Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Proposed Amendment to the Plan for the Allocation of Regulatory Responsibilities Between Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., BOX Exchange LLC, Cboe Exchange, Inc., Cboe C2 Exchange, Inc., NYSE Chicago, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., Nasdaq ISE, LLC, Nasdaq GEMX, LLC, Nasdaq MRX, LLC, Investors Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, MIAX Emerald, LLC, The Nasdaq Stock Market LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, NYSE National, Inc., New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., and Long-Term Stock Exchange, Inc. Concerning Covered Regulation NMS and Consolidated Audit Trail Rules, 15238-15240 [2020-05479]
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<![CDATA[
15238
Federal Register / Vol. 85, No. 52 / Tuesday, March 17, 2020 / Notices
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change 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 website 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. All submissions
should refer to File Number SR–
CboeBYX–2020–008 and should be
submitted on or before April 7, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–05377 Filed 3–16–20; 8:45 am]
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BILLING CODE 8011–01–P
23 17
17:32 Mar 16, 2020
approves and declares effective the
Plan.
[Release No. 34–88366; File No. 4–618]
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
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
Program for Allocation of Regulatory
Responsibilities Pursuant to Rule 17d–
2; Order Approving and Declaring
Effective a Proposed Amendment to
the Plan for the Allocation of
Regulatory Responsibilities Between
Cboe BZX Exchange, Inc., Cboe BYX
Exchange, Inc., BOX Exchange LLC,
Cboe Exchange, Inc., Cboe C2
Exchange, Inc., NYSE Chicago, Inc.,
Cboe EDGA Exchange, Inc., Cboe
EDGX Exchange, Inc., Financial
Industry Regulatory Authority, Inc.,
Nasdaq ISE, LLC, Nasdaq GEMX, LLC,
Nasdaq MRX, LLC, Investors Exchange
LLC, Miami International Securities
Exchange, LLC, MIAX PEARL, LLC,
MIAX Emerald, LLC, The Nasdaq Stock
Market LLC, Nasdaq BX, Inc., Nasdaq
PHLX LLC, NYSE National, Inc., New
York Stock Exchange LLC, NYSE
American LLC, NYSE Arca, Inc., and
Long-Term Stock Exchange, Inc.
Concerning Covered Regulation NMS
and Consolidated Audit Trail Rules
March 12, 2020.
On February 3, 2020, Cboe BZX
Exchange, Inc. (‘‘BZX’’), Cboe BYX
Exchange, Inc. (‘‘BATS Y’’), BOX
Exchange LLC (‘‘BOX’’), Cboe Exchange,
Inc. (‘‘Cboe’’), Cboe C2 Exchange, Inc.
(‘‘C2’’), NYSE Chicago, Inc. (‘‘CHX’’),
Cboe EDGA Exchange, Inc. (‘‘EDGA’’),
Cboe EDGX Exchange, Inc. (‘‘EDGX’’),
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’), Nasdaq ISE,
LLC (‘‘ISE’’), Nasdaq GEMX, LLC
(‘‘GEMX’’), Nasdaq MRX, LLC (‘‘MRX’’),
Investors Exchange LLC (‘‘IEX’’), Miami
International Securities Exchange, LLC
(‘‘MIAX’’), MIAX PEARL, LLC (‘‘MIAX
PEARL’’), MIAX Emerald, LLC (‘‘MIAX
Emerald’’), The Nasdaq Stock Market
LLC (‘‘Nasdaq’’), Nasdaq BX, Inc.
(‘‘BX’’), Nasdaq PHLX LLC (‘‘PHLX’’),
NYSE National, Inc. (‘‘NYSE National’’),
New York Stock Exchange LLC
(‘‘NYSE’’), NYSE American LLC (‘‘NYSE
American’’), NYSE Arca, Inc. (‘‘NYSE
Arca’’), and Long-Term Stock Exchange,
Inc. (‘‘LTSE’’) (each, a ‘‘Participating
Organization,’’ and, together, the
‘‘Participating Organizations’’ or the
‘‘Parties’’), filed with the Securities and
Exchange Commission (‘‘Commission’’
or ‘‘SEC’’) an amended plan for the
allocation of regulatory responsibilities
(‘‘17d-2 Plan’’ or the ‘‘Plan’’). The Plan
was published for comment on February
25, 2020.1 The Commission received no
comments on the Plan. This order
1 See Securities Exchange Act Release No. 88246
(February 20, 2020), 85 FR 10746.
