
[Federal Register Volume 82, Number 27 (Friday, February 10, 2017)]
[Notices]
[Pages 10417-10418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02739]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79974; File No. 4-678]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Proposed Amended 
Plan for the Allocation of Regulatory Responsibilities Among the 
Financial Industry Regulatory Authority, Inc., Miami International 
Securities Exchange, LLC, and MIAX PEARL, LLC

February 6, 2017.
    On January 12, 2017, Miami International Securities Exchange, LLC 
(``MIAX''), MIAX PEARL, LLC (``MIAX PEARL''), and the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') (collectively, the 
``Parties'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') an amended plan for the allocation of 
regulatory responsibilities, dated January 11, 2017 (``Amended 17d-2 
Plan'' or the ``Amended Plan''). The Amended Plan was published for 
comment on January 19, 2017.\1\ The Commission received no comments on 
the Amended Plan. This order approves and declares effective the 
Amended Plan.
---------------------------------------------------------------------------

    \1\ See Securities Exchange Act Release No. 79779 (January 12, 
2017), 82 FR 6674 (January 19, 2017).
---------------------------------------------------------------------------

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 
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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------

II. Proposed Amended Plan

    On November 19, 2014, the Commission declared effective the Plan 
entered into between FINRA and MIAX for allocating regulatory 
responsibility pursuant to Rule 17d-2.\9\ The Plan is intended to 
reduce regulatory duplication for firms that are common members of both 
MIAX and FINRA. The plan reduces regulatory duplication for firms that 
are members of MIAX and FINRA by allocating regulatory

[[Page 10418]]

responsibility with respect to certain applicable laws, rules, and 
regulations. Included in the Plan is an exhibit that lists every MIAX 
rule for which FINRA bears responsibility under the Plan for overseeing 
and enforcing with respect to MIAX members that are also members of 
FINRA and the associated persons therewith (``Certification''). On 
January 12, 2017, the parties submitted the proposed Amended Plan. The 
primary purpose of the amendment is to add MIAX PEARL as a Participant 
to the Plan.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 73641 (November 19, 
2014), 79 FR 70230 (November 25, 2014).
---------------------------------------------------------------------------

III. Discussion

    The Commission finds that the proposed Amended Plan is consistent 
with the factors set forth in Section 17(d) of the Act \10\ and Rule 
17d-2(c) thereunder \11\ 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 FINRA certain examination and enforcement 
responsibilities for Common Members that would otherwise be performed 
by MIAX, MIAX PEARL, and FINRA. Accordingly, the proposed Amended Plan 
promotes efficiency by reducing costs to Common Members. Furthermore, 
because MIAX, MIAX PEARL, and FINRA will coordinate their regulatory 
functions in accordance with the Amended Plan, the Amended Plan should 
promote investor protection.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q(d).
    \11\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission notes that, under the Amended Plan, MIAX, MIAX 
PEARL, and FINRA have allocated regulatory responsibility for those 
MIAX and MIAX PEARL rules, set forth in 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 
Common Member's activity, conduct, or output in relation to such rule. 
In addition, under the Amended 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 Amended Plan are 
specifically listed in the Certification, as may be amended by the 
Parties from time to time.
    According to the Amended Plan, MIAX and MIAX PEARL will review the 
Certification, at least annually, or more frequently if required by 
changes in either the rules of MIAX, MIAX PEARL, or FINRA, and, if 
necessary, submit to FINRA an updated list of Common Rules to add MIAX 
and MIAX PEARL rules not included on the then-current list of Common 
Rules that are substantially similar to FINRA rules; delete MIAX and 
MIAX PEARL 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 MIAX and 
MIAX PEARL rules that are substantially similar to FINRA rules.\12\ 
FINRA will then confirm in writing whether the rules listed in any 
updated list are Common Rules as defined in the Amended Plan. Under the 
Amended Plan, MIAX and MIAX PEARL will also provide FINRA with a 
current list of Common Members and shall update the list no less 
frequently than once each quarter.\13\ 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.
---------------------------------------------------------------------------

    \12\ See paragraph 2 of the Amended Plan.
    \13\ See paragraph 3 of the Amended Plan.
---------------------------------------------------------------------------

    The Commission is hereby declaring effective an Amended Plan that, 
among other things, allocates regulatory responsibility to FINRA for 
the oversight and enforcement of all MIAX and MIAX PEARL rules that are 
substantially similar to the rules of FINRA for Common Members of MIAX 
and FINRA, and MIAX PEARL and FINRA. Therefore, modifications to the 
Certification need not be filed with the Commission as an amendment to 
the Amended Plan, provided that the Parties are only adding to, 
deleting from, or confirming changes to MIAX or MIAX PEARL rules in the 
Certification in conformance with the definition of Common Rules 
provided in the Amended Plan. However, should the Parties decide to add 
a MIAX or MIAX PEARL rule to the Certification that is not 
substantially similar to a FINRA rule; delete a MIAX or MIAX PEARL rule 
from the Certification that is substantially similar to a FINRA rule; 
or leave on the Certification a MIAX or MIAX PEARL rule that is no 
longer substantially similar to a FINRA rule, then such a change would 
constitute an amendment to the Amended Plan, which must be filed with 
the Commission pursuant to Rule 17d-2 under the Act.\14\
---------------------------------------------------------------------------

    \14\ 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 
Amended Plan for examining, and enforcing compliance by, Common 
Members, also would constitute an amendment to the Amended Plan.
---------------------------------------------------------------------------

IV. Conclusion

    This Order gives effect to the Amended Plan filed with the 
Commission in File No. 4-678. The Parties shall notify all members 
affected by the Amended Plan of their rights and obligations under the 
Amended Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act, that 
the Amended Plan in File No. 4-678, between FINRA, MIAX, and MIAX 
PEARL, filed pursuant to Rule 17d-2 under the Act, is approved and 
declared effective.
    It is further ordered that MIAX and MIAX PEARL are relieved of 
those responsibilities allocated to FINRA under the Amended Plan in 
File No. 4-678.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02739 Filed 2-9-17; 8:45 am]
 BILLING CODE 8011-01-P


