware of apparent violations
of any Common Rules, discovered pursuant to the performance of the
Retained Responsibilities, BYX 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 BYX Rules
by any broker-dealer subsidiary of BYX's parent company, BATS Global
Markets, Inc., FINRA shall not make referrals to BYX 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.
(c) Apparent violations of Common 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 BYX, BYX may in its discretion assume concurrent
jurisdiction and responsibility.
(d) 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 BYX 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 BYX any information it obtains about Dual
Members which reflects adversely on their financial condition. BYX
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 BYX advised of its actions in this regard for such
subsequent proceedings as BYX may initiate.
9. Customer Complaints. BYX shall forward to FINRA copies of all
customer complaints involving Dual Members received by BYX 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 BYX 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, BYX 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 13 shall
interfere with a party's right to terminate this Agreement as set
forth herein.
14. Notification of Members. BYX 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 BYX 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 BYX 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 BYX 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
BYX join in requesting the Commission, upon its approval of this
Agreement or any part thereof, to relieve BYX 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.
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 Y-EXCHANGE, INC.

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

Name:------------------------------------------------------------------

Title:-----------------------------------------------------------------

FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC.

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

Name:------------------------------------------------------------------

Title:-----------------------------------------------------------------

BATS Y-Exchange, Inc. (``BYX'') Rules Certification for 17d-2
Agreement With FINRA

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

[[Page 58001]]

------------------------------------------------------------------------
FINRA Rule, NASD Rule, Exchange
BYX Rule: Act Provision or SEC Rule:

------------------------------------------------------------------------
Rule 2.5, Interpretation and Policy .02 NASD Rule 1120(a)(1)-(4)
Continuing Education Requirement for Continuing Education
Authorized Traders of Members. Requirements
Rule 2.5, Interpretation and Policy .04 FINRA By-Laws of the
Termination of Employment. Corporation, Article V,
Section 3 Notification by
Member to the Corporation and
Associated Person of
Termination; Amendments to
Notification
Rule 2.6 (g) Application Procedures for FINRA By-Laws of the
Membership or to become an Associated Corporation, Article IV,
Person of a Member. Section 1(c) Application for
Membership
Rule 3.1 Business Conduct of Members... FINRA Rule 2010 Standards of
Commercial Honor and
Principles of Trade
Rule 3.2 Violations Prohibited \1\..... FINRA Rule 2010 Standards of
Commercial Honor and
Principles of Trade and NASD
Rule 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
\2\
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
\3\
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) and (b)
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 3.13 Payment Designed to Influence FINRA Rule 5230 Payment
Market Prices, Other than Paid Designed to Influence Market
Advertising. Prices, Other than Paid
Advertising \4\
Rule 3.14 Disclosure on Confirmations.. NASD Rule 2230 Confirmations
and SEC 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) Customers'
Funds. Securities or Funds--Improper
Use
Rule 3.18 Prohibition Against FINRA Rule 2150(b) Customers'
Guarantees. Securities or Funds--
Prohibition Against Guarantees
Rule 3.19 Sharing in Accounts; Extent FINRA Rule 2150(c) Customers'
Permissible. Securities or Funds--Sharing
in Accounts; Extent
Permissible
Rule 3.21 Customer Disclosures......... FINRA Rule 2265 Extended Hours
Trading Risk Disclosure
Rule 4.1 Requirements.................. Section 17 of the Exchange Act
and the rules thereunder
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) & (d)
Supervision--Internal
Inspections/Review of
Transactions and
Correspondence\*\
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 12.11 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
------------------------------------------------------------------------
\1\ FINRA shall only have Regulatory Responsibility regarding the first
phrase of the BYX 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 BYX.
\2\ FINRA shall only have Regulatory Responsibility with regard to
market letters and sales literature to the extent the rule requires
the disclosure of the name of the Member.
\3\ FINRA shall not have Regulatory Responsibility with regard to the
requirement that all market letters be approved prior to use.
\4\ FINRA shall not have Regulatory Responsibility with regard to the
prohibitions set forth under subsection (a) of FINRA Rule 5230 to the
extent subsections (b)(2) or (b)(3) of the rule apply.
\*\ 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, BATS Exchange, Inc., Chicago Board Options Exchange,
Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX
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., NASDAQ OMX BX, Inc. and NASDAQ OMX PHLX,
Inc. approved by the SEC on April 15, 2010, as the same may be amended
from time to time.

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

[[Page 58002]]

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 October 8, 2010, the Commission may, by written
notice, declare the plan submitted by BYX and FINRA, File No. 4-613, 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 BYX 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 (https://www.sec.gov/rules/other.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number 4-613 on the subject line.

Paper Comments

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

All submissions should refer to File Number 4-613. This file number
should be included on the subject line if e-mail is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (https://www.sec.gov/rules/other.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed plan that are filed with the
Commission, and all written communications relating to the proposed
plan between the Commission and any person, other than those that may
be withheld from the public in accordance with the provisions of 5
U.S.C. 552, will be available for Web site viewing and printing in the
Commission's Public Reference Room, on official business days between
the hours of 10 am and 3 pm. Copies of the plan also will be available
for inspection and copying at the principal offices of BYX 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 4-613 and should
be submitted on or before October 8, 2010.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

\19\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23772 Filed 9-22-10; 8:45 am]
BILLING CODE 8010-01-P

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