Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing and Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities Among BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc. Relating to the Surveillance, Investigation, and Enforcement of Insider Trading Rules, 79714-79723 [2011-32753]
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<![CDATA[
79714
Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
Ongoing Review of Partner Countries’
Policy Performance
The Board also reviewed the policy
performance of countries that are
implementing compacts. These
countries do not need to be reselected
each year in order to continue
implementation. Once MCC makes a
commitment to a country through a
compact agreement, MCC does not
consider the country for reselection on
an annual basis during the term of its
compact. The Board emphasized the
need for all partner countries to
continue to improve their environment.
If it is determined that a country has
demonstrated a significant policy
reversal, MCC can hold it accountable
by applying MCC’s Suspension and
Termination Policy.
Selection To Initiate the Compact
Process
The Board also authorized MCC to
invite Benin and El Salvador to submit
a proposal for a second compact, as
described in section 609 of the Act (22
U.S.C. 7708).
Submission of a proposal is not a
guarantee that MCC will finalize a
compact with an eligible country. Any
MCA assistance provided under section
605 of the Act (22 U.S.C. 7704) will be
contingent on the successful negotiation
of a mutually agreeable compact
between the eligible country and MCC,
approval of the compact by the Board,
and the availability of funds.
[FR Doc. 2011–32733 Filed 12–21–11; 8:45 am]
BILLING CODE 9211–03–P
PENSION BENEFIT GUARANTY
CORPORATION
Premium Changes Based On
Recharacterization of Contributions
Pension Benefit Guaranty
Corporation.
ACTION: Policy statement.
AGENCY:
This policy statement
addresses PBGC’s policy on accepting
and responding to amended premium
filings based on recharacterization of
contributions. Recharacterization of
contributions refers to a situation in
which contributions originally
designated as being for the plan year in
which they were made are retroactively
redesignated as being for the preceding
plan year. This makes plan assets for the
current year higher, and the plan’s
variable-rate premium lower, than
originally reported. Such
recharacterization seeks not to correct a
factual error but to change a valid
designation and is not an appropriate
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SUMMARY:
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19:17 Dec 21, 2011
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basis for an amended premium filing or
premium refund.
FOR FURTHER INFORMATION CONTACT:
Catherine B. Klion
(klion.catherine@pbgc.gov), Manager, or
Deborah C. Murphy
(murphy.deborah@pbgc.gov), Attorney,
Regulatory and Policy Division,
Legislative and Regulatory Department,
Pension Benefit Guaranty Corporation,
1200 K Street NW., Washington DC
20005–4026; (202) 326–4024. (TTY and
TDD users may call the Federal relay
service toll free at 1–(800) 877–8339 and
ask to be connected to (202) 326–4024.)
SUPPLEMENTARY INFORMATION:
The Pension Benefit Guaranty
Corporation (PBGC) administers the
pension insurance program under title
IV of the Employee Retirement Income
Security Act of 1974 (ERISA). Under
sections 4006 and 4007 of ERISA, plans
covered by title IV must pay premiums
to PBGC. For single-employer plans,
premiums include an amount (the
variable-rate premium, or VRP) based on
unfunded vested benefits (the excess, if
any, of the value of vested benefits over
the value of plan assets).
A contribution made to a pension
plan during the first eight-and-a-half
months of a plan year may be
characterized as being either for the
current year (the plan year in which it
is made) or for the prior year (the
preceding plan year). The
characterization affects when the
contribution is first reflected in plan
assets. If a contribution is characterized
as being for the prior year, it is treated
as a receivable (which increases plan
assets) as of the beginning of the current
year and thus reduces any VRP for the
current year. If a contribution is
characterized as being for the current
year, it does not increase plan assets as
of the beginning of the current year and
thus does not affect VRP for the current
year.
The year for which a contribution is
made is designated on Schedule SB
(formerly Schedule B) (actuarial
information) to the annual report for the
plan on IRS/DOL/PBGC Form 5500.
PBGC has received a number of
amended premium filings, showing
increased assets and decreased VRP,
supported by amended Schedules SB (or
B) that reflect recharacterization of
contributions, and submitted with a
view to obtaining premium refunds.
PBGC has in practice accepted such
amended filings and granted the
refunds. Upon further consideration of
the matter, however, PBGC has
concluded that in general, such
amendments should be rejected and the
associated premium refunds denied.
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Permitting the amendment of
premium filings gives filers a way to
correct mistakes in the data reported in
the filings. Where the correction of
erroneous data results in a lower
premium, it is appropriate to refund the
amount of the overpayment. However,
recharacterization of a contribution does
not correct a mistake; rather, it seeks to
undo a valid designation of the year for
which the contribution was made. Thus,
it is not an appropriate basis for
amending the relevant premium filing
and claiming a refund.1
PBGC’s consideration of amended
premium filings takes into account the
facts and circumstances of each case. In
general, however, as explained above,
PBGC’s policy will be to reject amended
filings and deny refunds based on
recharacterization of contributions.
For questions about premium filings,
contact Robert Callahan
(callahan.robert@pbgc.gov) or Bill
O’Neill (oneill.bill@pbgc.gov), Financial
Operations Department; (202) 346–4067.
Issued in Washington, DC, this 16th day of
December, 2011.
Joshua Gotbaum,
Director, Pension Benefit Guaranty
Corporation.
[FR Doc. 2011–32804 Filed 12–21–11; 8:45 am]
BILLING CODE 7709–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65991; File No. 4–566]
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Notice of Filing and Order
Approving and Declaring Effective an
Amendment to the Plan for the
Allocation of Regulatory
Responsibilities Among BATS
Exchange, Inc., BATS Y-Exchange,
Inc., Chicago Board Options
Exchange, Incorporated, Chicago
Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc., NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, The
NASDAQ Stock Market LLC, National
Stock Exchange, Inc., New York Stock
Exchange LLC, NYSE Amex LLC, and
NYSE Arca, Inc. Relating to the
Surveillance, Investigation, and
Enforcement of Insider Trading Rules
December 16, 2011.
Notice is hereby given that the
Securities and Exchange Commission
1 The same principles would apply to an
amended filing made with a view to obtaining a
credit against the next year’s premium.
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Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
(‘‘Commission’’) has issued an Order,
pursuant to Section 17(d) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 approving and declaring
effective an amendment to the plan for
allocating regulatory responsibility
(‘‘Plan’’) filed pursuant to Rule 17d–2 of
the Act,2 by and among BATS
Exchange, Inc. (‘‘BATS’’), BATS YExchange, Inc. (‘‘BYX’’), Chicago Board
Options Exchange, Incorporated
(‘‘CBOE’’), Chicago Stock Exchange, Inc.
(‘‘CHX’’), EDGA Exchange, Inc.
(‘‘EDGA’’), EDGX Exchange, Inc.
(‘‘EDGX’’), the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’),
NASDAQ OMX BX, Inc., (‘‘NASDAQ
OMX BX’’), NASDAQ OMX PHLX LLC,
(‘‘NASDAQ OMX PHLX’’), The
NASDAQ Stock Market LLC (‘‘Nasdaq’’),
National Stock Exchange, Inc. (‘‘NSX’’),
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE Amex LLC (‘‘NYSE
Amex’’), and NYSE Arca, Inc. (‘‘NYSE
Arca’’) (each a ‘‘Participating
Organization’’ and collectively,
‘‘Participating Organizations’’ or
‘‘parties’’).
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)
authorizes the Commission, by rule or
order, to relieve an SRO of the
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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
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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.
II. The Plan
On September 12, 2008, the
Commission declared effective the
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).
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79715
Participating Organizations’ Plan for
allocating regulatory responsibilities
pursuant to Rule 17d–2.11 The Plan is
designed to eliminate regulatory
duplication by allocating regulatory
responsibility over Common FINRA
Members 12 (collectively ‘‘Common
Members’’) for the surveillance,
investigation, and enforcement of
common insider trading rules
(‘‘Common Rules’’).13 The Plan assigns
regulatory responsibility over Common
FINRA Members to FINRA for
surveillance, investigation, and
enforcement of insider trading by
broker-dealers, and their associated
persons, with respect to Listed Stocks
(as defined in the Plan), irrespective of
the marketplace(s) maintained by the
Participating Organizations on which
the relevant trading may occur.
III. Proposed Amendment to the Plan
On November 3, 2011, the
Participating Organizations submitted
an amendment to the Plan. The
proposed amendment was submitted to
reflect the addition of BATS as a Listing
Market (as defined in the Plan) and to
expand the coverage of Listed Stocks to
include an equity security that is listed
on BATS.14 Other similar conforming
amendments were made to reflect this
addition. The Participating
Organizations also amended the Plan to
update the contact information and SRO
rules that are covered by the Agreement.
In addition, the Participating
Organizations entered into a regulatory
services agreement that addresses
investigation and enforcement in
situations involving Insider Trading by
non-Common FINRA Members. The text
of the proposed amended 17d–2 plan is
as follows (except for paragraph
headings, which are italicized, additions
are italicized; deletions are [bracketed]):
*
*
*
*
*
11 See Securities Exchange Act Release No. 58536
(September 12, 2008), 73 FR 54646 (September 22,
2008). See also Securities Exchange Act Release
Nos. 58806 (October 17, 2008), 73 FR 63216
(October 23, 2008); 61919 (April 15, 2010), 75 FR
21051 (April 22, 2010); 63103 (October 14, 2010),
75 FR 64755 (October 20, 2010); and 63750 (January
21, 2011), 76 FR 4948 (January 27, 2011).
12 Common FINRA Members include members of
FINRA and at least one of the Participating
Organizations.
13 Common rules are defined as: (i) Federal
securities laws and rules promulgated by the
Commission pertaining to insider trading, and (ii)
the rules of the Participating Organizations that are
related to insider trading. See Exhibit A to the Plan.
14 See Securities Exchange Act Release No. 65225
(August 30, 2011), 76 FR 55148 (September 6, 2011)
(Order approving proposed rule change to adopt
rules for the qualification, listing and delisting of
companies on BATS).
E:\FR\FM\22DEN1.SGM
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79716
Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
jlentini on DSK4TPTVN1PROD with NOTICES
Agreement for the Allocation of
Regulatory Responsibility of
Surveillance, Investigation and
Enforcement for Insider Trading
pursuant to § 17(d) of the Securities
Exchange Act of 1934, 15 U.S.C. 78q(d),
and Rule 17d–2 Thereunder
This agreement (the ‘‘Agreement’’) by
and among BATS Exchange, Inc.
(‘‘BATS’’), BATS Y-Exchange, Inc.
(‘‘BYX’’), Chicago Board Options
Exchange, Inc. (‘‘CBOE’’) *, Chicago
Stock Exchange, Inc. (‘‘CHX’’), EDGA
Exchange, Inc. (‘‘EDGA’’), EDGX
Exchange, Inc. (‘‘EDGX’’), Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’), NASDAQ OMX BX, Inc.
(‘‘NASDAQ OMX BX’’), NASDAQ OMX
PHLX LLC (‘‘NASDAQ OMX PHLX’’),
The NASDAQ Stock Market LLC
(‘‘NASDAQ’’), National Stock Exchange,
Inc. (‘‘NSX’’), New York Stock Exchange
LLC (‘‘NYSE’’), NYSE Amex LLC
(‘‘NYSE Amex’’), and NYSE Arca, Inc.
(‘‘NYSE Arca’’) (each a ‘‘Participating
Organization’’ and together, the
‘‘Participating Organizations’’), is made
pursuant to § 17(d) of the Securities
Exchange Act of 1934 (the ‘‘Act’’), 15
U.S.C. 78q(d), and Securities and
Exchange Commission (‘‘SEC’’) Rule
17d–2, which allow for plans to allocate
regulatory responsibility among selfregulatory organizations (‘‘SROs’’).
Upon approval by the SEC, this
Agreement shall amend and restate the
agreement among the Participating
Organizations approved by the SEC on
[October 14, 2010] January 21, 2011.
Whereas, the Participating
Organizations desire to: (a) Foster
cooperation and coordination among the
SROs; (b) remove impediments to, and
foster the development of, a national
market system; (c) strive to protect the
interest of investors; and (d) eliminate
duplication in their regulatory
surveillance, investigation and
enforcement of insider trading;
Whereas, the Participating
Organizations are interested in
allocating to FINRA regulatory
responsibility for Common FINRA
Members (as defined below) for
surveillance, investigation and
enforcement of Insider Trading (as
defined below) in Listed Stocks (as
defined below) irrespective of the
marketplace(s) maintained by the
Participating Organizations on which
the relevant trading may occur in
violation of Common Insider Trading
Rules (as defined below);
* CBOE’s allocation of certain regulatory
responsibilities to FINRA under this Agreement is
limited to the activities of the CBOE Stock
Exchange, LLC, a facility of CBOE.
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Whereas, the Participating
Organizations will request regulatory
allocation of these regulatory
responsibilities by executing and filing
with the SEC a plan for the above stated
purposes (this Agreement, also known
herein as the ‘‘Plan’’) pursuant to the
provisions of § 17(d) of the Act, and SEC
Rule 17d–2 thereunder, as described
below; and
Whereas, the Participating
Organizations will also enter into a
Regulatory Services Agreement (the
‘‘Insider Trading RSA’’), of even date
herewith, to provide for the
investigation and enforcement of
suspected Insider Trading against
broker-dealers, and their associated
persons, that are not Common FINRA
Members in the case of Insider Trading
in Listed Stocks.
