
[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Notices]
[Pages 76758-76759]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63430; File No. 4-618]


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 BATS Exchange, Inc., 
BATS Y-Exchange, Inc., Chicago Board Options Exchange, Inc., Chicago 
Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., The NASDAQ Stock Market 
LLC, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, National Stock Exchange, 
Inc., New York Stock Exchange LLC, NYSE Amex LLC, and NYSE Arca, Inc. 
Relating to Regulation NMS Rules

December 3, 2010.
    On October 15, 2010, BATS Exchange, Inc. (``BATS''), BATS Y-
Exchange, Inc. (``BATS Y''), Chicago Board Options Exchange, Inc. 
(``CBOE''),\1\ Chicago Stock Exchange, Inc. (``CHX''), EDGA Exchange, 
Inc. (``EDGA''), EDGX Exchange, Inc. (``EDGX''), Financial Industry 
Regulatory Authority, Inc. (``FINRA''), The NASDAQ Stock Market LLC 
(``NASDAQ''), NASDAQ OMX BX, Inc. (``BX''), NASDAQ OMX PHLX LLC 
(``PHLX''), National Stock Exchange, Inc. (``NSX''), New York Stock 
Exchange LLC (``NYSE''), NYSE Amex LLC (``NYSE Amex''), and NYSE Arca, 
Inc. (``NYSE Arca'') (together, the ``Participating Organizations'' or 
the ``Parties'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') a plan for the allocation of regulatory 
responsibilities with respect to certain Regulation NMS Rules (``17d-2 
Plan'' or the ``Plan''). The Plan was published for comment on November 
8, 2010.\2\ The Commission received no comments on the Plan. This order 
approves and declares effective the Plan.
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    \1\ CBOE's allocation of certain regulatory responsibilities 
under this Agreement is limited to the activities of the CBOE Stock 
Exchange, LLC, a facility of CBOE.
    \2\ See Securities Exchange Act Release No. 63230 (November 2, 
2010), 75 FR 68632.
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I. Introduction

    Section 19(g)(1) of the Securities Exchange Act of 1934 
(``Act''),\3\ among other things, requires every self-regulatory 
organization (``SRO'') registered as either a national securities 
exchange or national securities association to examine for, and enforce 
compliance by, its members and persons associated with its members with 
the Act, the rules and regulations thereunder, and the SRO's own rules, 
unless the SRO is relieved of this responsibility pursuant to Section 
17(d) or Section 19(g)(2) of the Act.\4\ Without this relief, the 
statutory obligation of each individual SRO could result in a pattern 
of multiple examinations of broker-dealers that maintain memberships in 
more than one SRO (``common members''). Such regulatory duplication 
would add unnecessary expenses for common members and their SROs.
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    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 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 \5\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\6\ With 
respect to a common member, Section 17(d)(1) authorizes the Commission, 
by rule or order, to relieve an SRO of the

[[Page 76759]]

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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    \5\ 15 U.S.C. 78q(d)(1).
    \6\ See Securities Act Amendments of 1975, Report of the Senate 
Committee on Banking, Housing, and Urban Affairs to Accompany S. 
249, S. Rep. No. 94-75, 94th Cong., 1st Session 32 (1975).
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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.\7\ Rule 17d-1 authorizes the 
Commission to name a single SRO as the designated examining authority 
(``DEA'') to examine common members for compliance with the financial 
responsibility requirements imposed by the Act, or by Commission or SRO 
rules.\8\ When an SRO has been named as a common member's DEA, all 
other SROs to which the common member belongs are relieved of the 
responsibility to examine the firm for compliance with the applicable 
financial responsibility rules. On its face, Rule 17d-1 deals only with 
an SRO's obligations to enforce member compliance with financial 
responsibility requirements. Rule 17d-1 does not relieve an SRO from 
its obligation to examine a common member for compliance with its own 
rules and provisions of the federal securities laws governing matters 
other than financial responsibility, including sales practices and 
trading activities and practices.
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    \7\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \8\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18808 (May 7, 1976).
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    To address regulatory duplication in these and other areas, the 
Commission adopted Rule 17d-2 under the Act.\9\ Rule 17d-2 permits SROs 
to propose joint plans for the allocation of regulatory 
responsibilities with respect to their common members. Under paragraph 
(c) of Rule 17d-2, the Commission may declare such a plan effective if, 
after providing for appropriate notice and comment, it determines that 
the plan is necessary or appropriate in the public interest and for the 
protection of investors; to foster cooperation and coordination among 
the SROs; to remove impediments to, and foster the development of, a 
national market system and a national clearance and settlement system; 
and is in conformity with the factors set forth in Section 17(d) of the 
Act. Commission approval of a plan filed pursuant to Rule 17d-2 
relieves an SRO of those regulatory responsibilities allocated by the 
plan to another SRO.
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    \9\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Plan

    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are members of more than one Party to the 
proposed 17d-2 Plan. Pursuant to the proposed 17d-2 Plan, the 
Designated Regulation NMS Examining Authority (``DREA'') would assume 
examination and enforcement responsibilities for broker-dealers that 
are members of more than one Participating Organization (``Common 
Members'') with respect to certain applicable laws, rules, and 
regulations. FINRA would serve as the DREA for Common Members that are 
members of FINRA. The DEA would serve as the DREA for Common Members 
that are not members of FINRA.
    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 Regulation NMS Rules'') that lists 
the Federal securities laws, rules, and regulations, for which the DREA 
would bear responsibility under the Plan for overseeing and enforcing 
with respect to Common Members.
    Specifically, under the 17d-2 Plan, the DREA would assume 
examination and enforcement responsibility relating to compliance by 
Common Members with the Covered Regulation NMS Rules. Under the Plan, 
each Participating Organization would retain full responsibility for 
examination, surveillance and enforcement with respect to trading 
activities or practices involving its own marketplace, unless otherwise 
allocated pursuant to a separate Rule 17d-2 agreement.\10\
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    \10\ See Paragraph 1 of the proposed 17d-2 Plan; see e.g., 
Securities Exchange Act Release No. 58350 (August 13, 2008), 73 FR 
48247 (August 18, 2008) (File No. 4-566) (notice of filing of 
proposed insider trading plan) and Securities Exchange Act Release 
No. 58536 (September 12, 2008) (File No. 4-566) (order approving and 
declaring effective the 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 \11\ and Rule 17d-2(c) 
thereunder \12\ 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 the DREA certain 
examination and enforcement responsibilities for Common Members that 
would otherwise be performed by each Party.\13\ Accordingly, the 
proposed Plan promotes efficiency by reducing costs to Common Members. 
Furthermore, because the Parties will coordinate their regulatory 
functions in accordance with the proposed Plan, the Plan should promote 
investor protection.\14\
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    \11\ 15 U.S.C. 78q(d).
    \12\ 17 CFR 240.17d-2(c).
    \13\ Paragraph 1 of the Plan provides that whenever a Common 
Member ceases to be a member of its DREA, the DREA shall promptly 
inform the Common Member's DEA, which will become such Common 
Member's DEA.
    \14\ See, e.g., Paragraph 7 of the Plan (Sharing of Work Papers, 
Data and Related Information) and Paragraph 5 (sharing of customer 
complaints).
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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 22 of the 
Plan and must be filed with and approved by the Commission before it 
may become effective.\15\
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    \15\ See Paragraph 22 of the Plan.
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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 as to a 
particular Common Member are relieved of those regulatory 
responsibilities allocated to the Common Member's DREA under the Plan 
to the extent of such allocation.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-30946 Filed 12-8-10; 8:45 am]
BILLING CODE 8011-01-P