CFR 200.30–3(a)(12).
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COMMISSION
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2 15
U.S.C. 78s(g)(1).
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.
7 See Securities Exchange Act Release No. 12352
(April 20, 1976), 41 FR 18808 (May 7, 1976).
3 15
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Federal Register / Vol. 85, No. 52 / Tuesday, March 17, 2020 / Notices
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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 Amendment to the Plan
On February 3, 2020, the parties
submitted a proposed amendment to the
Plan. The primary purpose of the
amendment is to: (i) Add Rule 613
under the Act and the rules of each
Participating Organization related to
Rule 613 listed on Exhibit A to the Plan
(‘‘SRO Covered CAT Rules’’); and (ii) to
reflect the name change of Nasdaq
PHLX, Inc. to Nasdaq PHLX LLC.
The proposed 17d–2 Plan is intended
to reduce regulatory duplication for
firms that are members of more than one
Participating Organization.9 The Plan
provides for the allocation of regulatory
responsibility according to whether the
covered rule pertains to NMS stocks or
NMS securities. For covered rules that
pertain to NMS stocks (i.e., Rules 607,
611, and 612), FINRA serves as the
‘‘Designated Regulation NMS Examining
Authority’’ (‘‘DREA’’) for common
members that are members of FINRA,
and assumes certain examination and
enforcement responsibilities for those
members with respect to specified
Regulation NMS rules. For common
members that are not members of
8 See
Securities Exchange Act Release No. 12935
(October 28, 1976), 41 FR 49091 (November 8,
1976).
9 The proposed 17d–2 Plan refers to these
members as ‘‘Common Members.’’
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17:32 Mar 16, 2020
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FINRA, the member’s DEA serves as the
DREA and ‘‘Designated CAT
Surveillance Authority (‘‘DCSA’’),
provided that the DEA exchange
operates a national securities exchange
or facility that trades NMS stocks and
the common member is a member of
such exchange or facility. Section 2(c) of
the Plan contains a list of principles that
are applicable to the allocation of
common members in cases not
specifically addressed in the Plan. An
exchange that does not trade NMS
stocks would have no regulatory
authority for covered Regulation NMS
rules pertaining to NMS stocks. For
covered rules that pertain to NMS
securities, and thus include options
(i.e., Rule 606, Rule 613 and the SRO
Covered CAT Rules), the Plan provides
that the DREA will be the same as the
DREA for the rules pertaining to NMS
stocks and will serve as the DCSA. For
common members that are not members
of an exchange that trades NMS stocks,
the common member would be
allocated according to the principles set
forth in Section 2(c) of the Plan.
The text of the Plan delineates the
proposed regulatory responsibilities
with respect to the Parties. Included in
the proposed Plan is an exhibit (the
‘‘Covered Rules’’) that lists the federal
securities laws, rules, and regulations,
for which the applicable DREA would
bear examination and enforcement
responsibility, and for which the
applicable DCSA would bear
surveillance, investigation, and
enforcement responsibility, under the
Plan for common members of the
Participating Organization and their
associated persons.
