Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and the Topaz Exchange, LLC, 52587-52589 [2013-20568]

Download as PDF Federal Register / Vol. 78, No. 164 / Friday, August 23, 2013 / Notices Commission as a bank municipal securities dealer on Form MSDW. The staff estimates that the average number of hours necessary to comply with the notice requirements set out in Rule 15Bc3–1 and Form MSDW is 0.5 per respondent, for a total burden of 1.5 hours per year. The staff estimates that the average internal compliance cost per hour is approximately $310. Therefore, the estimated total cost of compliance for the respondents is approximately $465. Providing the information on the application is mandatory in order to register with the Commission as a bank municipal securities dealer. The information contained in the application will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following Web site: www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by email to: Shagufta_Ahmed@ omb.eop.gov; and (ii) Thomas Bayer, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or by email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: August 19, 2013. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–20574 Filed 8–22–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION tkelley on DSK3SPTVN1PROD with NOTICES [Release No. 34–70228; File No. 4–663] Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and the Topaz Exchange, LLC August 19, 2013. On July 2, 2013, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) and the Topaz Exchange, VerDate Mar<15>2010 17:28 Aug 22, 2013 Jkt 229001 LLC (‘‘Topaz’’) (together with FINRA, the ‘‘Parties’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a plan for the allocation of regulatory responsibilities, dated June 21, 2013 (‘‘17d–2 Plan’’ or the ‘‘Plan’’). The Plan was published for comment on August 1, 2013.1 The Commission received no comments on the Plan. This order approves and declares effective the Plan. I. Introduction Section 19(g)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),2 among other things, requires every selfregulatory organization (‘‘SRO’’) registered as either a national securities exchange or national securities association to examine for, and enforce compliance by, its members and persons associated with its members with the Act, the rules and regulations thereunder, and the SRO’s own rules, unless the SRO is relieved of this responsibility pursuant to Section 17(d) or Section 19(g)(2) of the Act.3 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 4 was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication.5 With respect to a common member, Section 17(d)(1) authorizes the Commission, by rule or order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and enforce compliance with applicable statutes, rules, and regulations, or to perform other specified regulatory functions. To implement Section 17(d)(1), the Commission adopted two rules: Rule 17d–1 and Rule 17d–2 under the Act.6 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 1 See Securities Exchange Act Release No. 70053 (July 26, 2013), 78 FR 46656. 2 15 U.S.C. 78s(g)(1). 3 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively. 4 15 U.S.C. 78q(d)(1). 5 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). 6 17 CFR 240.17d–1 and 17 CFR 240.17d–2, respectively. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 52587 rules.7 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.8 Rule 17d–2 permits SROs to propose joint plans for the allocation of regulatory responsibilities with respect to their common members. Under paragraph (c) of Rule 17d–2, the Commission may declare such a plan effective if, after providing for appropriate notice and comment, it determines that the plan is necessary or appropriate in the public interest and for the protection of investors; to foster cooperation and coordination among the SROs; to remove impediments to, and foster the development of, a national market system and a national clearance and settlement system; and is in conformity with the factors set forth in Section 17(d) of the Act. Commission approval of a plan filed pursuant to Rule 17d–2 relieves an SRO of those regulatory responsibilities allocated by the plan to another SRO. II. Proposed Plan On July 26, 2013, the Commission granted Topaz’s application for registration as a national securities exchange.9 The proposed 17d–2 Plan is intended to reduce regulatory duplication for firms that are common members of both Topaz and FINRA.10 Pursuant to the proposed 17d–2 Plan, FINRA would assume certain examination and enforcement responsibilities for common members with respect to certain applicable laws, rules, and regulations. 7 See Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18808 (May 7, 1976). 8 See Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49091 (November 8, 1976). 9 See Securities Exchange Act Release No. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (File No. 10–209). 10 The proposed 17d–2 Plan refers to these common members as ‘‘Dual Members.’’ See Paragraph 1(c) of the proposed 17d–2 Plan. E:\FR\FM\23AUN1.SGM 23AUN1 52588 Federal Register / Vol. 78, No. 164 / Friday, August 23, 2013 / Notices The text of the Plan delineates the proposed regulatory responsibilities with respect to the Parties. Included in the proposed Plan is an exhibit (the ‘‘Topaz Certification of Common Rules,’’ referred to herein as the ‘‘Certification’’) that lists every Topaz rule for which FINRA would bear responsibility under the Plan for overseeing and enforcing with respect to Topaz members that are also members of FINRA and the associated persons therewith (‘‘Dual Members’’). Specifically, under the 17d–2 Plan, FINRA would assume examination and enforcement responsibility relating to compliance by Dual Members with the rules of Topaz that are substantially similar to the applicable rules of FINRA,11 as well as any provisions of the federal securities laws and the rules and regulations thereunder delineated in the Certification (‘‘Common Rules’’). In the event that a Dual Member is the subject of an investigation relating to a transaction on Topaz, the plan acknowledges that Topaz may, in its discretion, exercise concurrent jurisdiction and responsibility for such matter.12 Under the Plan, Topaz would retain full responsibility for surveillance and enforcement with respect to trading activities or practices involving Topaz’s own marketplace, including, without limitation, registration pursuant to its applicable rules of associated persons (i.e., registration rules that are not Common Rules); its duties as a DEA pursuant to Rule 17d–1 under the Act; and any Topaz rules that are not Common Rules.13 tkelley on DSK3SPTVN1PROD with NOTICES III. Discussion The Commission finds that the proposed Plan is consistent with the factors set forth in Section 17(d) of the Act 14 and Rule 17d–2(c) thereunder 15 in that the proposed Plan is necessary or appropriate in the public interest and for the protection of investors, fosters cooperation and coordination among SROs, and removes impediments to and fosters the development of the national market system. In particular, the 11 See paragraph 1(b) of the proposed 17d–2 Plan (defining Common Rules). See also paragraph 1(f) of the proposed 17d–2 Plan (defining Regulatory Responsibilities). Paragraph 2 of the Plan provides that annually, or more frequently as required by changes in either Topaz rules or FINRA rules, the parties shall review and update, if necessary, the list of Common Rules. Further, paragraph 3 of the Plan provides that Topaz shall furnish FINRA with a list of Dual Members, and shall update the list no less frequently than once each calendar quarter. 12 See paragraph 6 of the proposed 17d–2 Plan. 13 See paragraph 2 of the proposed 17d–2 Plan. 14 15 U.S.C. 78q(d). 15 17 CFR 240.17d–2(c). VerDate Mar<15>2010 17:28 Aug 22, 2013 Jkt 229001 Commission believes that the proposed Plan should reduce unnecessary regulatory duplication by allocating to FINRA certain examination and enforcement responsibilities for Dual Members that would otherwise be performed by both Topaz and FINRA. Accordingly, the proposed Plan promotes efficiency by reducing costs to Dual Members. Furthermore, because Topaz and FINRA will coordinate their regulatory functions in accordance with the Plan, the Plan should promote investor protection. The Commission notes that the proposed Plan would allocate regulatory responsibility between Topaz and FINRA in a manner similar to the allocation of regulatory responsibility that currently exists between the International Securities Exchange, LLC (‘‘ISE’’) and FINRA.16 The Commission notes that, under the Plan, Topaz and FINRA have allocated regulatory responsibility for those Topaz rules, set forth on the Certification, that are substantially similar to the applicable FINRA rules in that examination for compliance with such provisions and rules would not require FINRA to develop one or more new examination standards, modules, procedures, or criteria in order to analyze the application of the rule, or a Dual Member’s activity, conduct, or output in relation to such rule. In addition, under the Plan, FINRA would assume regulatory responsibility for certain provisions of the federal securities laws and the rules and regulations thereunder that are set forth in the Certification. The Common Rules covered by the Plan are specifically listed in the Certification, as may be amended by the Parties from time to time. According to the Plan, Topaz will review the Certification, at least annually, or more frequently if required by changes in either the rules of Topaz or FINRA, and, if necessary, submit to FINRA an updated list of Common Rules to add Topaz rules not included on the then-current list of Common Rules that are substantially similar to FINRA rules; delete Topaz rules included in the then-current list of Common Rules that are no longer substantially similar to FINRA rules; and confirm that the remaining rules on the list of Common Rules continue to