Now, therefore, in consideration of
the mutual covenants contained
hereafter, and other valuable
consideration to be mutually exchanged,
the Participating Organizations hereby
agree as follows:
1. Definitions. Unless otherwise
defined in this Agreement, or the
context otherwise requires, the terms
used in this Agreement will have the
same meaning they have under the Act,
and the rules and regulations
thereunder. As used in this Agreement,
the following terms will have the
following meanings:
a. ‘‘Rule’’ of an ‘‘exchange’’ or an
‘‘association’’ shall have the meaning
defined in Section 3(a)(27) of the Act.
b. ‘‘Common FINRA Members’’ shall
mean members of FINRA and at least
one of the Participating Organizations.
c. ‘‘Common Insider Trading Rules’’
shall mean (i) the federal securities laws
and rules thereunder promulgated by
the SEC pertaining to insider trading,
and (ii) the rules of the Participating
Organizations that are related to insider
trading, as provided on Exhibit A to this
Agreement.
d. ‘‘Effective Date’’ shall have the
meaning set forth in paragraph 28.
e. ‘‘Insider Trading’’ shall mean any
conduct or action taken by a natural
person or entity related in any way to
the trading of securities by an insider or
a related party based on or on the basis
of material non-public information
obtained during the performance of the
insider’s duties at the corporation, or
otherwise misappropriated, that could
be deemed a violation of the Common
Insider Trading Rules.
f. ‘‘Intellectual Property’’ will mean
any: (1) Processes, methodologies,
procedures, or technology, whether or
not patentable; (2) trademarks,
copyrights, literary works or other
works of authorship, service marks and
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trade secrets; or (3) software, systems,
machine-readable texts and files and
related documentation.
g. ‘‘Plan’’ shall mean this Agreement,
which is submitted as a Plan for the
allocation of regulatory responsibilities
of surveillance for insider trading
pursuant to § 17(d) of the Act, 15 U.S.C.
78q(d), and SEC Rule 17d–2.
h. ‘‘Listed Stock(s)’’ shall mean NYSE
Listed Stock(s), NASDAQ Listed
Stock(s), NYSE Amex Listed Stock(s),
NYSE Arca Listed Stock(s), BATS Listed
Stock(s) or CHX Solely Listed Stock(s).
i. ‘‘NYSE Listed Stock’’ shall mean an
equity security that is listed on the
NYSE.
j. ‘‘NASDAQ Listed Stock’’ shall mean
an equity security that is listed on
NASDAQ.
k. ‘‘NYSE Amex Listed Stock’’ shall
mean an equity security that is listed on
NYSE Amex.
l. ‘‘NYSE Arca Listed Stock’’ shall
mean an equity security that is listed on
NYSE Arca.
m. ‘‘BATS Listed Stock’’ shall mean
an equity security that is listed on
BATS.
n. ‘‘CHX Solely Listed Stock’’ shall
mean an equity security that is listed
only on the CHX.
[n]o. ‘‘Listing Market’’ shall mean
NYSE Amex, NASDAQ, NYSE, [or]
NYSE Arca or BATS, but not CHX.
2. Assumption of Regulatory
Responsibilities. On the Effective Date of
the Plan, FINRA will assume regulatory
responsibilities for surveillance,
investigation and enforcement of Insider
Trading by broker-dealers, and their
associated persons, for Common FINRA
Members with respect to Listed Stocks,
irrespective of the marketplace(s)
maintained by the Participant
Organizations on which the relevant
trading may occur in violation of the
Common Insider Trading Rules
(‘‘Regulatory Responsibilities’’).
3. Certification of Insider Trading
Rules.
a. Initial Certification. By signing this
Agreement, the Participating
Organizations, other than FINRA,
hereby certify to FINRA that their
respective lists of Common Insider
Trading Rules contained in Exhibit A
hereto are correct, and FINRA hereby
confirms that such rules are Common
Insider Trading Rules as defined in this
Agreement.
b. Yearly Certification. Each year
following the commencement of
operation of this Agreement, or more
frequently if required by changes in the
rules of the Participating Organizations,
each Participating Organization shall
submit a certified and updated list of
Common Insider Trading Rules to
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Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
FINRA for review, which shall (i) add
Participating Organization rules not
included in the then-current list of
Common Insider Trading Rules that
qualify as Common Insider Trading
Rules as defined in this Agreement; (ii)
delete Participating Organization rules
included in the current list of Common
Insider Trading Rules that no longer
qualify as Common Insider Trading
Rules as defined in this Agreement; and
(iii) confirm that the remaining rules on
the current list of Common Insider
Trading Rules continue to be
Participating Organization rules that
qualify as Common Insider Trading
Rules as defined in this Agreement.
FINRA shall review each Participating
Organization’s annual certification and
confirm whether FINRA agrees with the
submitted certified and updated list of
Common Insider Trading Rules by each
of the Participating Organizations.
4. No Retention of Regulatory
Responsibility. The Participating
Organizations do not contemplate the
retention of any responsibilities with
respect to the regulatory activities being
assumed by FINRA under the terms of
this Agreement.
5. Dually Listed Stocks. Stocks that
are listed on more than one
Participating Organization shall be
designated as an NYSE Listed Stock, a
NASDAQ Listed Stock, an NYSE Arca
Listed Stock or an NYSE Amex Listed
Stock based on the applicable
transaction reporting plan for the equity
security as set forth in paragraph 1.b. of
Exhibit B.
6. Fees. FINRA shall charge
Participating Organizations for
performing the Regulatory
Responsibilities, as set forth in the
Schedule of Fees, attached as Exhibit B.
7. 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.
8. Exchange Committee; Reports.
a. Exchange Committee. The
Participating Organizations shall form a
committee (the ‘‘Exchange Committee’’),
which shall act on behalf of all of
Participating Organizations in receiving
copies of the reports described below
and in reviewing issues that arise under
this Agreement. Each Participating
Organization shall appoint a
representative to the Exchange
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19:17 Dec 21, 2011
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Committee. The Exchange Committee
representatives shall report to their
respective executive management
bodies regarding status or issues under
this Agreement. The Participating
Organizations agree that the Exchange
Committee will meet regularly up to
four (4) times a year, with no more than
one meeting per calendar quarter. At
these meetings, the Exchange
Committee will discuss the conduct of
the Regulatory Responsibilities and
identify issues or concerns with respect
to this Agreement, including matters
related to the calculation of the cost
formula and accuracy of fees charged
and provision of information related to
the same. The SEC shall be permitted to
attend the meetings as an observer.
b. Reports. FINRA shall provide the
reports set forth in Exhibit C hereto and
any additional reports related to this
Agreement reasonably requested by a
majority vote of all representatives to
the Exchange Committee at each
Exchange Committee meeting, or more
often as the Participating Organizations
deem appropriate, but no more often
than once every quarterly billing period.
9. Customer Complaints. If a
Participating Organization receives a
copy of a customer complaint relating to
Insider Trading or other activity or
conduct that is within FINRA’s
Regulatory Responsibilities as set forth
in this Agreement, the Participating
Organization shall promptly forward to
FINRA, as applicable, a copy of such
customer complaint.
10. Parties to Make Personnel
Available as Witnesses. Each
Participating Organization shall make
its personnel available to FINRA to
serve as testimonial or non-testimonial
witnesses as necessary to assist FINRA
in fulfilling the Regulatory
Responsibilities allocated under this
Agreement. FINRA shall provide
reasonable advance notice when
practicable and shall work with a
Participating Organization to
accommodate reasonable scheduling
conflicts within the context and
demands as the entity with ultimate
regulatory responsibility. The
Participating Organization shall pay all
reasonable travel and other expenses
incurred by its employees to the extent
that FINRA requires such employees to
serve as witnesses, and provide
information or other assistance pursuant
to this Agreement.
11. Market Data; Sharing of WorkPapers, Data and Related Information.
a. Market Data. FINRA shall obtain
raw market data necessary to the
performance of regulation under this
Agreement from (a) the Consolidated
Tape Association (‘‘CTA’’) as the
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exclusive securities information
processor (‘‘SIP’’) for all NYSE Listed
Stocks, NYSE Amex Listed Stocks,
NYSE Arca Listed Stocks, BATS Listed
Stocks and CHX Solely Listed Stocks
and (b) the NASDAQ Unlisted Trading
Privileges Plan as the exclusive SIP for
all NASDAQ Listed Stocks.
b. Sharing. A Participating
Organization shall make available to
FINRA information necessary to assist
FINRA in fulfilling the Regulatory
Responsibilities assumed under the
terms of this Agreement. Such
information shall include any
information collected by a Participating
Organization in the course of
performing its regulatory obligations
under the Act, including information
relating to an on-going disciplinary
investigation or action against a
member, the amount of a fine imposed
on a member, financial information, or
information regarding proprietary
trading systems gained in the course of
examining a member (‘‘Regulatory
Information’’). This Regulatory
Information shall be used by FINRA
solely for the purposes of fulfilling its
Regulatory Responsibilities.
c. No Waiver of Privilege. 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.
d. Intellectual Property.
(i) Existing Intellectual Property.
FINRA is and will remain the owner of
all right, title and interest in and to the
proprietary Intellectual Property it
employs in the provision of regulation
hereunder (including the SONAR and
Stock Watch systems), and any
derivative works thereof. To the extent
certain elements of FINRA’s systems, or
portions thereof, may be licensed or
leased from third parties, all such third
party elements shall remain the
property of such third parties, as
applicable. Likewise, any other
Participating Organization is and will
remain the owner of all right, title and
interest in and to its own existing
proprietary Intellectual Property.
(ii) Enhancements to Existing
Intellectual Property or New
Developments. In the event FINRA (a)
makes any changes, modifications or
enhancements to its Intellectual
Property for any reason, or (b) creates
any newly developed Intellectual
Property for any reason, including as a
result of requested enhancements or
new development by the Exchange
Committee (collectively, the ‘‘New IP’’),
the Participating Organizations
acknowledge and agree that FINRA shall
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be deemed the owner of the New IP
created by it (and any derivative works
thereof), and shall retain all right, title
and interest therein and thereto, and
each other Participating Organization
hereby irrevocably assigns, transfers and
conveys to FINRA without further
consideration all of its right, title and
interest in or to all such New IP (and
any derivative works thereof).
(iii) Fees for New IP. FINRA will not
charge the Participating Organizations
any fees for any New IP created and
used by FINRA; provided, however, that
FINRA will be permitted to charge fees
for software maintenance work
performed on systems used in the
discharge of its duties hereunder.
12. Special or Cause Examinations.
Nothing in this Agreement shall restrict
or in any way encumber the right of a
party to conduct special or cause
examinations of Common FINRA
Members as any party, in its sole
discretion, shall deem appropriate or
necessary.
13. Dispute Resolution Under this
Agreement.
a. Negotiation. The parties to this
Agreement will attempt to resolve any
disputes through good faith negotiation
and discussion, escalating such
discussion up through the appropriate
management levels until reaching the
executive management level. In the
event a dispute cannot be settled
through these means, the parties shall
refer the dispute to binding arbitration.
b. Binding Arbitration. All claims,
disputes, controversies, and other
matters in question between the parties
to this Agreement arising out of or
relating to this Agreement or the breach
thereof that cannot be resolved by the
parties will be resolved through binding
arbitration. Unless otherwise agreed by
the parties, a dispute submitted to
binding arbitration pursuant to this
paragraph shall be resolved using the
following procedures:
(i) The arbitration shall be conducted
in the city of New York in accordance
with the Commercial Arbitration Rules
of the American Arbitration Association
and judgment upon the award rendered
by the arbitrator may be entered in any
court having jurisdiction thereof; and
(ii) There shall be three arbitrators,
and the chairperson of the arbitration
panel shall be an attorney.
14. Limitation of Liability. As between
the Participating Organizations, no
Participating Organization, including its
respective directors, governors, officers,
employees and agents, will be liable to
any other Participating Organization, or
its directors, governors, officers,
employees and agents, for any liability,
loss or damage resulting from any
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delays, inaccuracies, errors or omissions
with respect to its performing or failing
to perform regulatory responsibilities,
obligations, or functions, except (a) as
otherwise provided for under the Act,
(b) in instances of a Participating
Organization’s gross negligence, willful
misconduct or reckless disregard with
respect to another Participating
Organization, (c) in instances of a
breach of confidentiality obligations
owed to another Participating
Organization, or (d) in the case of any
Participating Organization paying fees
hereunder, for any payments due. The
Participating Organizations understand
and agree that the Regulatory
Responsibilities are being performed on
a good faith and best effort basis and no
warranties, express or implied, are made
by any Participating Organization to any
other Participating Organization with
respect to any of the responsibilities to
be performed hereunder. This paragraph
is not intended to create liability of any
Participating Organization to any third
party.
15. SEC Approval.
a. The parties agree to file promptly
this Agreement with the SEC for its
review and approval. FINRA shall file
this Agreement on behalf, and with the
explicit consent, of all Participating
Organizations.
b. If approved by the SEC, the
Participating Organizations will notify
their members of the general terms of
this Agreement and of its impact on
their members.