Specifically, the applicable DREA
assumes examination and enforcement
responsibility, and the applicable DCSA
assumes surveillance, investigation, and
enforcement responsibility, relating to
compliance by common members with
the Covered Rules. Covered Rules do
not include the application of any rule
of a Participating Organization, or any
rule or regulation under the Act, to the
extent that it pertains to violations of
insider trading activities, because such
matters are covered by a separate
multiparty agreement under Rule 17d–
2.10 Under the Plan, Participating
Organizations retain full responsibility
for surveillance and enforcement with
respect to trading activities or practices
involving their own marketplace.11
III. Discussion
The Commission finds that the Plan,
as amended, is consistent with the
factors set forth in Section 17(d) of the
Act 12 and Rule 17d–2(c) thereunder 13
in that the proposed amended 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 amended
Plan should reduce unnecessary
regulatory duplication by allocating to
the applicable DREA certain
examination and enforcement
responsibilities, and to the applicable
DCSA certain surveillance,
investigation, and enforcement
responsibilities, for Common Members
that would otherwise be performed by
multiple Parties. Accordingly, the
proposed amended Plan promotes
efficiency by reducing costs to Common
Members. Furthermore, because the
Parties will coordinate their regulatory
functions in accordance with the
proposed amended Plan, the amended
Plan should promote investor
protection.
The Commission is hereby declaring
effective a plan that allocates regulatory
responsibility for certain provisions of
the federal securities laws, rules, and
regulations as set forth in Exhibit A to
the Plan. The Commission notes that
any amendment to the Plan must be
approved by the relevant Parties as set
forth in Paragraph 24 of the Plan and
must be filed with and approved by the
Commission before it may become
effective.14
IV. Conclusion
This Order gives effect to the Plan
filed with the Commission in File No.
4–618. 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. 4–618 is hereby approved
and declared effective.
It is further ordered that the Parties
who are not the DREA or DCSA as to a
particular Common Member are relieved
of those regulatory responsibilities
allocated to the Common Member’s
12 15
U.S.C. 78q(d).
CFR 240.17d–2(c).
14 See Paragraph 24 of the Plan. The Commission
notes, however, that changes to Exhibit B to the
Plan (the allocation of Common Members to
DREAs) are not required to be filed with, and
approved by, the Commission before they become
effective.
13 17
10 See Securities Exchange Act Release No. 86542
(August 1, 2019), 84 FR 38679 (August 7, 2019)
(File No. 4–566) (notice of filing and order
approving and declaring effective an amendment to
the insider trading 17d–2 plan).
11 See paragraph 3 of the Plan.
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Federal Register / Vol. 85, No. 52 / Tuesday, March 17, 2020 / Notices
DREA or DCSA under the Plan to the
extent of such allocation.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–05479 Filed 3–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88360; File No. SR–
NASDAQ–2020–003]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Order
Granting Approval of a Proposed Rule
Change To Amend Rule 4121(b)
March 11, 2020.
On January 14, 2020, The Nasdaq
Stock Market LLC (‘‘Nasdaq’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend Rule 4121(b) concerning the
resumption of trading following a Level
3 trading halt due to extraordinary
market volatility. The proposed rule
change was published for comment in
the Federal Register on January 23,
2020.3 On March 6, 2020, the
Commission extended the time period
within which to either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
approve or disapprove the proposed
rule change, to April 22, 2020.4 The
Commission received no comment
letters on the proposed rule change.
This order approves the proposed rule
change.
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I. Description of the Proposal
Rule 4121 provides a methodology for
determining when to halt trading in all
stocks due to extraordinary market
volatility (‘‘market-wide circuit
breakers’’ or ‘‘MWCB’’). The Exchange
proposes to amend Rule 4121(b)
concerning the resumption of trading
following a Level 3 market-wide circuit
breaker halt.
Pursuant to Rule 4121, a market-wide
trading halt will be triggered if the S&P
15 17
CFR 200.30–3(a)(34).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 88004
(January 17, 2020), 85 FR 3992 (‘‘Notice’’).
4 See Securities Exchange Act Release No. 88342
(Federal Register publication pending).
1 15
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17:32 Mar 16, 2020
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500 Index declines in price by specified
percentages from the prior day’s closing
price of that index. Currently, the
triggers are set at three circuit breaker
thresholds: 7% (Level 1), 13% (Level 2),
and 20% (Level 3). A market decline
that triggers a Level 1 or Level 2 halt
after 9:30 a.m. ET and before 3:25 p.m.
ET would halt market-wide trading for
15 minutes, while a similar market
decline at or after 3:25 p.m. ET would
not halt market-wide trading. A market
decline that triggers a Level 3 halt at any
time during the trading day would halt
market-wide trading until the primary
listing market opens the next trading
day.