be Topaz rules that are substantially 16 The proposed new Topaz rules are based to a substantial extent on the rules of the ISE. The ISE currently is party to a 17d–2 plan with FINRA. See Securities Exchange Act Release No. 55367 (February 27, 2007), 72 FR 9983 (March 6, 2007) (File No. 4–529) (order approving and declaring effective the plan between the ISE and NASD (n/k/a FINRA)). PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 similar to FINRA rules.17 FINRA will then confirm in writing whether the rules listed in any updated list are Common Rules as defined in the Plan. Under the Plan, Topaz will also provide FINRA with a current list of Dual Members and shall update the list no less frequently than once each quarter.18 The Commission believes that these provisions are designed to provide for continuing communication between the Parties to ensure the continued accuracy of the scope of the proposed allocation of regulatory responsibility. The Commission is hereby declaring effective a plan that, among other things, allocates regulatory responsibility to FINRA for the oversight and enforcement of all Topaz rules that are substantially similar to the rules of FINRA for Dual Members of Topaz and FINRA. Therefore, modifications to the Certification need not be filed with the Commission as an amendment to the Plan, provided that the Parties are only adding to, deleting from, or confirming changes to Topaz rules in the Certification in conformance with the definition of Common Rules provided in the Plan. However, should the Parties decide to add a Topaz rule to the Certification that is not substantially similar to a FINRA rule; delete a Topaz rule from the Certification that is substantially similar to a FINRA rule; or leave on the Certification a Topaz rule that is no longer substantially similar to a FINRA rule, then such a change would constitute an amendment to the Plan, which must be filed with the Commission pursuant to Rule 17d–2 under the Act and noticed for public comment.19 The Plan also permits Topaz and FINRA to terminate the Plan, subject to notice.20 The Commission notes, however, that while the Plan permits the Parties to terminate the Plan, the Parties cannot by themselves reallocate the regulatory responsibilities set forth in the Plan, since Rule 17d–2 under the Act requires that any allocation or reallocation of regulatory responsibilities be filed with the Commission.21 17 See paragraph 2 of the proposed 17d–2 Plan. paragraph 3 of the proposed 17d–2 Plan. 19 The Commission also notes that the addition to or deletion from the Certification of any federal securities laws, rules, and regulations for which FINRA would bear responsibility under the Plan for examining, and enforcing compliance by, Dual Members, also would constitute an amendment to the Plan. 20 See paragraph 12 of the proposed 17d–2 Plan. 21 The Commission notes that paragraph 12 of the Plan reflects the fact that FINRA’s responsibilities under the Plan will continue in effect until the Commission approves any termination of the Plan. 18 See E:\FR\FM\23AUN1.SGM 23AUN1 Federal Register / Vol. 78, No. 164 / Friday, August 23, 2013 / Notices IV. Conclusion This Order gives effect to the Plan filed with the Commission in File No. 4–663. The Parties shall notify all members affected by the Plan of their rights and obligations under the Plan. It is therefore ordered, pursuant to Section 17(d) of the Act, that the Plan in File No. 4–663, between FINRA and Topaz, filed pursuant to Rule 17d–2 under the Act, is approved and declared effective. It is further ordered that Topaz is relieved of those responsibilities allocated to FINRA under the Plan in File No. 4–663. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–20568 Filed 8–22–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70230; File No. SR–EDGX– 2013–32] Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Eliminate EDGX Rule 13.4 August 19, 2013. tkelley on DSK3SPTVN1PROD with NOTICES 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 August 7, 2013, EDGX Exchange, Inc. (‘‘Exchange’’ or ‘‘EDGX’’) 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 self-regulatory organization. EDGX filed the proposal pursuant to Section 19(b)(3)(A) 3 of the Act and Rule 19b-4(f)(6) 4 thereunder so that the proposal was effective upon filing with the Commission. 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 Exchange proposes to eliminate Rule 13.4, ‘‘Assigning of Registered Securities in the Name of a Member or 22 17 CFR 200.30–3(a)(34). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 1 15 VerDate Mar<15>2010 17:28 Aug 22, 2013 Member Organization,’’ which permits the Exchange to establish a signature guarantee program. All of the changes described herein are applicable to Members.5 The text of the proposed rule change is available on the Exchange’s Internet Web site at www.directedge.com, at the Exchange’s principal office, and at the Public Reference Room of the Commission. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to eliminate Rule 13.4, ‘‘Assigning of Registered Securities in the Name of a Member or Member Organization,’’ which permits the Exchange to establish a signature guarantee program. In sum, a signature guarantee program allows an investor who seeks to transfer or sell securities held in physical certificate form to have their signature on the certificate ‘‘guaranteed.’’ Rule 13.4 permits Members to guarantee their signatures by authorizing one or more of their employees to assign registered securities in the Member’s name and to guarantee assignments of registered securities on behalf of the Member where the security had been signed by one of the partners of the Member or by one of the authorized officers of the Member by executing and filing with the Exchange a separate Power of Attorney, also known as a traditional signature card program. Transfer agents often insist that a signature be guaranteed before they accept the transaction because it limits their liability and losses if a signature turns out to be forged. Rule 17Ad–15 under the Act permits transfer agents to reject signature guarantees from eligible guarantor 5 A Member is any registered broker or dealer, or any person associated with a registered broker or dealer that has been admitted to membership in the Exchange. Jkt 229001 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 52589 institutions that are not part of a signature guarantee program.6 The rule encouraged a movement away from the traditional signature card programs administered by the exchanges towards signature guarantee programs that use a medallion imprint or stamp which evidences their participation in the program and is an acceptable signature guarantee (‘‘Medallion Signature Guarantee Program’’).7 The Commission has also noted that: [a]n investor can obtain a signature guarantee from a financial institution—such as a commercial bank, savings bank, credit union, or broker dealer—that participates in one of the Medallion signature guarantee programs. * * * If a financial institution is not a member of a recognized Medallion Signature Guarantee Program, it would not be able to provide signature guarantees. Also, if [an investor is] not a customer of a participating financial institution, it is likely the financial institution will not guarantee [the investor’s] signature. Therefore, the best source of a Medallion Guarantee would be a bank, savings and loan association, brokerage firm, or credit union with which [the investor does] business.8 In response to Rule 17Ad–15, certain exchanges have decommissioned or amended their rules to no longer provide for traditional signature card program.9 While the Exchange adopted 6 See 17 CFR 240.17Ad–15; Securities Exchange Act Release No. 30146 (January 10, 1992), 57 FR 1082 (February 24, 1992) (adopting Rule 17Ad–15). 7 See, e.g., Securities Exchange Act Release No. 33669 (February 23, 1994), 59 FR 10189 (March 3, 1994) (SR–MSTC–93–13) (‘‘[t]his newly adopted Rule 17Ad–15 rule rendered [Midwest Securities Trust Company’s (‘‘MSTC’’)] Signature Distribution Program and Signature Guarantee Program obsolete. Therefore, to avoid costs that produce no benefits, MSTC eliminated its Signature Distribution and Signature Guarantee Programs and deleted MSTC Rule 5, Sections 1 and 2 which govern these programs’’). 8 See ‘‘Signature Guarantees: Preventing the Unauthorized Transfer of Securities,’’ https:// www.sec.gov/answers/sigguar.htm (last modified May 20, 2009). 9 See Securities Exchange Act Release No. 34188 (June 9, 1994), 59 FR 30820 (June 15, 1994) (SR– MSTC–93–13) (order approving the elimination of MSTC’s signature guarantee program stating that Rule 17Ad–15 rendered it obsolete); Securities Exchange Act Release No. 32590 (July 7, 1993), 58 FR 37978 (July 14, 1993) (order approving SR– PHLX–92–39 eliminating the PHLX’s signature guarantee program in light of Rule 17Ad–15) (noting that ‘‘[b]y eliminating its signature guarantee program, PHLX will streamline the signature guarantee process. In place of the cumbersome signature card system, PHLX will require participation in a Rule 17Ad–15 Signature Guarantee Program’’). In 2006, the Philadelphia Stock Exchange, Inc. (currently Nasdaq OMX PHLX LLC) (‘‘PHLX’’) eliminated Rules 327—340 regarding signature guarantees in their entirety from its rulebook, noting that they are ‘‘being deleted as obsolete because they refer to the delivery and settlement of securities, which is not done by the Exchange, but by registered clearing agencies.’’ Securities Exchange Act Release No. 54329 (August 17, 2006), 71 FR 504538 (August 25, 2006) (SR– E:\FR\FM\23AUN1.SGM Continued 23AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 164 (Friday, August 23, 2013)]
[Notices]
[Pages 52587-52589]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20568]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70228; File No. 4-663]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities Between the Financial 
Industry Regulatory Authority, Inc. and the Topaz Exchange, LLC

August 19, 2013.