16. Subsequent Parties; Limited
Relationship. This Agreement shall
inure to the benefit of and shall be
binding upon the Participating
Organizations hereto and their
respective legal representatives,
successors, and assigns. Nothing in this
Agreement, expressed or implied, is
intended or shall: (a) Confer on any
person other than the Participating
Organizations hereto, or their respective
legal representatives, successors, and
assigns, any rights, remedies,
obligations or liabilities under or by
reason of this Agreement, (b) constitute
the Participating Organizations hereto
partners or participants in a joint
venture, or (c) appoint one Participating
Organization the agent of the other.
17. Assignment. No Participating
Organization may assign this Agreement
without the prior written consent of all
the other Participating Organizations,
which consent shall not be
unreasonably withheld, conditioned or
delayed; provided, however, that any
Participating Organization may assign
this Agreement to a corporation
controlling, controlled by or under
common control with the Participating
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Organization without the prior written
consent of any other party.
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. Termination.
a. Any Participating Organization may
cancel its participation in this
Agreement at any time, provided that it
has given 180 days written notice to the
other Participating Organizations (or in
the case of a change of control in
ownership of a Participating
Organization, such other notice time
period as that Participating Organization
may choose), and provided that such
termination has been approved by the
SEC. The cancellation of its
participation in this Agreement by any
Participating Organization shall not
terminate this Agreement as to the
remaining Participating Organizations.
b. The Regulatory Responsibilities
assumed under this Agreement by
FINRA may be terminated by FINRA
against any Participating Organization
as follows. The Participating
Organization will have thirty (30) days
from receipt to satisfy the invoice. If the
Participating Organization fails to
satisfy the invoice within thirty (30)
days of receipt (‘‘Default’’), FINRA will
notify the Participating Organization of
the Default. The Participating
Organization will have thirty (30) days
from receipt of the Default notice to
satisfy the invoice.
c. FINRA will have the right to
terminate the Regulatory
Responsibilities assumed under this
Agreement if a Participating
Organization has Defaulted in its
obligation to pay the invoice on more
than three (3) occasions in any rolling
twenty-four (24) month period.
20. Intermarket Surveillance Group
(‘‘ISG’’). In order to participate in this
Agreement, all Participating
Organizations to this Agreement must
be members of the ISG.
21. General. The Participating
Organizations agree to perform all acts
and execute all supplementary
instruments or documents that may be
reasonably necessary or desirable to
carry out the provisions of this
Agreement.
22. Liaison and Notices. All questions
regarding the implementation of this
Agreement shall be directed to the
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persons identified below, as applicable.
All notices and other communications
required or permitted to be given under
this Agreement shall be in writing and
shall be deemed to have been duly given
upon (i) actual receipt by the notified
party or (ii) constructive receipt (as of
the date marked on the return receipt)
if sent by certified or registered mail,
return receipt requested, to the
following addresses:
*
*
*
*
*
23. Confidentiality. 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
under this Agreement. No party shall
assert regulatory or other privileges as
against the other with respect to
Regulatory Information that is required
to be shared pursuant to this Agreement,
as defined by paragraph 11, above.
24. Regulatory Responsibility.
Pursuant to Section 17(d)(1)(A) of the
Act, and Rule 17d–2 thereunder, the
Participating Organizations jointly and
severally request the SEC, upon its
approval of this Agreement, to relieve
the Participating Organizations, jointly
and severally, of any and all
responsibilities with respect to the
matters allocated to FINRA pursuant to
this Agreement for purposes of §§ 17(d)
and 19(g) of the Act.
25. Governing Law. This Agreement
shall be deemed to have been made in
the State of New York, and shall be
construed and enforced in accordance
with the law of the State of New York,
without reference to principles of
conflicts of laws thereof. Each of the
parties hereby consents to submit to the
jurisdiction of the courts of the State of
New York in connection with any action
or proceeding relating to this
Agreement.
26. Survival of Provisions. Provisions
intended by their terms or context to
survive and continue notwithstanding
delivery of the regulatory services by
FINRA, the payment of the Fees by the
Participating Organizations, and any
expiration of this Agreement shall
survive and continue.
27. Amendment.
a. This Agreement may be amended to
add a new Participating Organization,
provided that such Participating
Organization does not assume
regulatory responsibility, solely by an
amendment executed by FINRA and
such new Participating Organization.
All other Participating Organizations
expressly consent to allow FINRA to
add new Participating Organizations to
this Agreement as provided above.
FINRA will promptly notify all
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Participating Organizations of any such
amendments to add a new Participating
Organization.
b. All other amendments must be
approved by each Participating
Organization. All amendments,
including adding a new Participating
Organization, must be filed with and
approved by the SEC before they
become effective.
28. Effective Date. The Effective Date
of this Agreement will be the date the
SEC declares this Agreement to be
effective pursuant to authority conferred
by § 17(d) of the Act, and SEC Rule 17d–
2 thereunder.
29. Counterparts. This Agreement
may be executed in any number of
counterparts, including facsimile, each
of which will be deemed an original, but
all of which taken together shall
constitute one single agreement between
the parties.
*
*
*
*
*
Exhibit A: Common Insider Trading
Rules
1. Securities Exchange Act of 1934
Section 10(b), and rules and regulations
promulgated there under in connection
with insider trading, including SEC
Rule 10b–5 (as it pertains to insider
trading), which states that:
Rule 10b–5—Employment of
Manipulative and Deceptive Devices
It shall be unlawful for any person,
directly or indirectly, by the use of any
means or instrumentality of interstate
commerce, or of the mails or of any
facility of any national securities
exchange,
a. To employ any device, scheme, or
artifice to defraud,
b. To make any untrue statement of a
material fact or to omit to state a
material fact necessary in order to make
the statements made, in the light of the
circumstances under which they were
made, not misleading, or
c. To engage in any act, practice, or
course of business which operates or
would operate as a fraud or deceit upon
any person, in connection with the
purchase or sale of any security.
2. Securities Exchange Act of 1934
Section 17(a), and rules and regulations
promulgated there under in connection
with insider trading, including SEC
Rule 17a–3 (as it pertains to insider
trading).
3. The following SRO Rules as they
pertain to violations of insider trading:
FINRA Rule 2010 (Standards of
Commercial Honor and Principles of
Trade)
FINRA Rule 2020 (Use of Manipulative,
Deceptive or Other Fraudulent
Devices)
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FINRA NASD Rule 3010 (Supervision)
FINRA NASD Rule 3110(a) and (c)
(Books and Records; Financial
Condition)
[NYSE Rule 401(a) (Business Conduct)]
[NYSE Rule 476(a) (Disciplinary
Proceedings Involving Charges
Against Members, Member
Organizations, Allied Members,
Approved Persons, Employees, or
Others)]
[NYSE Rule 440 (Books and Records)]
NYSE Rule 342 (Offices—Approval,
Supervision and Control)
NYSE Rule 440 (Books and Records)
NYSE Rule 476(a) (Disciplinary
Proceedings Involving Charges
Against Members, Member
Organizations, Principal Executives,
Approved Persons, Employees, or
Others)
NYSE Rule 2010 (Standards of
Commercial Honor and Principles of
Trade)
NYSE Rule 2020 (Use of Manipulative,
Deceptive or Other Fraudulent
Devices)
NYSE Amex Equities Rule 342
(Offices—Approval, Supervision and
Control)
NYSE Amex Equities Rule 440 (Books
and Records)
NYSE Amex Equities Rule 476(a)
(Disciplinary Proceedings Involving
Charges Against Members, Member
Organizations, Principal Executives,
Approved Persons, Employees, or
Others)
NYSE Amex Equities Rule 2010
(Standards of Commercial Honor and
Principles of Trade)
NYSE Amex Equities Rule 2020 (Use of
Manipulative, Deceptive or Other
Fraudulent Devices)
[NYSE Amex Cons. Art. II Sec. 3
Confidential Information]
[NYSE Amex Cons. Art. V Sec. 4
Suspension or Expulsion (b), (h), (i),
(j) and (r)]
[NYSE Amex Cons. Art. XI Sec. 4
Controlled Corporations and
Associations—Responsibility for
Corporate Subsidiary; Duty to
Produce Books]
[NYSE Amex Rule 3 General
Prohibitions and Duty to Report (d),
(h) (j) and (l)]
[NYSE Amex Rule 3 AEMI General
Prohibitions and Duty to Report (d)
and (h)]
[NYSE Amex Rule 16 Business Conduct]
[NYSE Amex Rule 320 Offices—
Approval, Supervision and Control]
[NYSE Amex Rule 324 Books and
Records]
NASDAQ OMX Rule 2110 (Standards of
Commercial Honor and Principles of
Trade)
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NASDAQ OMX Rule 2120 (Use of
Manipulative, Deceptive or Other
Fraudulent Devices)
NASDAQ OMX Rule 3010 (Supervision)
NASDAQ OMX Rule 3110 (a) and (c)
(Books and Records; Financial
Condition)
CHX Article 8, Rule 3 (Fraudulent Acts)
CHX Article 9, Rule 2 (Just & Equitable
Trade Principles)
CHX Article 11, Rule 2 (Maintenance of
Books and Records)
CHX Article 6, Rule 5 (Supervision of
Registered Persons and Branch and
Resident Offices)
CBOE Rule 4.1 (Practices inconsistent
with just and equitable principles)
CBOE Rule 4.2 (adherence to law)
CBOE Rule 4.7 (Manipulation)
CBOE Rule 4.18 (Prevention of the
misuse of material non public
information)
NASDAQ OMX PHLX Rule 707
(Conduct Inconsistent with Just and
Equitable Principles of Trade)
NASDAQ OMX PHLX Rule 748
(Supervision)
NASDAQ OMX PHLX Rule 760
(Maintenance, Retention and
Furnishing of Books, Records and
Other Information)
NASDAQ OMX PHLX Rule 761
(Supervisory Procedures Relating to
ITSFEA and to Prevention of Misuse
or Material Nonpublic Information)
NASDAQ OMX PHLX Rule 782
(Manipulative Operations)
NYSE Arca Equities Rule 2.24 (ETP
Books and Records)
NYSE Arca Equities Rule 6.3
(Prevention of the Misuse of Material,
Nonpublic Information)
NYSE Arca Equities Rule 6.2(b)
(Prohibited Acts (J&E))
NYSE Arca Equities Rule 6.1
(Adherence to Law)
NYSE Arca Equities Rule 6.18
(Supervision)
NYSE Arca Equities Rule 9.1(c) (Office
Supervision)
NYSE Arca Equities Rule 9.2(b)
(Account Supervision)
NYSE Arca Equities Rule 9.2(c)
(Customer Records)
NYSE Arca Equities Rule 2010
(Standards of Commercial Honor and
Principles of Trade)
NYSE Arca Equities Rule 2020 (Use of
Manipulative, Deceptive or Other
Fraudulent Devices)
[NYSE Arca Rule 9.17 Books and
Records]
NSX Rule 3.1 (Business Conduct of ETP
Holders)
NSX Rule 3.2 (Violations Prohibited)
NSX Rule 3.3 (Use of Fraudulent
Devices)
NSX Rule 4.1 (Requirements)
NSX Rule 5.1 (Written Procedures)
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NSX Rule 5.3 (Records)
NSX Rule 5.5 (Chinese Wall Procedures)
NASDAQ OMX BX Rule 2110
(Standards of Commercial Honor and
Principles of Trade)
NASDAQ OMX BX Rule 2120 (Use of
Manipulative, Deceptive or Other
Fraudulent Devices)
NASDAQ OMX BX Rule 3010
(Supervision)
NASDAQ OMX BX Rule 3110 (a) and (c)
(Books and Records; Financial
Condition)
BATS Rule 3.1 (Business Conduct of
Members)
BATS Rule 3.2 (Violations Prohibited)
BATS Rule 3.3 (Use of Fraudulent
Devices)
BATS Rule 4.1 (Requirements)
BATS Rule 5.1 (Written Procedures)
BATS Rule 5.3 (Records)
BATS Rule 5.5 (Prevention of the
Misuse of Material, Non-Public
Information)
BATS Rule 12.4 (Manipulative
Transactions)
BYX Rule 3.1 (Business Conduct of ETP
Holders)
BYX Rule 3.2 (Violations Prohibited)
BYX Rule 3.3 (Use of Fraudulent
Devices)
BYX Rule 4.1 (Requirements)
BYX Rule 5.1 (Written Procedures)
BYX Rule 5.3 (Records)
BYX Rule 5.5 (Prevention of the Misuse
of Material, Non-Public Information)
BYX Rule 12.4 (Manipulative
Transactions)
EDGA 3.1 (Business Conduct of
Members)
EDGA 3.2 (Violations Prohibited)
EDGA 3.3 (Use of Fraudulent Devices)
EDGA 4.1 (Requirements)
EDGA 5.1 (Written Procedures)
EDGA 5.3 (Records)
EDGA 5.5 (Prevention of M[m]isuse of
M[m]aterial, N[n]onpublic
I[i]nformation)
EDGA 12.4 (Manipulative Transactions)
EDGX 3.1 (Business Conduct of
Members)
EDGX 3.2 (Violations Prohibited)
EDGX 3.3 (Use of Fraudulent Devices)
EDGX 4.1 (Requirements)
EDGX 5.1 (Written Procedures)
EDGX 5.3 (Records)
EDGX 5.5 (Prevention of M[m]isuse of
M[m]aterial, N[n]onpublic
I[i]nformation)
EDGX 12.4 (Manipulative Transactions)
Exhibit B: Fee Schedule
1. Fees. FINRA shall charge each
Participating Organization a Quarterly
Fee in arrears for the performance of
FINRA’s Regulatory Responsibilities
under the Plan (each, a ‘‘Quarterly Fee,’’
and together, the ‘‘Fees’’).
a. Quarterly Fees.