Currently, in the event that a Level 3
market decline occurs, the Exchange
would halt trading for the remainder of
the trading day, and would not resume
until the primary listing market opens
the next trading day. Thus, if the
primary listing market is Nasdaq, the
Exchange would resume trading in its
listed securities at 4:00 a.m. ET on the
next trading day, which is the beginning
of the Exchange’s Pre-Market Session.5
Effectively, Nasdaq would open its
listed securities for trading following a
Level 3 halt the same as a regular
trading day under its current MWCB
Level 3 re-opening procedures.6 For
non-Nasdaq listed securities, however,
Nasdaq would resume trading once the
primary listing market has re-opened
the security for trading, which time may
currently vary depending on the
primary listing market.7
The Exchange now proposes that a
Level 3 halt would end at the end of the
trading day on which it is declared. This
proposed change would allow for nextday trading to resume in all NMS Stocks
no differently from any other trading
day.8 To effect this change, the
Exchange proposes to delete the
language in Rule 4121(b)(ii) requiring
the Exchange to wait until the primary
listing exchange opens the next trading
5 Pre-Market Session means the trading session
that begins at 4:00 a.m. and continues until 9:30
a.m. See Rule 4120(b)(4).
6 The Nasdaq system begins accepting and
processing eligible orders in time priority at 4:00
a.m. ET. See Nasdaq Rule 4752(b) for further
description of trading in the Pre-Market Session.
7 There may be cross-market differences in how
each exchange currently opens the next day after a
Level 3 MWCB halt. While Nasdaq currently
resumes trading in its listed securities no differently
from a regular trading day, other exchanges may, for
instance, conduct a halt auction process instead of
opening in the normal course under their respective
rules.
8 The Exchange anticipates that the other national
securities exchanges and FINRA will also file
similar proposals to amend their MWCB rules on
the resumption of trading following Level 3 halts,
and amend their rules, where required, to have their
Level 3 next-day openings happen normally.
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Frm 00132
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day following a Level 3 market decline,
and specify that the Exchange will halt
trading for the remainder of the trading
day.9 The proposed rule change would
allow the Exchange to resume trading in
all securities the next trading day
following a Level 3 halt no differently
than any other trading day, which for
Nasdaq would be at the beginning of the
Pre-Market Session at 4:00 a.m. ET
under its current rules.10 The Exchange
also expects that the primary listing
exchanges will facilitate this change by
sending resume messages to the
applicable securities information
processor (‘‘SIP’’) to lift the Level 3
trading halt message in all securities.
The resumption messages will be
disseminated after the SIP has started on
the next trading day and before the start
of the earliest pre-market trading session
of all exchanges. If a security is
separately subject to a regulatory halt
that has not ended, the primary listing
exchange would replace the Level 3 halt
message with the applicable regulatory
halt message.
The Exchange believes, based on
industry feedback, that opening in the
normal course in all equity securities as
opposed to, for instance, having a
normal opening for Nasdaq-listed
securities only or conducting a halt
auction prior to resuming trading,
would be more beneficial to the
marketplace. The Exchange states that
by allowing trading to resume after a
Level 3 halt in all securities no
differently from any normal trading day
under the respective rules of each
exchange, the proposed rule change
would provide greater certainty to the
marketplace by ensuring a familiar
experience for all market participants
that trade NMS Stocks and balances out
potential concerns around volatility.
The Exchange states that while it
recognizes that the impact of this
proposal is to permit all securities to be
traded in the Pre-Market Session, which
does not have certain price protections
for volatility such as LULD Bands or
MWCB protections, it nonetheless
believes that this outcome is
outweighed by the benefits provided by
opening in the Pre-Market Session in a
manner that is more familiar to the
marketplace. The Exchange further
states that allowing the resumption of
9 Presently, the Exchange’s equities trading day
ends at 8:00 p.m. ET.
10 The Commission notes that the Exchange has
coordinated this proposal with the other national
securities exchanges and FINRA and expects that
they will file proposals with the Commission to
harmonize the MWCB rules and facilitate
appropriately a cross-market resumption of trading
following a Level 3 halt that is no different from any
normal trading day.