    On July 2, 2013, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') and the Topaz Exchange, LLC (``Topaz'') (together with 
FINRA, the ``Parties'') filed with the Securities and Exchange 
Commission (``Commission'') a plan for the allocation of regulatory 
responsibilities, dated June 21, 2013 (``17d-2 Plan'' or the ``Plan''). 
The Plan was published for comment on August 1, 2013.\1\ The Commission 
received no comments on the Plan. This order approves and declares 
effective the Plan.
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    \1\ See Securities Exchange Act Release No. 70053 (July 26, 
2013), 78 FR 46656.
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I. Introduction

    Section 19(g)(1) of the Securities Exchange Act of 1934 
(``Act''),\2\ among other things, requires every self-regulatory 
organization (``SRO'') registered as either a national securities 
exchange or national securities association to examine for, and enforce 
compliance by, its members and persons associated with its members with 
the Act, the rules and regulations thereunder, and the SRO's own rules, 
unless the SRO is relieved of this responsibility pursuant to Section 
17(d) or Section 19(g)(2) of the Act.\3\ 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.
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    \2\ 15 U.S.C. 78s(g)(1).
    \3\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
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    Section 17(d)(1) of the Act \4\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ 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.
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    \4\ 15 U.S.C. 78q(d)(1).
    \5\ 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).
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    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 and Rule 17d-2 under the Act.\6\ 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.\7\ 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.
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    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \7\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18808 (May 7, 1976).
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    To address regulatory duplication in these and other areas, the 
Commission adopted Rule 17d-2 under the Act.\8\ Rule 17d-2 permits SROs 
to propose joint plans for the allocation of regulatory 
responsibilities with respect to their common members. Under paragraph 
(c) of Rule 17d-2, the Commission may declare such a plan effective if, 
after providing for appropriate notice and comment, it determines that 
the plan is necessary or appropriate in the public interest and for the 
protection of investors; to foster cooperation and coordination among 
the SROs; to remove impediments to, and foster the development of, a 
national market system and a national clearance and settlement system; 
and is in conformity with the factors set forth in Section 17(d) of the 
Act. Commission approval of a plan filed pursuant to Rule 17d-2 
relieves an SRO of those regulatory responsibilities allocated by the 
plan to another SRO.
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    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Plan

    On July 26, 2013, the Commission granted Topaz's application for 
registration as a national securities exchange.\9\ The proposed 17d-2 
Plan is intended to reduce regulatory duplication for firms that are 
common members of both Topaz and FINRA.\10\ Pursuant to the proposed 
17d-2 Plan, FINRA would assume certain examination and enforcement 
responsibilities for common members with respect to certain applicable 
laws, rules, and regulations.
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    \9\ See Securities Exchange Act Release No. 70050 (July 26, 
2013), 78 FR 46622 (August 1, 2013) (File No. 10-209).