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(1) Quarterly Fees for each
Participating Organization will be
charged by FINRA according to the
Participating Organization’s ‘‘Percentage
of Publicly Reported Trades’’ occurring
over three-month billing periods. The
‘‘Percentage of Publicly Reported
Trades’’ shall equal a Participating
Organization’s number of reported
Listed Stock trades during the relevant
period (the ‘‘Numerator’’), divided by
the total number of all Listed Stock
trades for the same period (the
‘‘Denominator’’). For purposes of
clarification, ADF and Trade Reporting
Facility (‘‘TRF’’) activity will be
included in the Denominator.
Additionally, with regard to TRFs, TRF
trade volume will be charged to FINRA.
Consequently, for purposes of
calculating the Quarterly Fees, the
volume for each Participant
Organization’s TRF will be calculated
separately (that is, TRF volume will be
broken out from the Participating
Organization’s overall Percentage of
Publicly Reported Trades) and the fees
for such will be billed to FINRA in
accordance with paragraph 1a.(2), rather
than to the applicable Participating
Organization.
(2) The Quarterly Fees shall be
determined by FINRA in the following
manner for each Participating
Organization:
(a) Less than 1.0%: If the Participating
Organization’s Percentage of Publicly
Reported Trades for the relevant threemonth billing period is less than 1.0%,
the Quarterly Fee shall be $6,250, per
quarter (‘‘Static Fee’’);
(b) Less than 2.0% but No Less than
1.0%: If the Participating Organization’s
Percentage of Publicly Reported Trades
for the relevant three-month billing
period is less than 2.0% but no less than
1.0%, the Quarterly Fee shall be
$18,750, per quarter (‘‘Static Fee’’);
(c) 2.0% or Greater: If the
Participating Organization’s Percentage
of Publicly Reported Trades for the
relevant three-month billing period is
2.0% or greater, the Quarterly Fee shall
be the amount equal to the Participating
Organization’s Percentage of Publicly
Reported Trades multiplied by FINRA’s
total charge (‘‘Total Charge’’) for its
performance of Regulatory
Responsibilities for the relevant threemonth billing period.
(3) Increases in Static Fees. FINRA
will re-evaluate the Quarterly Fees on
an annual basis during the annual
budget process outlined in paragraph
1.c. below. During each annual reevaluation, FINRA will have the
discretion to increase the Static Fees by
a percentage no greater than the
percentage increase in the Final Budget
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over the preceding year’s Final Budget.
Any changes to the Static Fees shall not
require an amendment to this
Agreement, but rather shall be
memorialized through the budget
process.
(4) Increases in Total Charges. Any
change in the Total Charges (whether a
Final Budget increase or any mid year
change) shall not require an amendment
to this Agreement, but rather shall be
memorialized through the budget
process.
b. Source of Data. For purposes of
calculation of the Percentage of Publicly
Reported Trades for each Participating
Organization, FINRA shall use (a) the
Consolidated Tape Association (‘‘CTA’’)
as the exclusive securities information
processor (‘‘SIP’’) for all NYSE Listed
Stocks, NYSE Amex Listed Stocks,
NYSE Arca Listed Stocks, BATS Listed
Stocks and CHX Solely Listed Stocks,
and (b) the Unlisted Trading Privileges
Plan as the exclusive SIP for NASDAQ
Listed Stocks.
c. Annual Budget Forecast. FINRA
will notify the Participating
Organizations of the forecasted costs of
its insider trading program for the
following calendar year by close of
business on October 15 of the thencurrent year (the ‘‘Forecasted Budget’’).
FINRA shall use best efforts to provide
as accurate a forecast as possible. FINRA
shall then provide a final submission of
the costs following approval of such
costs by its Board of Governors (the
‘‘Final Budget’’). Subject to paragraph
1d. below, in the event of a difference
between the Forecasted Budget and the
Final Budget, the Final Budget will
govern.
d. Increases in Fees over Five Percent.
(1) In the event that any proposed
increase to Fees by FINRA for a given
calendar year (which increase may arise
either during the annual budgetary
forecasting process or through any midyear increase) will result in a
cumulative increase in such calendar
year’s Fees of more than five percent
(5%) above the preceding calendar
year’s Final Budget (a ‘‘Major Increase’’),
then senior management of any
Participating Organization (a) that is a
Listing Market or (b) for which the
Percentage of Publicly Reported Trades
is then currently twenty percent (20%)
or greater, shall have the right to call a
meeting with the senior management of
FINRA in order to discuss any
disagreement over such proposed Major
Increase. By way of example, if FINRA
provides a Final Budget for 2011 that
represents an 4% increase above the
Final Budget for 2010, the terms of this
paragraph 1.d.(1) shall not apply; if,
however, in April of 2011, FINRA
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notifies the Exchange Committee of an
increase in Fees that represents an
additional 3% increase above the Final
Budget for 2010, then the increase shall
be deemed a Major Increase, and the
terms of this paragraph 1.d.(1) shall
become applicable (i.e., 4% and 3%
represents a cumulative increase of 7%
above the 2010 Final Budget).
(2) In the event that senior
management members of the involved
parties are unable to reach an agreement
regarding the proposed Major Increase,
then the matter shall be referred back to
the Exchange Committee for final
resolution. Prior to the matter being
referred back to the Exchange
Committee, nothing shall prohibit the
parties from conferring with the SEC.
Resolution shall be reached through a
vote of no fewer than all Participating
Organizations seated on the Exchange
Committee, and a simple majority shall
be required in order to reject the
proposed Major Increase.
e. Time Tracking. FINRA shall track
the time spent by staff on insider trading
responsibilities under this Agreement;
however, time tracking will not be used
to allocate costs.
2. Invoicing and Payment. FINRA
shall invoice each Participating
Organization for the Quarterly Fee
associated with the regulatory activities
performed pursuant to this Agreement
during the previous three-month billing
period within forty five (45) days of the
end of such previous 3-month billing
period. A Participating Organization
shall have thirty (30) days from date of
invoice to make payment to FINRA on
such invoice. The invoice will reflect
the Participating Organization’s
Percentage of Publicly Reported Trades
for that billing period.
3. Disputed Invoices; Interest. In the
event that a Participating Organization
disputes an invoice or a portion of an
invoice, the Participating Organization
shall notify FINRA in writing of the
disputed item(s) within fifteen (15) days
of receipt of the invoice. In its
notification to FINRA of the disputed
invoice, the Participating Organization
shall identify the disputed item(s) and
provide a brief explanation of why the
Participating Organization disputes the
charges. FINRA may charge a
Participating Organization interest on
any undisputed invoice or the
undisputed portions of a disputed
invoice that a Participating Organization
fails to pay within thirty (30) days of its
receipt of such invoice. Such interest
shall be assessed monthly. Interest will
mean one and one half percent per
month, or the maximum allowable
under applicable law, whichever is less.
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79721
4. Taxes. In the event any
governmental authority deems the
regulatory activities allocated to FINRA
to be taxable activities similar to the
provision of services in a commercial
context, the other Participating
Organizations agree that they shall bear
full responsibility, on a joint and several
basis, for the payment of any such taxes
levied on FINRA, or, if such taxes are
paid by FINRA directly to the
governmental authority, the other
Participating Organizations agree that
they shall reimburse FINRA for the
amount of any such taxes paid.
5. Audit Right; Record Keeping.
a. Audit Right.
(i) Once every rolling twelve (12)
month period, FINRA shall permit no
more than one audit (to be performed by
one or more Participating Organizations)
of the Fees charged by FINRA to the
Participating Organizations hereunder
and a detailed cost analysis supporting
such Fees (the ‘‘Audit’’). The
Participating Organization or
Organizations that conduct this Audit
will select a nationally-recognized
independent auditing firm (or may use
its regular independent auditor,
providing it is a nationally-recognized
auditing firm) (‘‘Auditing Firm’’) to act
on its, or their behalf, and will provide
reasonable notice to other Participating
Organizations of the Audit. FINRA will
permit the Auditing Firm reasonable
access during FINRA’s normal business
hours, with reasonable advance notice,
to such financial records and supporting
documentation as are necessary to
permit review of the accuracy of the
calculation of the Fees charged to the
Participating Organizations. The
Participating Organization, or
Organizations, as applicable, other than
FINRA, shall be responsible for the costs
of performing any such audit.
(ii) If, through an Audit, the Exchange
Committee determines that FINRA has
inaccurately calculated the Fees for any
Participating Organization, the
Exchange Committee will promptly
notify FINRA in writing of the amount
of such difference in the Fees, and, if
applicable, FINRA shall issue a
reimbursement of the overage amount to
the relevant Participating
Organization(s), less any amount owed
by the Participating Organization under
any outstanding, undisputed invoice(s).
If such an Audit reveals that any
Participating Organization paid less
than what was required pursuant to the
Agreement, then that Participating
Organization shall promptly pay FINRA
the difference between what the
Participating Organization owed
pursuant to the Agreement and what
that Participating Organization
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79722
Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
originally paid FINRA. If FINRA
disputes the results of an Audit
regarding the accuracy of the Fees, it
will submit the dispute for resolution
pursuant to the dispute resolution
procedures in paragraph 13 of the
Agreement.
(iii) In the event that through the
review of any supporting
documentation provided during the
Audit, any one or more Participating
Organizations desire to discuss with
FINRA the supporting documentation
and any questions arising therefrom
with regard to the manner in which
regulation was conducted, the
Participating Organization(s) shall call a
meeting with FINRA. FINRA shall in
turn notify the Exchange Committee of
this meeting in advance, and all
Participating Organizations shall be
welcome to attend (the ‘‘Fee Analysis
Meeting’’). The parties to this
Agreement acknowledge and agree that
while FINRA commits to discuss the
supporting documentation at the Fee
Analysis Meeting, FINRA shall not be
subject, by virtue of the above Audit
rights or any discussions during the Fee
Analysis Meeting or otherwise, to any
limitation whatsoever, other than the
Increase in Fee provisions set forth in
paragraph 1.d. of this Exhibit, on its
discretion as to the manner and means
by which it conducts its regulatory
efforts in its role as the SRO primarily
liable for regulatory decisions under this
Agreement. To that end, no
disagreement among the Participating
Organizations as to the manner or
means by which FINRA conducts its
regulatory efforts hereunder shall be
subject to the dispute resolution
procedures hereunder, and no
Participating Organization shall have
the right to compel FINRA to alter the
manner or means by which it conducts
its regulatory efforts. Further, a
Participating Organization shall not
have the right to compel a rebate or
reassessment of fees for services
rendered, on the basis that the
Participating Organization would have
conducted regulatory efforts in a
different manner than FINRA in its
professional judgment chose to conduct
its regulatory efforts.
b. Record Keeping. In anticipation of
any audit that may be performed by the
Exchange Committee under paragraph
5.a. above, FINRA shall keep accurate
financial records and documentation
relating to the Fees charged by it under
this Agreement.
Committee, which information covers
activity occurring under this Agreement:
1. Alert Summary Statistics: Total
number of surveillance system alerts
generated by quarter along with
associated number of reviews and
investigations. In addition, this
paragraph shall also reflect the number
of reviews and investigations originated
from a source other than an alert. A
separate table would be presented for
NYSE Listed Stock, NYSE Amex Listed
Stock, NYSE Arca Listed Stock,
NASDAQ Listed Stock, BATS Listed
Stock and CHX Solely Listed Stock
trading activity.
Exhibit C: Reports
9–12 months
FINRA shall provide the following
information in reports to the Exchange
12+ months
VerDate Mar<15>2010
19:17 Dec 21, 2011
Jkt 226001
2008
Surveillance
alerts
Surveillance
Alerts
Investigations
Total
4. Disposition of Closed Matters:
Would reflect the disposition of those
matters that were completed or closed
during the quarterly period being
reported. A separate table would be
presented for NYSE Listed Stock, NYSE
Amex Listed Stock, NYSE Arca Listed
Stock, NASDAQ Listed Stock, BATS
Listed Stock and CHX Solely Listed
Stock trading activity.
Example:
Surveillance
YTD
Investigations
Investigations
YTD
No Further Review
1st Quarter
2nd Quarter
Letter of Caution/Admonition/Fine
3rd Quarter
4th Quarter
Referred to
Legal/Enforcement
2008 Total
2. Aging of Open Matters: Would
reflect the aging for all currently open
matters for the quarterly period being
reported. A separate table would be
presented for NYSE Listed Stock, NYSE
Amex Listed Stock, NYSE Arca Listed
Stock, NASDAQ Listed Stock, BATS
Listed Stock and CHX Solely Listed
Stock trading activity.
Example:
Surveillance
alerts
Investigations
0–6 months
6–9 months
9–12 months
12+ months
Total
3. Timeliness of Completed Matters:
Would reflect the total age of those
matters that were completed or closed
during the quarterly period being
reported. FINRA will provide total
referrals to the SEC.