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]]>Agencies
[Federal Register Volume 85, Number 52 (Tuesday, March 17, 2020)]
[Notices]
[Pages 15238-15240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05479]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88366; File No. 4-618]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving and Declaring Effective a Proposed
Amendment to the Plan for the Allocation of Regulatory Responsibilities
Between Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., BOX Exchange
LLC, Cboe Exchange, Inc., Cboe C2 Exchange, Inc., NYSE Chicago, Inc.,
Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Financial Industry
Regulatory Authority, Inc., Nasdaq ISE, LLC, Nasdaq GEMX, LLC, Nasdaq
MRX, LLC, Investors Exchange LLC, Miami International Securities
Exchange, LLC, MIAX PEARL, LLC, MIAX Emerald, LLC, The Nasdaq Stock
Market LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, NYSE National, Inc., New
York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., and Long-
Term Stock Exchange, Inc. Concerning Covered Regulation NMS and
Consolidated Audit Trail Rules
March 12, 2020.
On February 3, 2020, Cboe BZX Exchange, Inc. (``BZX''), Cboe BYX
Exchange, Inc. (``BATS Y''), BOX Exchange LLC (``BOX''), Cboe Exchange,
Inc. (``Cboe''), Cboe C2 Exchange, Inc. (``C2''), NYSE Chicago, Inc.
(``CHX''), Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange,
Inc. (``EDGX''), Financial Industry Regulatory Authority, Inc.
(``FINRA''), Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''),
Nasdaq MRX, LLC (``MRX''), Investors Exchange LLC (``IEX''), Miami
International Securities Exchange, LLC (``MIAX''), MIAX PEARL, LLC
(``MIAX PEARL''), MIAX Emerald, LLC (``MIAX Emerald''), The Nasdaq
Stock Market LLC (``Nasdaq''), Nasdaq BX, Inc. (``BX''), Nasdaq PHLX
LLC (``PHLX''), NYSE National, Inc. (``NYSE National''), New York Stock
Exchange LLC (``NYSE''), NYSE American LLC (``NYSE American''), NYSE
Arca, Inc. (``NYSE Arca''), and Long-Term Stock Exchange, Inc.
(``LTSE'') (each, a ``Participating Organization,'' and, together, the
``Participating Organizations'' or the ``Parties''), filed with the
Securities and Exchange Commission (``Commission'' or ``SEC'') an
amended plan for the allocation of regulatory responsibilities (``17d-2
Plan'' or the ``Plan''). The Plan was published for comment on February
25, 2020.\1\ The Commission received no comments on the Plan. This
order approves and declares effective the Plan.
---------------------------------------------------------------------------
\1\ See Securities Exchange Act Release No. 88246 (February 20,
2020), 85 FR 10746.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\2\ 15 U.S.C. 78s(g)(1).
\3\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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
[[Page 15239]]
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 Amendment to the Plan
On February 3, 2020, the parties submitted a proposed amendment to
the Plan. The primary purpose of the amendment is to: (i) Add Rule 613
under the Act and the rules of each Participating Organization related
to Rule 613 listed on Exhibit A to the Plan (``SRO Covered CAT
Rules''); and (ii) to reflect the name change of Nasdaq PHLX, Inc. to
Nasdaq PHLX LLC.