    \10\ The proposed 17d-2 Plan refers to these common members as 
``Dual Members.'' See Paragraph 1(c) of the proposed 17d-2 Plan.

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[[Page 52588]]

    The text of the Plan delineates the proposed regulatory 
responsibilities with respect to the Parties. Included in the proposed 
Plan is an exhibit (the ``Topaz Certification of Common Rules,'' 
referred to herein as the ``Certification'') that lists every Topaz 
rule for which FINRA would bear responsibility under the Plan for 
overseeing and enforcing with respect to Topaz members that are also 
members of FINRA and the associated persons therewith (``Dual 
Members'').
    Specifically, under the 17d-2 Plan, FINRA would assume examination 
and enforcement responsibility relating to compliance by Dual Members 
with the rules of Topaz that are substantially similar to the 
applicable rules of FINRA,\11\ as well as any provisions of the federal 
securities laws and the rules and regulations thereunder delineated in 
the Certification (``Common Rules''). In the event that a Dual Member 
is the subject of an investigation relating to a transaction on Topaz, 
the plan acknowledges that Topaz may, in its discretion, exercise 
concurrent jurisdiction and responsibility for such matter.\12\
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    \11\ See paragraph 1(b) of the proposed 17d-2 Plan (defining 
Common Rules). See also paragraph 1(f) of the proposed 17d-2 Plan 
(defining Regulatory Responsibilities). Paragraph 2 of the Plan 
provides that annually, or more frequently as required by changes in 
either Topaz rules or FINRA rules, the parties shall review and 
update, if necessary, the list of Common Rules. Further, paragraph 3 
of the Plan provides that Topaz shall furnish FINRA with a list of 
Dual Members, and shall update the list no less frequently than once 
each calendar quarter.
    \12\ See paragraph 6 of the proposed 17d-2 Plan.
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    Under the Plan, Topaz would retain full responsibility for 
surveillance and enforcement with respect to trading activities or 
practices involving Topaz's own marketplace, including, without 
limitation, registration pursuant to its applicable rules of associated 
persons (i.e., registration rules that are not Common Rules); its 
duties as a DEA pursuant to Rule 17d-1 under the Act; and any Topaz 
rules that are not Common Rules.\13\
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    \13\ See paragraph 2 of the proposed 17d-2 Plan.
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III. Discussion

    The Commission finds that the proposed Plan is consistent with the 
factors set forth in Section 17(d) of the Act \14\ and Rule 17d-2(c) 
thereunder \15\ in that the proposed Plan is necessary or appropriate 
in the public interest and for the protection of investors, fosters 
cooperation and coordination among SROs, and removes impediments to and 
fosters the development of the national market system. In particular, 
the Commission believes that the proposed Plan should reduce 
unnecessary regulatory duplication by allocating to FINRA certain 
examination and enforcement responsibilities for Dual Members that 
would otherwise be performed by both Topaz and FINRA. Accordingly, the 
proposed Plan promotes efficiency by reducing costs to Dual Members. 
Furthermore, because Topaz and FINRA will coordinate their regulatory 
functions in accordance with the Plan, the Plan should promote investor 
protection. The Commission notes that the proposed Plan would allocate 
regulatory responsibility between Topaz and FINRA in a manner similar 
to the allocation of regulatory responsibility that currently exists 
between the International Securities Exchange, LLC (``ISE'') and 
FINRA.\16\
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    \14\ 15 U.S.C. 78q(d).
    \15\ 17 CFR 240.17d-2(c).
    \16\ The proposed new Topaz rules are based to a substantial 
extent on the rules of the ISE. The ISE currently is party to a 17d-
2 plan with FINRA. See Securities Exchange Act Release No. 55367 
(February 27, 2007), 72 FR 9983 (March 6, 2007) (File No. 4-529) 
(order approving and declaring effective the plan between the ISE 
and NASD (n/k/a FINRA)).