Example:
Surveillance
Alerts
Investigations
0–6 months
6–9 months
PO 00000
Frm 00077
Referred to
SEC/SRO
Merged
Other
Total
5. Pending Reviews. In addition to the
above reports, the Chief Regulatory
Officer (CRO) (or his or her designee) of
any Participating Organization that is
also a Listing Market (including CHX)
may inquire about pending reviews
involving stocks listed on that
Participating Organization’s market.
FINRA will respond to such inquiries
from a CRO; provided, however, that (a)
the CRO must hold any information
provided by FINRA in confidence and
(b) FINRA will not be compelled to
provide information in contradiction of
any mandate, directive or order from the
SEC, US Attorney’s Office, the Office of
any State Attorney General or court of
competent jurisdiction.
*
*
*
*
*
IV. Solicitation of Comments
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/sro.shtml); or
Fmt 4703
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Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices
• Send an email to rulecomments@sec.gov. Please include File
Number 4–566 on the subject line.
jlentini on DSK4TPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number 4–566. This file number should
be included on the subject line if email
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/
sro.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, 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 plan
also will be available for inspection and
copying at the principal offices of
BATS, BYX, CBOE, CHX, EDGA, EDGX,
FINRA, NASDAQ OMX BX, NASDAQ
OMX Phlx, NASDAQ, NSX, NYSE,
NYSE Amex, and NYSE Arca. 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 4–566 and should be submitted
on or before January 12, 2012.
V. Discussion
The Commission finds that the Plan,
as proposed to be amended, is
consistent with the factors set forth in
Section 17(d) of the Act 15 and Rule
17d–2 16 thereunder in that it is
necessary or appropriate in the public
interest and for the protection of
investors, fosters cooperation and
coordination among SROs, and removes
impediments to and fosters the
development of the national market
system. The Commission continues to
believe that the Plan, as amended,
should reduce unnecessary regulatory
duplication by allocating regulatory
responsibility for the surveillance,
investigation, and enforcement of
Common Rules to FINRA. Accordingly,
the proposed amendment to the Plan
promotes efficiency by consolidating
these regulatory functions in a single
SRO. Under paragraph (c) of Rule 17d–
2, the Commission may, after
appropriate notice and comment,
declare a plan, or any part of a plan,
effective. In this instance, the
Commission believes that appropriate
notice and comment can take place after
the proposed amendment is effective.
The purpose of the amendment is to
amend the Plan to reflect that BATS has
adopted rules for the qualification,
listing, and delisting of companies on
BATS. Accordingly, the amendment
expands the coverage of Listed Stocks to
include an equity security that is listed
on BATS. The Commission believes that
the amended Plan should become
effective without undue delay in order
to reflect the expanded coverage to
BATS-listed securities.
In addition, the Commission notes
that the prior version of this Plan was
published for comment, and the
Commission did not receive any
comments thereon.17 Finally, the
Commission does not believe that the
amendment to the Plan raises any new
regulatory issues that the Commission
has not previously considered.
VI. Conclusion
This order gives effect to the amended
Plan submitted to the Commission that
is contained in File No. 4–566.
It is therefore ordered, pursuant to
Section 17(d) of the Act,18 that the Plan,
as amended, is hereby approved and
declared effective.
It is further ordered that the
Participating Organizations are relieved
of those regulatory responsibilities
allocated to FINRA under the amended
Plan to the extent of such allocation.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–32753 Filed 12–21–11; 8:45 am]
BILLING CODE 8011–01–P
supra note 11.
U.S.C. 78q(d).
19 17 CFR 200.30–3(a)(34)
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65968; File No. SR–ISE–
2011–83]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Extend the Penny Pilot
Program
December 15, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
2, 2011, International Securities
Exchange, LLC (the ‘‘Exchange’’ or
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to amend its rules
relating to a pilot program to quote and
to trade certain options in pennies
(‘‘Penny Pilot Program’’). The text of the
proposed rule change is as follows, with
deletions in [brackets] and additions are
underlined:
Rule 710. Minimum Trading Increments
(a) The Board may establish minimum
trading increments for options traded on the
Exchange. Such changes by the Board will be
designated as a stated policy, practice, or
interpretation with respect to the
administration of this Rule 710 within the
meaning of subparagraph (3)(A) of Section
19(b) of the Exchange Act and will be filed
with the SEC as a rule change for
effectiveness upon filing. Until such time as
the Board makes a change in the increments,
the following principles shall apply:
(1) If the options contract is trading at less
than $3.00 per option, $.05; and
(2) If the options contract is trading at
$3.00 per option or higher, $.10.
(b) Minimum trading increments for
dealings in options contracts other than those
specified in paragraph (a) may be fixed by the
Exchange from time to time for options
contracts of a particular series.
(c) Notwithstanding the above, the
Exchange may trade in the minimum
variation of the primary market in the
underlying security.
Supplementary Material to Rule 710
.01 Notwithstanding any other provision
of this Rule 710, the Exchange will operate
17 See
18 15
15 15
U.S.C. 78q(d).
16 17 CFR 240.17d–2
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1 15
2 17
Sfmt 4703
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
22DEN1
]]>Agencies
[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Notices]
[Pages 79714-79723]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32753]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65991; File No. 4-566]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing and Order Approving and Declaring
Effective an Amendment to the Plan for the Allocation of Regulatory
Responsibilities Among BATS Exchange, Inc., BATS Y-Exchange, Inc.,
Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange,
Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry
Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC,
The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York
Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc. Relating to the
Surveillance, Investigation, and Enforcement of Insider Trading Rules
December 16, 2011.
Notice is hereby given that the Securities and Exchange Commission
[[Page 79715]]
(``Commission'') has issued an Order, pursuant to Section 17(d) of the
Securities Exchange Act of 1934 (``Act''),\1\ approving and declaring
effective an amendment to the plan for allocating regulatory
responsibility (``Plan'') filed pursuant to Rule 17d-2 of the Act,\2\
by and among BATS Exchange, Inc. (``BATS''), BATS Y-Exchange, Inc.
(``BYX''), Chicago Board Options Exchange, Incorporated (``CBOE''),
Chicago Stock Exchange, Inc. (``CHX''), EDGA Exchange, Inc. (``EDGA''),
EDGX Exchange, Inc. (``EDGX''), the Financial Industry Regulatory
Authority, Inc. (``FINRA''), NASDAQ OMX BX, Inc., (``NASDAQ OMX BX''),
NASDAQ OMX PHLX LLC, (``NASDAQ OMX PHLX''), The NASDAQ Stock Market LLC
(``Nasdaq''), National Stock Exchange, Inc. (``NSX''), New York Stock
Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSE Amex''), and NYSE Arca,
Inc. (``NYSE Arca'') (each a ``Participating Organization'' and
collectively, ``Participating Organizations'' or ``parties'').
---------------------------------------------------------------------------
\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) \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 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.
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------
II. The Plan
On September 12, 2008, the Commission declared effective the
Participating Organizations' Plan for allocating regulatory
responsibilities pursuant to Rule 17d-2.\11\ The Plan is designed to
eliminate regulatory duplication by allocating regulatory
responsibility over Common FINRA Members \12\ (collectively ``Common
Members'') for the surveillance, investigation, and enforcement of
common insider trading rules (``Common Rules'').\13\ The Plan assigns
regulatory responsibility over Common FINRA Members to FINRA for
surveillance, investigation, and enforcement of insider trading by
broker-dealers, and their associated persons, with respect to Listed
Stocks (as defined in the Plan), irrespective of the marketplace(s)
maintained by the Participating Organizations on which the relevant
trading may occur.
---------------------------------------------------------------------------
\11\ See Securities Exchange Act Release No. 58536 (September
12, 2008), 73 FR 54646 (September 22, 2008). See also Securities
Exchange Act Release Nos. 58806 (October 17, 2008), 73 FR 63216
(October 23, 2008); 61919 (April 15, 2010), 75 FR 21051 (April 22,
2010); 63103 (October 14, 2010), 75 FR 64755 (October 20, 2010); and
63750 (January 21, 2011), 76 FR 4948 (January 27, 2011).
\12\ Common FINRA Members include members of FINRA and at least
one of the Participating Organizations.
\13\ Common rules are defined as: (i) Federal securities laws
and rules promulgated by the Commission pertaining to insider
trading, and (ii) the rules of the Participating Organizations that
are related to insider trading. See Exhibit A to the Plan.
---------------------------------------------------------------------------
III. Proposed Amendment to the Plan
On November 3, 2011, the Participating Organizations submitted an
amendment to the Plan. The proposed amendment was submitted to reflect
the addition of BATS as a Listing Market (as defined in the Plan) and
to expand the coverage of Listed Stocks to include an equity security
that is listed on BATS.\14\ Other similar conforming amendments were
made to reflect this addition. The Participating Organizations also
amended the Plan to update the contact information and SRO rules that
are covered by the Agreement. In addition, the Participating
Organizations entered into a regulatory services agreement that
addresses investigation and enforcement in situations involving Insider
Trading by non-Common FINRA Members. The text of the proposed amended
17d-2 plan is as follows (except for paragraph headings, which are
italicized, additions are italicized; deletions are [bracketed]):
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 65225 (August 30,
2011), 76 FR 55148 (September 6, 2011) (Order approving proposed
rule change to adopt rules for the qualification, listing and
delisting of companies on BATS).
---------------------------------------------------------------------------
* * * * *
[[Page 79716]]
Agreement for the Allocation of Regulatory Responsibility of
Surveillance, Investigation and Enforcement for Insider Trading
pursuant to Sec. 17(d) of the Securities Exchange Act of 1934, 15
U.S.C. 78q(d), and Rule 17d-2 Thereunder
This agreement (the ``Agreement'') by and among BATS Exchange, Inc.
(``BATS''), BATS Y-Exchange, Inc. (``BYX''), Chicago Board Options
Exchange, Inc. (``CBOE'') \*\, Chicago Stock Exchange, Inc. (``CHX''),
EDGA Exchange, Inc. (``EDGA''), EDGX Exchange, Inc. (``EDGX''),
Financial Industry Regulatory Authority, Inc. (``FINRA''), NASDAQ OMX
BX, Inc. (``NASDAQ OMX BX''), NASDAQ OMX PHLX LLC (``NASDAQ OMX
PHLX''), The NASDAQ Stock Market LLC (``NASDAQ''), National Stock
Exchange, Inc. (``NSX''), New York Stock Exchange LLC (``NYSE''), NYSE
Amex LLC (``NYSE Amex''), and NYSE Arca, Inc. (``NYSE Arca'') (each a
``Participating Organization'' and together, the ``Participating
Organizations''), is made pursuant to Sec. 17(d) of the Securities
Exchange Act of 1934 (the ``Act''), 15 U.S.C. 78q(d), and Securities
and Exchange Commission (``SEC'') Rule 17d-2, which allow for plans to
allocate regulatory responsibility among self-regulatory organizations
(``SROs''). Upon approval by the SEC, this Agreement shall amend and
restate the agreement among the Participating Organizations approved by
the SEC on [October 14, 2010] January 21, 2011.
---------------------------------------------------------------------------
\*\ CBOE's allocation of certain regulatory responsibilities to
FINRA under this Agreement is limited to the activities of the CBOE
Stock Exchange, LLC, a facility of CBOE.
---------------------------------------------------------------------------
Whereas, the Participating Organizations desire to: (a) Foster
cooperation and coordination among the SROs; (b) remove impediments to,
and foster the development of, a national market system; (c) strive to
protect the interest of investors; and (d) eliminate duplication in
their regulatory surveillance, investigation and enforcement of insider
trading;
Whereas, the Participating Organizations are interested in
allocating to FINRA regulatory responsibility for Common FINRA Members
(as defined below) for surveillance, investigation and enforcement of
Insider Trading (as defined below) in Listed Stocks (as defined below)
irrespective of the marketplace(s) maintained by the Participating
Organizations on which the relevant trading may occur in violation of
Common Insider Trading Rules (as defined below);
Whereas, the Participating Organizations will request regulatory
allocation of these regulatory responsibilities by executing and filing
with the SEC a plan for the above stated purposes (this Agreement, also
known herein as the ``Plan'') pursuant to the provisions of Sec. 17(d)
of the Act, and SEC Rule 17d-2 thereunder, as described below; and
Whereas, the Participating Organizations will also enter into a
Regulatory Services Agreement (the ``Insider Trading RSA''), of even
date herewith, to provide for the investigation and enforcement of
suspected Insider Trading against broker-dealers, and their associated
persons, that are not Common FINRA Members in the case of Insider
Trading in Listed Stocks.
