
[Federal Register Volume 80, Number 213 (Wednesday, November 4, 2015)]
[Notices]
[Pages 68337-68338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28068]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76311; File No. 4-618]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Proposed Plan for 
the Allocation of Regulatory Responsibilities Between BATS Exchange, 
Inc., BATS Y-Exchange, Inc., BOX Options Exchange LLC, Chicago Board 
Options Exchange, Incorporated, C2 Options Exchange, Incorporated, 
Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., 
Financial Industry Regulatory Authority, Inc., International Securities 
Exchange, LLC, ISE Gemini, LLC, Miami International Securities 
Exchange, LLC, The NASDAQ Stock Market LLC, NASDAQ OMX BX, Inc., NASDAQ 
OMX PHLX, Inc., National Stock Exchange, Inc., New York Stock Exchange 
LLC, NYSE MKT LLC, and NYSE Arca, Inc. Relating to Regulation NMS Rules

October 29, 2015.
    On September 2, 2015, BATS Exchange, Inc. (``BATS''), BATS Y-
Exchange, Inc. (``BATS Y''), BOX Options Exchange LLC (``BOX''), 
Chicago Board Options Exchange, Incorporated (``CBOE''), C2 Options 
Exchange, Incorporated (``C2''), Chicago Stock Exchange, Inc. 
(``CHX''), EDGA Exchange, Inc. (``EDGA''), EDGX Exchange, Inc. 
(``EDGX''), Financial Industry Regulatory Authority, Inc. (``FINRA''), 
International Securities Exchange, LLC (``ISE''), ISE Gemini, LLC 
(``ISE Gemini''), Miami International Securities Exchange, LLC 
(``MIAX''), The NASDAQ Stock Market LLC (``NASDAQ''), NASDAQ OMX BX, 
Inc. (``BX''), NASDAQ OMX PHLX, Inc. (``Phlx''), National Stock 
Exchange, Inc. (``NSX''), New York Stock Exchange LLC (``NYSE''), NYSE 
MKT LLC (``NYSE MKT''), and NYSE Arca, Inc. (``NYSE Arca'') (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 with respect to certain 
Regulation NMS Rules listed in Exhibit A to the Plan (``17d-2 Plan'' or 
the ``Plan''). 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''),\1\ 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.\2\ 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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    \1\ 15 U.S.C. 78s(g)(1).
    \2\ 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 \3\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\4\ 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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    \3\ 15 U.S.C. 78q(d)(1).
    \4\ 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.\5\ 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.\6\ 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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    \5\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \6\ 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.\7\ 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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    \7\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Plan

    On September 2, 2015, the parties submitted a proposed amendment to 
the Plan. The primary purpose of the amendment is to add Regulation NMS 
Rules 606, 607, and 611(c) and (d). In addition, because Regulation NMS 
Rule 606 applies to ``NMS Securites,'' and thus includes responsibility 
for options, the Amended Plan adds additional Participating 
Organizations that are options markets.
    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are members of more than one Participating 
Organization.\8\ The proposed amendments to the Plan provide 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 
would serve as the ``Designated Regulation NMS Examining Authority'' 
(``DREA'') for common members that are members of FINRA, and therein 
would assume certain examination and enforcement responsibilities for 
those members with respect to specified Regulation NMS rules. For 
common members that are not

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members of FINRA, the amended Plan provides that the member's DEA would 
serve as the DREA, 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 1(c) of the 
amended Plan contains a list of proposed principles that would be 
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), the proposed 
amended Plan provides that the DREA will be the same as the DREA for 
the rules pertaining to NMS stocks. 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 1(c) of 
the Plan.
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    \8\ 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 Regulation NMS Rules'') that lists 
the federal securities laws, rules, and regulations, for which the 
applicable DREA would bear examination and enforcement responsibility 
under the proposed amended Plan for Common Members of the Participating 
Organization and their associated persons.
    Specifically, under the 17d-2 Plan, the applicable DREA would 
assume examination and enforcement responsibility relating to 
compliance by Common Members with the Covered Regulation NMS Rules. 
Covered Regulation NMS Rules would 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.\9\ Under the Plan, Participating 
Organizations would retain full responsibility for surveillance and 
enforcement with respect to trading activities or practices involving 
their own marketplace.\10\
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    \9\ See Securities Exchange Act Release No. 58350 (August 13, 
2008), 73 FR 48247 (August 18, 2008) (File No. 4-566) (notice of 
filing of proposed plan). See also Securities Exchange Act Release 
No. 58536 (September 12, 2008) (File No. 4-566) (order approving and 
declaring effective the plan).
    \10\ See paragraph 1 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 \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 applicable DREA 
certain examination and enforcement responsibilities for Common Members 
that would otherwise be performed by multiple Parties. 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.
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    \11\ 15 U.S.C. 78q(d).
    \12\ 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 22 of the 
Plan and must be filed with and approved by the Commission before it 
may become effective.\13\
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    \13\ See Paragraph 22 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 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.\14\
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    \14\ 17 CFR 200.30-3(a)(34).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28068 Filed 11-3-15; 8:45 am]
BILLING CODE 8011-01-P