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    The Commission notes that, under the Plan, Topaz and FINRA have 
allocated regulatory responsibility for those Topaz rules, set forth on 
the Certification, that are substantially similar to the applicable 
FINRA rules in that examination for compliance with such provisions and 
rules would not require FINRA to develop one or more new examination 
standards, modules, procedures, or criteria in order to analyze the 
application of the rule, or a Dual Member's activity, conduct, or 
output in relation to such rule. In addition, under the Plan, FINRA 
would assume regulatory responsibility for certain provisions of the 
federal securities laws and the rules and regulations thereunder that 
are set forth in the Certification. The Common Rules covered by the 
Plan are specifically listed in the Certification, as may be amended by 
the Parties from time to time.
    According to the Plan, Topaz will review the Certification, at 
least annually, or more frequently if required by changes in either the 
rules of Topaz or FINRA, and, if necessary, submit to FINRA an updated 
list of Common Rules to add Topaz rules not included on the then-
current list of Common Rules that are substantially similar to FINRA 
rules; delete Topaz rules included in the then-current list of Common 
Rules that are no longer substantially similar to FINRA rules; and 
confirm that the remaining rules on the list of Common Rules continue 
to be Topaz rules that are substantially similar to FINRA rules.\17\ 
FINRA will then confirm in writing whether the rules listed in any 
updated list are Common Rules as defined in the Plan. Under the Plan, 
Topaz will also provide FINRA with a current list of Dual Members and 
shall update the list no less frequently than once each quarter.\18\ 
The Commission believes that these provisions are designed to provide 
for continuing communication between the Parties to ensure the 
continued accuracy of the scope of the proposed allocation of 
regulatory responsibility.
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    \17\ See paragraph 2 of the proposed 17d-2 Plan.
    \18\ See paragraph 3 of the proposed 17d-2 Plan.
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    The Commission is hereby declaring effective a plan that, among 
other things, allocates regulatory responsibility to FINRA for the 
oversight and enforcement of all Topaz rules that are substantially 
similar to the rules of FINRA for Dual Members of Topaz and FINRA. 
Therefore, modifications to the Certification need not be filed with 
the Commission as an amendment to the Plan, provided that the Parties 
are only adding to, deleting from, or confirming changes to Topaz rules 
in the Certification in conformance with the definition of Common Rules 
provided in the Plan. However, should the Parties decide to add a Topaz 
rule to the Certification that is not substantially similar to a FINRA 
rule; delete a Topaz rule from the Certification that is substantially 
similar to a FINRA rule; or leave on the Certification a Topaz rule 
that is no longer substantially similar to a FINRA rule, then such a 
change would constitute an amendment to the Plan, which must be filed 
with the Commission pursuant to Rule 17d-2 under the Act and noticed 
for public comment.\19\
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    \19\ The Commission also notes that the addition to or deletion 
from the Certification of any federal securities laws, rules, and 
regulations for which FINRA would bear responsibility under the Plan 
for examining, and enforcing compliance by, Dual Members, also would 
constitute an amendment to the Plan.
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    The Plan also permits Topaz and FINRA to terminate the Plan, 
subject to notice.\20\ The Commission notes, however, that while the 
Plan permits the Parties to terminate the Plan, the Parties cannot by 
themselves reallocate the regulatory responsibilities set forth in the 
Plan, since Rule 17d-2 under the Act requires that any allocation or 
re-allocation of regulatory responsibilities be filed with the 
Commission.\21\
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    \20\ See paragraph 12 of the proposed 17d-2 Plan.
    \21\ The Commission notes that paragraph 12 of the Plan reflects 
the fact that FINRA's responsibilities under the Plan will continue 
in effect until the Commission approves any termination of the Plan.

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[[Page 52589]]

IV. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-663. The Parties shall notify all members affected by the 
Plan of their rights and obligations under the Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act, that 
the Plan in File No. 4-663, between FINRA and Topaz, filed pursuant to 
Rule 17d-2 under the Act, is approved and declared effective.
    It is further ordered that Topaz is relieved of those 
responsibilities allocated to FINRA under the Plan in File No. 4-663.
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    \22\ 17 CFR 200.30-3(a)(34).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20568 Filed 8-22-13; 8:45 am]
BILLING CODE 8011-01-P

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