Now, therefore, in consideration of the mutual covenants contained
hereafter, and other valuable consideration to be mutually exchanged,
the Participating Organizations hereby agree as follows:
1. Definitions. Unless otherwise defined in this Agreement, or the
context otherwise requires, the terms used in this Agreement will have
the same meaning they have under the Act, and the rules and regulations
thereunder. As used in this Agreement, the following terms will have
the following meanings:
a. ``Rule'' of an ``exchange'' or an ``association'' shall have the
meaning defined in Section 3(a)(27) of the Act.
b. ``Common FINRA Members'' shall mean members of FINRA and at
least one of the Participating Organizations.
c. ``Common Insider Trading Rules'' shall mean (i) the federal
securities laws and rules thereunder promulgated by the SEC pertaining
to insider trading, and (ii) the rules of the Participating
Organizations that are related to insider trading, as provided on
Exhibit A to this Agreement.
d. ``Effective Date'' shall have the meaning set forth in paragraph
28.
e. ``Insider Trading'' shall mean any conduct or action taken by a
natural person or entity related in any way to the trading of
securities by an insider or a related party based on or on the basis of
material non-public information obtained during the performance of the
insider's duties at the corporation, or otherwise misappropriated, that
could be deemed a violation of the Common Insider Trading Rules.
f. ``Intellectual Property'' will mean any: (1) Processes,
methodologies, procedures, or technology, whether or not patentable;
(2) trademarks, copyrights, literary works or other works of
authorship, service marks and trade secrets; or (3) software, systems,
machine-readable texts and files and related documentation.
g. ``Plan'' shall mean this Agreement, which is submitted as a Plan
for the allocation of regulatory responsibilities of surveillance for
insider trading pursuant to Sec. 17(d) of the Act, 15 U.S.C. 78q(d),
and SEC Rule 17d-2.
h. ``Listed Stock(s)'' shall mean NYSE Listed Stock(s), NASDAQ
Listed Stock(s), NYSE Amex Listed Stock(s), NYSE Arca Listed Stock(s),
BATS Listed Stock(s) or CHX Solely Listed Stock(s).
i. ``NYSE Listed Stock'' shall mean an equity security that is
listed on the NYSE.
j. ``NASDAQ Listed Stock'' shall mean an equity security that is
listed on NASDAQ.
k. ``NYSE Amex Listed Stock'' shall mean an equity security that is
listed on NYSE Amex.
l. ``NYSE Arca Listed Stock'' shall mean an equity security that is
listed on NYSE Arca.
m. ``BATS Listed Stock'' shall mean an equity security that is
listed on BATS.
n. ``CHX Solely Listed Stock'' shall mean an equity security that
is listed only on the CHX.
[n]o. ``Listing Market'' shall mean NYSE Amex, NASDAQ, NYSE, [or]
NYSE Arca or BATS, but not CHX.
2. Assumption of Regulatory Responsibilities. On the Effective Date
of the Plan, FINRA will assume regulatory responsibilities for
surveillance, investigation and enforcement of Insider Trading by
broker-dealers, and their associated persons, for Common FINRA Members
with respect to Listed Stocks, irrespective of the marketplace(s)
maintained by the Participant Organizations on which the relevant
trading may occur in violation of the Common Insider Trading Rules
(``Regulatory Responsibilities'').
3. Certification of Insider Trading Rules.
a. Initial Certification. By signing this Agreement, the
Participating Organizations, other than FINRA, hereby certify to FINRA
that their respective lists of Common Insider Trading Rules contained
in Exhibit A hereto are correct, and FINRA hereby confirms that such
rules are Common Insider Trading Rules as defined in this Agreement.
b. Yearly Certification. Each year following the commencement of
operation of this Agreement, or more frequently if required by changes
in the rules of the Participating Organizations, each Participating
Organization shall submit a certified and updated list of Common
Insider Trading Rules to
[[Page 79717]]
FINRA for review, which shall (i) add Participating Organization rules
not included in the then-current list of Common Insider Trading Rules
that qualify as Common Insider Trading Rules as defined in this
Agreement; (ii) delete Participating Organization rules included in the
current list of Common Insider Trading Rules that no longer qualify as
Common Insider Trading Rules as defined in this Agreement; and (iii)
confirm that the remaining rules on the current list of Common Insider
Trading Rules continue to be Participating Organization rules that
qualify as Common Insider Trading Rules as defined in this Agreement.
FINRA shall review each Participating Organization's annual
certification and confirm whether FINRA agrees with the submitted
certified and updated list of Common Insider Trading Rules by each of
the Participating Organizations.
4. No Retention of Regulatory Responsibility. The Participating
Organizations do not contemplate the retention of any responsibilities
with respect to the regulatory activities being assumed by FINRA under
the terms of this Agreement.
5. Dually Listed Stocks. Stocks that are listed on more than one
Participating Organization shall be designated as an NYSE Listed Stock,
a NASDAQ Listed Stock, an NYSE Arca Listed Stock or an NYSE Amex Listed
Stock based on the applicable transaction reporting plan for the equity
security as set forth in paragraph 1.b. of Exhibit B.
6. Fees. FINRA shall charge Participating Organizations for
performing the Regulatory Responsibilities, as set forth in the
Schedule of Fees, attached as Exhibit B.
7. 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.
8. Exchange Committee; Reports.
a. Exchange Committee. The Participating Organizations shall form a
committee (the ``Exchange Committee''), which shall act on behalf of
all of Participating Organizations in receiving copies of the reports
described below and in reviewing issues that arise under this
Agreement. Each Participating Organization shall appoint a
representative to the Exchange Committee. The Exchange Committee
representatives shall report to their respective executive management
bodies regarding status or issues under this Agreement. The
Participating Organizations agree that the Exchange Committee will meet
regularly up to four (4) times a year, with no more than one meeting
per calendar quarter. At these meetings, the Exchange Committee will
discuss the conduct of the Regulatory Responsibilities and identify
issues or concerns with respect to this Agreement, including matters
related to the calculation of the cost formula and accuracy of fees
charged and provision of information related to the same. The SEC shall
be permitted to attend the meetings as an observer.
b. Reports. FINRA shall provide the reports set forth in Exhibit C
hereto and any additional reports related to this Agreement reasonably
requested by a majority vote of all representatives to the Exchange
Committee at each Exchange Committee meeting, or more often as the
Participating Organizations deem appropriate, but no more often than
once every quarterly billing period.
9. Customer Complaints. If a Participating Organization receives a
copy of a customer complaint relating to Insider Trading or other
activity or conduct that is within FINRA's Regulatory Responsibilities
as set forth in this Agreement, the Participating Organization shall
promptly forward to FINRA, as applicable, a copy of such customer
complaint.
10. Parties to Make Personnel Available as Witnesses. Each
Participating Organization shall make its personnel available to FINRA
to serve as testimonial or non-testimonial witnesses as necessary to
assist FINRA in fulfilling the Regulatory Responsibilities allocated
under this Agreement. FINRA shall provide reasonable advance notice
when practicable and shall work with a Participating Organization to
accommodate reasonable scheduling conflicts within the context and
demands as the entity with ultimate regulatory responsibility. The
Participating Organization shall pay all reasonable travel and other
expenses incurred by its employees to the extent that FINRA requires
such employees to serve as witnesses, and provide information or other
assistance pursuant to this Agreement.
11. Market Data; Sharing of Work-Papers, Data and Related
Information.
a. Market Data. FINRA shall obtain raw market data necessary to the
performance of regulation under this Agreement from (a) the
Consolidated Tape Association (``CTA'') as the exclusive securities
information processor (``SIP'') for all NYSE Listed Stocks, NYSE Amex
Listed Stocks, NYSE Arca Listed Stocks, BATS Listed Stocks and CHX
Solely Listed Stocks and (b) the NASDAQ Unlisted Trading Privileges
Plan as the exclusive SIP for all NASDAQ Listed Stocks.
b. Sharing. A Participating Organization shall make available to
FINRA information necessary to assist FINRA in fulfilling the
Regulatory Responsibilities assumed under the terms of this Agreement.
Such information shall include any information collected by a
Participating Organization in the course of performing its regulatory
obligations under the Act, including information relating to an on-
going disciplinary investigation or action against a member, the amount
of a fine imposed on a member, financial information, or information
regarding proprietary trading systems gained in the course of examining
a member (``Regulatory Information''). This Regulatory Information
shall be used by FINRA solely for the purposes of fulfilling its
Regulatory Responsibilities.
c. No Waiver of Privilege. 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.
d. Intellectual Property.
(i) Existing Intellectual Property. FINRA is and will remain the
owner of all right, title and interest in and to the proprietary
Intellectual Property it employs in the provision of regulation
hereunder (including the SONAR and Stock Watch systems), and any
derivative works thereof. To the extent certain elements of FINRA's
systems, or portions thereof, may be licensed or leased from third
parties, all such third party elements shall remain the property of
such third parties, as applicable. Likewise, any other Participating
Organization is and will remain the owner of all right, title and
interest in and to its own existing proprietary Intellectual Property.
(ii) Enhancements to Existing Intellectual Property or New
Developments. In the event FINRA (a) makes any changes, modifications
or enhancements to its Intellectual Property for any reason, or (b)
creates any newly developed Intellectual Property for any reason,
including as a result of requested enhancements or new development by
the Exchange Committee (collectively, the ``New IP''), the
Participating Organizations acknowledge and agree that FINRA shall
[[Page 79718]]
be deemed the owner of the New IP created by it (and any derivative
works thereof), and shall retain all right, title and interest therein
and thereto, and each other Participating Organization hereby
irrevocably assigns, transfers and conveys to FINRA without further
consideration all of its right, title and interest in or to all such
New IP (and any derivative works thereof).
(iii) Fees for New IP. FINRA will not charge the Participating
Organizations any fees for any New IP created and used by FINRA;
provided, however, that FINRA will be permitted to charge fees for
software maintenance work performed on systems used in the discharge of
its duties hereunder.
12. Special or Cause Examinations. Nothing in this Agreement shall
restrict or in any way encumber the right of a party to conduct special
or cause examinations of Common FINRA Members as any party, in its sole
discretion, shall deem appropriate or necessary.
13. Dispute Resolution Under this Agreement.
a. Negotiation. The parties to this Agreement will attempt to
resolve any disputes through good faith negotiation and discussion,
escalating such discussion up through the appropriate management levels
until reaching the executive management level. In the event a dispute
cannot be settled through these means, the parties shall refer the
dispute to binding arbitration.
b. Binding Arbitration. All claims, disputes, controversies, and
other matters in question between the parties to this Agreement arising
out of or relating to this Agreement or the breach thereof that cannot
be resolved by the parties will be resolved through binding
arbitration. Unless otherwise agreed by the parties, a dispute
submitted to binding arbitration pursuant to this paragraph shall be
resolved using the following procedures:
(i) The arbitration shall be conducted in the city of New York in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof; and
(ii) There shall be three arbitrators, and the chairperson of the
arbitration panel shall be an attorney.
14. Limitation of Liability. As between the Participating
Organizations, no Participating Organization, including its respective
directors, governors, officers, employees and agents, will be liable to
any other Participating Organization, or its directors, governors,
officers, employees and agents, for any liability, loss or damage
resulting from any delays, inaccuracies, errors or omissions with
respect to its performing or failing to perform regulatory
responsibilities, obligations, or functions, except (a) as otherwise
provided for under the Act, (b) in instances of a Participating
Organization's gross negligence, willful misconduct or reckless
disregard with respect to another Participating Organization, (c) in
instances of a breach of confidentiality obligations owed to another
Participating Organization, or (d) in the case of any Participating
Organization paying fees hereunder, for any payments due. The
Participating Organizations understand and agree that the Regulatory
Responsibilities are being performed on a good faith and best effort
basis and no warranties, express or implied, are made by any
Participating Organization to any other Participating Organization with
respect to any of the responsibilities to be performed hereunder. This
paragraph is not intended to create liability of any Participating
Organization to any third party.
15. SEC Approval.
a. The parties agree to file promptly this Agreement with the SEC
for its review and approval. FINRA shall file this Agreement on behalf,
and with the explicit consent, of all Participating Organizations.
b. If approved by the SEC, the Participating Organizations will
notify their members of the general terms of this Agreement and of its
impact on their members.
16. Subsequent Parties; Limited Relationship. This Agreement shall
inure to the benefit of and shall be binding upon the Participating
Organizations hereto and their respective legal representatives,
successors, and assigns. Nothing in this Agreement, expressed or
implied, is intended or shall: (a) Confer on any person other than the
Participating Organizations hereto, or their respective legal
representatives, successors, and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, (b)
constitute the Participating Organizations hereto partners or
participants in a joint venture, or (c) appoint one Participating
Organization the agent of the other.
17. Assignment. No Participating Organization may assign this
Agreement without the prior written consent of all the other
Participating Organizations, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that any
Participating Organization may assign this Agreement to a corporation
controlling, controlled by or under common control with the
Participating Organization without the prior written consent of any
other party.
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. Termination.
a. Any Participating Organization may cancel its participation in
this Agreement at any time, provided that it has given 180 days written
notice to the other Participating Organizations (or in the case of a
change of control in ownership of a Participating Organization, such
other notice time period as that Participating Organization may
choose), and provided that such termination has been approved by the
SEC. The cancellation of its participation in this Agreement by any
Participating Organization shall not terminate this Agreement as to the
remaining Participating Organizations.
b. The Regulatory Responsibilities assumed under this Agreement by
FINRA may be terminated by FINRA against any Participating Organization
as follows. The Participating Organization will have thirty (30) days
from receipt to satisfy the invoice. If the Participating Organization
fails to satisfy the invoice within thirty (30) days of receipt
(``Default''), FINRA will notify the Participating Organization of the
Default. The Participating Organization will have thirty (30) days from
receipt of the Default notice to satisfy the invoice.
c. FINRA will have the right to terminate the Regulatory
Responsibilities assumed under this Agreement if a Participating
Organization has Defaulted in its obligation to pay the invoice on more
than three (3) occasions in any rolling twenty-four (24) month period.