The proposed 17d-2 Plan is intended to reduce regulatory
duplication for firms that are members of more than one Participating
Organization.\9\ The Plan provides for the allocation of regulatory
responsibility according to whether the covered rule pertains to NMS
stocks or NMS securities. For covered rules that pertain to NMS stocks
(i.e., Rules 607, 611, and 612), FINRA serves as the ``Designated
Regulation NMS Examining Authority'' (``DREA'') for common members that
are members of FINRA, and assumes certain examination and enforcement
responsibilities for those members with respect to specified Regulation
NMS rules. For common members that are not members of FINRA, the
member's DEA serves as the DREA and ``Designated CAT Surveillance
Authority (``DCSA''), provided that the DEA exchange operates a
national securities exchange or facility that trades NMS stocks and the
common member is a member of such exchange or facility. Section 2(c) of
the Plan contains a list of principles that are applicable to the
allocation of common members in cases not specifically addressed in the
Plan. An exchange that does not trade NMS stocks would have no
regulatory authority for covered Regulation NMS rules pertaining to NMS
stocks. For covered rules that pertain to NMS securities, and thus
include options (i.e., Rule 606, Rule 613 and the SRO Covered CAT
Rules), the Plan provides that the DREA will be the same as the DREA
for the rules pertaining to NMS stocks and will serve as the DCSA. For
common members that are not members of an exchange that trades NMS
stocks, the common member would be allocated according to the
principles set forth in Section 2(c) of the Plan.
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\9\ The proposed 17d-2 Plan refers to these members as ``Common
Members.''
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The text of the Plan delineates the proposed regulatory
responsibilities with respect to the Parties. Included in the proposed
Plan is an exhibit (the ``Covered Rules'') that lists the federal
securities laws, rules, and regulations, for which the applicable DREA
would bear examination and enforcement responsibility, and for which
the applicable DCSA would bear surveillance, investigation, and
enforcement responsibility, under the Plan for common members of the
Participating Organization and their associated persons.
Specifically, the applicable DREA assumes examination and
enforcement responsibility, and the applicable DCSA assumes
surveillance, investigation, and enforcement responsibility, relating
to compliance by common members with the Covered Rules. Covered Rules
do not include the application of any rule of a Participating
Organization, or any rule or regulation under the Act, to the extent
that it pertains to violations of insider trading activities, because
such matters are covered by a separate multiparty agreement under Rule
17d-2.\10\ Under the Plan, Participating Organizations retain full
responsibility for surveillance and enforcement with respect to trading
activities or practices involving their own marketplace.\11\
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\10\ See Securities Exchange Act Release No. 86542 (August 1,
2019), 84 FR 38679 (August 7, 2019) (File No. 4-566) (notice of
filing and order approving and declaring effective an amendment to
the insider trading 17d-2 plan).
\11\ See paragraph 3 of the Plan.
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III. Discussion
The Commission finds that the Plan, as amended, is consistent with
the factors set forth in Section 17(d) of the Act \12\ and Rule 17d-
2(c) thereunder \13\ in that the proposed amended 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
amended Plan should reduce unnecessary regulatory duplication by
allocating to the applicable DREA certain examination and enforcement
responsibilities, and to the applicable DCSA certain surveillance,
investigation, and enforcement responsibilities, for Common Members
that would otherwise be performed by multiple Parties. Accordingly, the
proposed amended Plan promotes efficiency by reducing costs to Common
Members. Furthermore, because the Parties will coordinate their
regulatory functions in accordance with the proposed amended Plan, the
amended Plan should promote investor protection.
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\12\ 15 U.S.C. 78q(d).
\13\ 17 CFR 240.17d-2(c).
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The Commission is hereby declaring effective a plan that allocates
regulatory responsibility for certain provisions of the federal
securities laws, rules, and regulations as set forth in Exhibit A to
the Plan. The Commission notes that any amendment to the Plan must be
approved by the relevant Parties as set forth in Paragraph 24 of the
Plan and must be filed with and approved by the Commission before it
may become effective.\14\
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\14\ See Paragraph 24 of the Plan. The Commission notes,
however, that changes to Exhibit B to the Plan (the allocation of
Common Members to DREAs) are not required to be filed with, and
approved by, the Commission before they become effective.
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IV. Conclusion
This Order gives effect to the Plan filed with the Commission in
File No. 4-618. 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. 4-618 is hereby approved and declared effective.
It is further ordered that the Parties who are not the DREA or DCSA
as to a particular Common Member are relieved of those regulatory
responsibilities allocated to the Common Member's
[[Page 15240]]
DREA or DCSA under the Plan to the extent of such allocation.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(34).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05479 Filed 3-16-20; 8:45 am]
BILLING CODE 8011-01-P