20. Intermarket Surveillance Group (``ISG''). In order to
participate in this Agreement, all Participating Organizations to this
Agreement must be members of the ISG.
21. General. The Participating Organizations agree to perform all
acts and execute all supplementary instruments or documents that may be
reasonably necessary or desirable to carry out the provisions of this
Agreement.
22. Liaison and Notices. All questions regarding the implementation
of this Agreement shall be directed to the
[[Page 79719]]
persons identified below, as applicable. All notices and other
communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon
(i) actual receipt by the notified party or (ii) constructive receipt
(as of the date marked on the return receipt) if sent by certified or
registered mail, return receipt requested, to the following addresses:
* * * * *
23. Confidentiality. 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 under
this Agreement. No party shall assert regulatory or other privileges as
against the other with respect to Regulatory Information that is
required to be shared pursuant to this Agreement, as defined by
paragraph 11, above.
24. Regulatory Responsibility. Pursuant to Section 17(d)(1)(A) of
the Act, and Rule 17d-2 thereunder, the Participating Organizations
jointly and severally request the SEC, upon its approval of this
Agreement, to relieve the Participating Organizations, jointly and
severally, of any and all responsibilities with respect to the matters
allocated to FINRA pursuant to this Agreement for purposes of
Sec. Sec. 17(d) and 19(g) of the Act.
25. Governing Law. This Agreement shall be deemed to have been made
in the State of New York, and shall be construed and enforced in
accordance with the law of the State of New York, without reference to
principles of conflicts of laws thereof. Each of the parties hereby
consents to submit to the jurisdiction of the courts of the State of
New York in connection with any action or proceeding relating to this
Agreement.
26. Survival of Provisions. Provisions intended by their terms or
context to survive and continue notwithstanding delivery of the
regulatory services by FINRA, the payment of the Fees by the
Participating Organizations, and any expiration of this Agreement shall
survive and continue.
27. Amendment.
a. This Agreement may be amended to add a new Participating
Organization, provided that such Participating Organization does not
assume regulatory responsibility, solely by an amendment executed by
FINRA and such new Participating Organization. All other Participating
Organizations expressly consent to allow FINRA to add new Participating
Organizations to this Agreement as provided above. FINRA will promptly
notify all Participating Organizations of any such amendments to add a
new Participating Organization.
b. All other amendments must be approved by each Participating
Organization. All amendments, including adding a new Participating
Organization, must be filed with and approved by the SEC before they
become effective.
28. Effective Date. The Effective Date of this Agreement will be
the date the SEC declares this Agreement to be effective pursuant to
authority conferred by Sec. 17(d) of the Act, and SEC Rule 17d-2
thereunder.
29. Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile, each of which will be deemed an
original, but all of which taken together shall constitute one single
agreement between the parties.
* * * * *
Exhibit A: Common Insider Trading Rules
1. Securities Exchange Act of 1934 Section 10(b), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 10b-5 (as it pertains to insider trading), which
states that:
Rule 10b-5--Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of the
mails or of any facility of any national securities exchange,
a. To employ any device, scheme, or artifice to defraud,
b. To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading, or
c. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
2. Securities Exchange Act of 1934 Section 17(a), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 17a-3 (as it pertains to insider trading).
3. The following SRO Rules as they pertain to violations of insider
trading:
FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade)
FINRA Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent
Devices)
FINRA NASD Rule 3010 (Supervision)
FINRA NASD Rule 3110(a) and (c) (Books and Records; Financial
Condition)
[NYSE Rule 401(a) (Business Conduct)]
[NYSE Rule 476(a) (Disciplinary Proceedings Involving Charges Against
Members, Member Organizations, Allied Members, Approved Persons,
Employees, or Others)]
[NYSE Rule 440 (Books and Records)]
NYSE Rule 342 (Offices--Approval, Supervision and Control)
NYSE Rule 440 (Books and Records)
NYSE Rule 476(a) (Disciplinary Proceedings Involving Charges Against
Members, Member Organizations, Principal Executives, Approved Persons,
Employees, or Others)
NYSE Rule 2010 (Standards of Commercial Honor and Principles of Trade)
NYSE Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent
Devices)
NYSE Amex Equities Rule 342 (Offices--Approval, Supervision and
Control)
NYSE Amex Equities Rule 440 (Books and Records)
NYSE Amex Equities Rule 476(a) (Disciplinary Proceedings Involving
Charges Against Members, Member Organizations, Principal Executives,
Approved Persons, Employees, or Others)
NYSE Amex Equities Rule 2010 (Standards of Commercial Honor and
Principles of Trade)
NYSE Amex Equities Rule 2020 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
[NYSE Amex Cons. Art. II Sec. 3 Confidential Information]
[NYSE Amex Cons. Art. V Sec. 4 Suspension or Expulsion (b), (h), (i),
(j) and (r)]
[NYSE Amex Cons. Art. XI Sec. 4 Controlled Corporations and
Associations--Responsibility for Corporate Subsidiary; Duty to Produce
Books]
[NYSE Amex Rule 3 General Prohibitions and Duty to Report (d), (h) (j)
and (l)]
[NYSE Amex Rule 3 AEMI General Prohibitions and Duty to Report (d) and
(h)]
[NYSE Amex Rule 16 Business Conduct]
[NYSE Amex Rule 320 Offices--Approval, Supervision and Control]
[NYSE Amex Rule 324 Books and Records]
NASDAQ OMX Rule 2110 (Standards of Commercial Honor and Principles of
Trade)
[[Page 79720]]
NASDAQ OMX Rule 2120 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
NASDAQ OMX Rule 3010 (Supervision)
NASDAQ OMX Rule 3110 (a) and (c) (Books and Records; Financial
Condition)
CHX Article 8, Rule 3 (Fraudulent Acts)
CHX Article 9, Rule 2 (Just & Equitable Trade Principles)
CHX Article 11, Rule 2 (Maintenance of Books and Records)
CHX Article 6, Rule 5 (Supervision of Registered Persons and Branch and
Resident Offices)
CBOE Rule 4.1 (Practices inconsistent with just and equitable
principles)
CBOE Rule 4.2 (adherence to law)
CBOE Rule 4.7 (Manipulation)
CBOE Rule 4.18 (Prevention of the misuse of material non public
information)
NASDAQ OMX PHLX Rule 707 (Conduct Inconsistent with Just and Equitable
Principles of Trade)
NASDAQ OMX PHLX Rule 748 (Supervision)
NASDAQ OMX PHLX Rule 760 (Maintenance, Retention and Furnishing of
Books, Records and Other Information)
NASDAQ OMX PHLX Rule 761 (Supervisory Procedures Relating to ITSFEA and
to Prevention of Misuse or Material Nonpublic Information)
NASDAQ OMX PHLX Rule 782 (Manipulative Operations)
NYSE Arca Equities Rule 2.24 (ETP Books and Records)
NYSE Arca Equities Rule 6.3 (Prevention of the Misuse of Material,
Nonpublic Information)
NYSE Arca Equities Rule 6.2(b) (Prohibited Acts (J&E))
NYSE Arca Equities Rule 6.1 (Adherence to Law)
NYSE Arca Equities Rule 6.18 (Supervision)
NYSE Arca Equities Rule 9.1(c) (Office Supervision)
NYSE Arca Equities Rule 9.2(b) (Account Supervision)
NYSE Arca Equities Rule 9.2(c) (Customer Records)
NYSE Arca Equities Rule 2010 (Standards of Commercial Honor and
Principles of Trade)
NYSE Arca Equities Rule 2020 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
[NYSE Arca Rule 9.17 Books and Records]
NSX Rule 3.1 (Business Conduct of ETP Holders)
NSX Rule 3.2 (Violations Prohibited)
NSX Rule 3.3 (Use of Fraudulent Devices)
NSX Rule 4.1 (Requirements)
NSX Rule 5.1 (Written Procedures)
NSX Rule 5.3 (Records)
NSX Rule 5.5 (Chinese Wall Procedures)
NASDAQ OMX BX Rule 2110 (Standards of Commercial Honor and Principles
of Trade)
NASDAQ OMX BX Rule 2120 (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
NASDAQ OMX BX Rule 3010 (Supervision)
NASDAQ OMX BX Rule 3110 (a) and (c) (Books and Records; Financial
Condition)
BATS Rule 3.1 (Business Conduct of Members)
BATS Rule 3.2 (Violations Prohibited)
BATS Rule 3.3 (Use of Fraudulent Devices)
BATS Rule 4.1 (Requirements)
BATS Rule 5.1 (Written Procedures)
BATS Rule 5.3 (Records)
BATS Rule 5.5 (Prevention of the Misuse of Material, Non-Public
Information)
BATS Rule 12.4 (Manipulative Transactions)
BYX Rule 3.1 (Business Conduct of ETP Holders)
BYX Rule 3.2 (Violations Prohibited)
BYX Rule 3.3 (Use of Fraudulent Devices)
BYX Rule 4.1 (Requirements)
BYX Rule 5.1 (Written Procedures)
BYX Rule 5.3 (Records)
BYX Rule 5.5 (Prevention of the Misuse of Material, Non-Public
Information)
BYX Rule 12.4 (Manipulative Transactions)
EDGA 3.1 (Business Conduct of Members)
EDGA 3.2 (Violations Prohibited)
EDGA 3.3 (Use of Fraudulent Devices)
EDGA 4.1 (Requirements)
EDGA 5.1 (Written Procedures)
EDGA 5.3 (Records)
EDGA 5.5 (Prevention of M[m]isuse of M[m]aterial, N[n]onpublic
I[i]nformation)
EDGA 12.4 (Manipulative Transactions)
EDGX 3.1 (Business Conduct of Members)
EDGX 3.2 (Violations Prohibited)
EDGX 3.3 (Use of Fraudulent Devices)
EDGX 4.1 (Requirements)
EDGX 5.1 (Written Procedures)
EDGX 5.3 (Records)
EDGX 5.5 (Prevention of M[m]isuse of M[m]aterial, N[n]onpublic
I[i]nformation)
EDGX 12.4 (Manipulative Transactions)
Exhibit B: Fee Schedule
1. Fees. FINRA shall charge each Participating Organization a
Quarterly Fee in arrears for the performance of FINRA's Regulatory
Responsibilities under the Plan (each, a ``Quarterly Fee,'' and
together, the ``Fees'').
a. Quarterly Fees.
(1) Quarterly Fees for each Participating Organization will be
charged by FINRA according to the Participating Organization's
``Percentage of Publicly Reported Trades'' occurring over three-month
billing periods. The ``Percentage of Publicly Reported Trades'' shall
equal a Participating Organization's number of reported Listed Stock
trades during the relevant period (the ``Numerator''), divided by the
total number of all Listed Stock trades for the same period (the
``Denominator''). For purposes of clarification, ADF and Trade
Reporting Facility (``TRF'') activity will be included in the
Denominator. Additionally, with regard to TRFs, TRF trade volume will
be charged to FINRA. Consequently, for purposes of calculating the
Quarterly Fees, the volume for each Participant Organization's TRF will
be calculated separately (that is, TRF volume will be broken out from
the Participating Organization's overall Percentage of Publicly
Reported Trades) and the fees for such will be billed to FINRA in
accordance with paragraph 1a.(2), rather than to the applicable
Participating Organization.
(2) The Quarterly Fees shall be determined by FINRA in the
following manner for each Participating Organization:
(a) Less than 1.0%: If the Participating Organization's Percentage
of Publicly Reported Trades for the relevant three-month billing period
is less than 1.0%, the Quarterly Fee shall be $6,250, per quarter
(``Static Fee'');
(b) Less than 2.0% but No Less than 1.0%: If the Participating
Organization's Percentage of Publicly Reported Trades for the relevant
three-month billing period is less than 2.0% but no less than 1.0%, the
Quarterly Fee shall be $18,750, per quarter (``Static Fee'');
(c) 2.0% or Greater: If the Participating Organization's Percentage
of Publicly Reported Trades for the relevant three-month billing period
is 2.0% or greater, the Quarterly Fee shall be the amount equal to the
Participating Organization's Percentage of Publicly Reported Trades
multiplied by FINRA's total charge (``Total Charge'') for its
performance of Regulatory Responsibilities for the relevant three-month
billing period.
(3) Increases in Static Fees. FINRA will re-evaluate the Quarterly
Fees on an annual basis during the annual budget process outlined in
paragraph 1.c. below. During each annual re-evaluation, FINRA will have
the discretion to increase the Static Fees by a percentage no greater
than the percentage increase in the Final Budget
[[Page 79721]]
over the preceding year's Final Budget. Any changes to the Static Fees
shall not require an amendment to this Agreement, but rather shall be
memorialized through the budget process.
(4) Increases in Total Charges. Any change in the Total Charges
(whether a Final Budget increase or any mid year change) shall not
require an amendment to this Agreement, but rather shall be
memorialized through the budget process.
b. Source of Data. For purposes of calculation of the Percentage of
Publicly Reported Trades for each Participating Organization, FINRA
shall use (a) the Consolidated Tape Association (``CTA'') as the
exclusive securities information processor (``SIP'') for all NYSE
Listed Stocks, NYSE Amex Listed Stocks, NYSE Arca Listed Stocks, BATS
Listed Stocks and CHX Solely Listed Stocks, and (b) the Unlisted
Trading Privileges Plan as the exclusive SIP for NASDAQ Listed Stocks.
c. Annual Budget Forecast. FINRA will notify the Participating
Organizations of the forecasted costs of its insider trading program
for the following calendar year by close of business on October 15 of
the then-current year (the ``Forecasted Budget''). FINRA shall use best
efforts to provide as accurate a forecast as possible. FINRA shall then
provide a final submission of the costs following approval of such
costs by its Board of Governors (the ``Final Budget''). Subject to
paragraph 1d. below, in the event of a difference between the
Forecasted Budget and the Final Budget, the Final Budget will govern.
d. Increases in Fees over Five Percent.
(1) In the event that any proposed increase to Fees by FINRA for a
given calendar year (which increase may arise either during the annual
budgetary forecasting process or through any mid-year increase) will
result in a cumulative increase in such calendar year's Fees of more
than five percent (5%) above the preceding calendar year's Final Budget
(a ``Major Increase''), then senior management of any Participating
Organization (a) that is a Listing Market or (b) for which the
Percentage of Publicly Reported Trades is then currently twenty percent
(20%) or greater, shall have the right to call a meeting with the
senior management of FINRA in order to discuss any disagreement over
such proposed Major Increase. By way of example, if FINRA provides a
Final Budget for 2011 that represents an 4% increase above the Final
Budget for 2010, the terms of this paragraph 1.d.(1) shall not apply;
if, however, in April of 2011, FINRA notifies the Exchange Committee of
an increase in Fees that represents an additional 3% increase above the
Final Budget for 2010, then the increase shall be deemed a Major
Increase, and the terms of this paragraph 1.d.(1) shall become
applicable (i.e., 4% and 3% represents a cumulative increase of 7%
above the 2010 Final Budget).
(2) In the event that senior management members of the involved
parties are unable to reach an agreement regarding the proposed Major
Increase, then the matter shall be referred back to the Exchange
Committee for final resolution. Prior to the matter being referred back
to the Exchange Committee, nothing shall prohibit the parties from
conferring with the SEC. Resolution shall be reached through a vote of
no fewer than all Participating Organizations seated on the Exchange
Committee, and a simple majority shall be required in order to reject
the proposed Major Increase.
e. Time Tracking. FINRA shall track the time spent by staff on
insider trading responsibilities under this Agreement; however, time
tracking will not be used to allocate costs.
2. Invoicing and Payment. FINRA shall invoice each Participating
Organization for the Quarterly Fee associated with the regulatory
activities performed pursuant to this Agreement during the previous
three-month billing period within forty five (45) days of the end of
such previous 3-month billing period. A Participating Organization
shall have thirty (30) days from date of invoice to make payment to
FINRA on such invoice. The invoice will reflect the Participating
Organization's Percentage of Publicly Reported Trades for that billing
period.
3. Disputed Invoices; Interest. In the event that a Participating
Organization disputes an invoice or a portion of an invoice, the
Participating Organization shall notify FINRA in writing of the
disputed item(s) within fifteen (15) days of receipt of the invoice. In
its notification to FINRA of the disputed invoice, the Participating
Organization shall identify the disputed item(s) and provide a brief
explanation of why the Participating Organization disputes the charges.
FINRA may charge a Participating Organization interest on any
undisputed invoice or the undisputed portions of a disputed invoice
that a Participating Organization fails to pay within thirty (30) days
of its receipt of such invoice. Such interest shall be assessed
monthly. Interest will mean one and one half percent per month, or the
maximum allowable under applicable law, whichever is less.
4. Taxes. In the event any governmental authority deems the
regulatory activities allocated to FINRA to be taxable activities
similar to the provision of services in a commercial context, the other
Participating Organizations agree that they shall bear full
responsibility, on a joint and several basis, for the payment of any
such taxes levied on FINRA, or, if such taxes are paid by FINRA
directly to the governmental authority, the other Participating
Organizations agree that they shall reimburse FINRA for the amount of
any such taxes paid.
5. Audit Right; Record Keeping.
a. Audit Right.
(i) Once every rolling twelve (12) month period, FINRA shall permit
no more than one audit (to be performed by one or more Participating
Organizations) of the Fees charged by FINRA to the Participating
Organizations hereunder and a detailed cost analysis supporting such
Fees (the ``Audit''). The Participating Organization or Organizations
that conduct this Audit will select a nationally-recognized independent
auditing firm (or may use its regular independent auditor, providing it
is a nationally-recognized auditing firm) (``Auditing Firm'') to act on
its, or their behalf, and will provide reasonable notice to other
Participating Organizations of the Audit. FINRA will permit the
Auditing Firm reasonable access during FINRA's normal business hours,
with reasonable advance notice, to such financial records and
supporting documentation as are necessary to permit review of the
accuracy of the calculation of the Fees charged to the Participating
Organizations. The Participating Organization, or Organizations, as
applicable, other than FINRA, shall be responsible for the costs of
performing any such audit.
(ii) If, through an Audit, the Exchange Committee determines that
FINRA has inaccurately calculated the Fees for any Participating
Organization, the Exchange Committee will promptly notify FINRA in
writing of the amount of such difference in the Fees, and, if
applicable, FINRA shall issue a reimbursement of the overage amount to
the relevant Participating Organization(s), less any amount owed by the
Participating Organization under any outstanding, undisputed
invoice(s). If such an Audit reveals that any Participating
Organization paid less than what was required pursuant to the
Agreement, then that Participating Organization shall promptly pay
FINRA the difference between what the Participating Organization owed
pursuant to the Agreement and what that Participating Organization
[[Page 79722]]
originally paid FINRA. If FINRA disputes the results of an Audit
regarding the accuracy of the Fees, it will submit the dispute for
resolution pursuant to the dispute resolution procedures in paragraph
13 of the Agreement.
(iii) In the event that through the review of any supporting
documentation provided during the Audit, any one or more Participating
Organizations desire to discuss with FINRA the supporting documentation
and any questions arising therefrom with regard to the manner in which
regulation was conducted, the Participating Organization(s) shall call
a meeting with FINRA. FINRA shall in turn notify the Exchange Committee
of this meeting in advance, and all Participating Organizations shall
be welcome to attend (the ``Fee Analysis Meeting''). The parties to
this Agreement acknowledge and agree that while FINRA commits to
discuss the supporting documentation at the Fee Analysis Meeting, FINRA
shall not be subject, by virtue of the above Audit rights or any
discussions during the Fee Analysis Meeting or otherwise, to any
limitation whatsoever, other than the Increase in Fee provisions set
forth in paragraph 1.d. of this Exhibit, on its discretion as to the
manner and means by which it conducts its regulatory efforts in its
role as the SRO primarily liable for regulatory decisions under this
Agreement. To that end, no disagreement among the Participating
Organizations as to the manner or means by which FINRA conducts its
regulatory efforts hereunder shall be subject to the dispute resolution
procedures hereunder, and no Participating Organization shall have the
right to compel FINRA to alter the manner or means by which it conducts
its regulatory efforts. Further, a Participating Organization shall not
have the right to compel a rebate or reassessment of fees for services
rendered, on the basis that the Participating Organization would have
conducted regulatory efforts in a different manner than FINRA in its
professional judgment chose to conduct its regulatory efforts.
b. Record Keeping. In anticipation of any audit that may be
performed by the Exchange Committee under paragraph 5.a. above, FINRA
shall keep accurate financial records and documentation relating to the
Fees charged by it under this Agreement.
Exhibit C: Reports
FINRA shall provide the following information in reports to the
Exchange Committee, which information covers activity occurring under
this Agreement:
1. Alert Summary Statistics: Total number of surveillance system
alerts generated by quarter along with associated number of reviews and
investigations. In addition, this paragraph shall also reflect the
number of reviews and investigations originated from a source other
than an alert. A separate table would be presented for NYSE Listed
Stock, NYSE Amex Listed Stock, NYSE Arca Listed Stock, NASDAQ Listed
Stock, BATS Listed Stock and CHX Solely Listed Stock trading activity.
------------------------------------------------------------------------
Surveillance
2008 alerts Investigations
------------------------------------------------------------------------
1st Quarter
------------------------------------------------------------------------
2nd Quarter
------------------------------------------------------------------------
3rd Quarter
------------------------------------------------------------------------
4th Quarter
-----------------------------
2008 Total
------------------------------------------------------------------------
2. Aging of Open Matters: Would reflect the aging for all currently
open matters for the quarterly period being reported. A separate table
would be presented for NYSE Listed Stock, NYSE Amex Listed Stock, NYSE
Arca Listed Stock, NASDAQ Listed Stock, BATS Listed Stock and CHX
Solely Listed Stock trading activity.
Example:
------------------------------------------------------------------------
Surveillance
alerts Investigations
------------------------------------------------------------------------
0-6 months
------------------------------------------------------------------------
6-9 months
------------------------------------------------------------------------
9-12 months
------------------------------------------------------------------------
12+ months
-----------------------------
Total
------------------------------------------------------------------------
3. Timeliness of Completed Matters: Would reflect the total age of
those matters that were completed or closed during the quarterly period
being reported. FINRA will provide total referrals to the SEC.
Example:
------------------------------------------------------------------------
Surveillance
Alerts Investigations
------------------------------------------------------------------------
0-6 months
------------------------------------------------------------------------
6-9 months
------------------------------------------------------------------------
9-12 months
------------------------------------------------------------------------
12+ months
-----------------------------
Total
------------------------------------------------------------------------
4. Disposition of Closed Matters: Would reflect the disposition of
those matters that were completed or closed during the quarterly period
being reported. A separate table would be presented for NYSE Listed
Stock, NYSE Amex Listed Stock, NYSE Arca Listed Stock, NASDAQ Listed
Stock, BATS Listed Stock and CHX Solely Listed Stock trading activity.
Example:
------------------------------------------------------------------------
Surveillance Investigations
YTD YTD
------------------------------------------------------------------------
No Further Review
------------------------------------------------------------------------
Letter of Caution/Admonition/Fine
------------------------------------------------------------------------
Referred to Legal/Enforcement
------------------------------------------------------------------------
Referred to SEC/SRO
------------------------------------------------------------------------
Merged
------------------------------------------------------------------------
Other
-----------------------------
Total
------------------------------------------------------------------------
5. Pending Reviews. In addition to the above reports, the Chief
Regulatory Officer (CRO) (or his or her designee) of any Participating
Organization that is also a Listing Market (including CHX) may inquire
about pending reviews involving stocks listed on that Participating
Organization's market. FINRA will respond to such inquiries from a CRO;
provided, however, that (a) the CRO must hold any information provided
by FINRA in confidence and (b) FINRA will not be compelled to provide
information in contradiction of any mandate, directive or order from
the SEC, US Attorney's Office, the Office of any State Attorney General
or court of competent jurisdiction.
* * * * *
IV. Solicitation of Comments
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/sro.shtml); or
[[Page 79723]]
Send an email to rule-comments@sec.gov. Please include
File Number 4-566 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number 4-566. This file number
should be included on the subject line if email 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/sro.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, 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 plan also will be available for inspection and
copying at the principal offices of BATS, BYX, CBOE, CHX, EDGA, EDGX,
FINRA, NASDAQ OMX BX, NASDAQ OMX Phlx, NASDAQ, NSX, NYSE, NYSE Amex,
and NYSE Arca. 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 4-566
and should be submitted on or before January 12, 2012.
V. Discussion
The Commission finds that the Plan, as proposed to be amended, is
consistent with the factors set forth in Section 17(d) of the Act \15\
and Rule 17d-2 \16\ thereunder in that it is necessary or appropriate
in the public interest and for the protection of investors, fosters
cooperation and coordination among SROs, and removes impediments to and
fosters the development of the national market system. The Commission
continues to believe that the Plan, as amended, should reduce
unnecessary regulatory duplication by allocating regulatory
responsibility for the surveillance, investigation, and enforcement of
Common Rules to FINRA. Accordingly, the proposed amendment to the Plan
promotes efficiency by consolidating these regulatory functions in a
single SRO. Under paragraph (c) of Rule 17d-2, the Commission may,
after appropriate notice and comment, declare a plan, or any part of a
plan, effective. In this instance, the Commission believes that
appropriate notice and comment can take place after the proposed
amendment is effective. The purpose of the amendment is to amend the
Plan to reflect that BATS has adopted rules for the qualification,
listing, and delisting of companies on BATS. Accordingly, the amendment
expands the coverage of Listed Stocks to include an equity security
that is listed on BATS. The Commission believes that the amended Plan
should become effective without undue delay in order to reflect the
expanded coverage to BATS-listed securities.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78q(d).
\16\ 17 CFR 240.17d-2
---------------------------------------------------------------------------
In addition, the Commission notes that the prior version of this
Plan was published for comment, and the Commission did not receive any
comments thereon.\17\ Finally, the Commission does not believe that the
amendment to the Plan raises any new regulatory issues that the
Commission has not previously considered.
---------------------------------------------------------------------------
\17\ See supra note 11.
---------------------------------------------------------------------------
VI. Conclusion
This order gives effect to the amended Plan submitted to the
Commission that is contained in File No. 4-566.
It is therefore ordered, pursuant to Section 17(d) of the Act,\18\
that the Plan, as amend
