
[Federal Register Volume 84, Number 41 (Friday, March 1, 2019)]
[Notices]
[Pages 7153-7154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03584]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85189; File No. 4-678]


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

February 25, 2019.
    On December 20, 2018, Miami International Securities Exchange, LLC 
(``MIAX''), MIAX PEARL, LLC (``MIAX PEARL''), MIAX Emerald, LLC (``MIAX 
Emerald'') and the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (together, the ``Parties'') filed with the Securities and 
Exchange Commission (``Commission'') a plan for the allocation of 
regulatory responsibilities, dated December 19, 2018 (``Amended 17d-2 
Plan'' or the ``Amended Plan''). The Amended Plan was published for 
comment on February 1, 2019.\1\ The Commission received no comments on 
the Amended Plan. This order approves and declares effective the 
Amended Plan.
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    \1\ See Securities Exchange Act Release No. 84997 (January 29, 
2019), 84 FR 1252.
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I. Introduction

    Section 19(g)(1) of the 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 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 responsibility 
with respect to certain applicable laws, rules, and regulations. 
Included in the Amended 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 February 
6, 2017, the Commission approved a proposed amendment to the Plan to 
add MIAX PEARL as a Participant to the Plan.\10\ On July 24, 2018, the 
Commission approved a proposed amendment to the Plan to allocate 
surveillance, investigation, and enforcement responsibilities for Rule 
14e-4 under the Act, as well as certain provisions of Regulation 
SHO.\11\ On December 20, 2018, the parties submitted a proposed 
amendment to the Plan. The primary purpose of the amendment is to add 
MIAX Emerald as a Participant to the Plan.
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    \9\ See Securities Exchange Act Release No. 73641 (November 19, 
2014), 79 FR 70230 (November 25, 2014).
    \10\ See Securities Exchange Act Release No. 79974 (February 6, 
2017), 82 FR 10417 (February 10, 2017).
    \11\ See Securities Exchange Act Release No. 83696 (July 24, 
2018), 83 FR 35682 (July 27, 2018).
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III. Discussion

    The Commission finds that the proposed Amended Plan 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

[[Page 7154]]

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 FINRA and at least one of MIAX, MIAX 
PEARL, or MIAX Emerald. Accordingly, the proposed Amended Plan promotes 
efficiency by reducing costs to common members. Furthermore, because 
MIAX, MIAX PEARL, MIAX Emerald and FINRA will coordinate their 
regulatory functions in accordance with the 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 notes that, under the Amended Plan, MIAX, MIAX 
PEARL, MIAX Emerald, and FINRA have allocated regulatory responsibility 
for those MIAX, MIAX PEARL, and MIAX Emerald 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, MIAX PEARL, and MIAX Emerald 
will review the Certification at least annually, or more frequently if 
required by changes in either the rules of MIAX, MIAX PEARL, MIAX 
Emerald, or FINRA, and, if necessary, submit to FINRA an updated list 
of common rules to add MIAX, MIAX PEARL, or MIAX Emerald rules not 
included on the then-current list of common rules that are 
substantially similar to FINRA rules; delete MIAX, MIAX PEARL, or MIAX 
Emerald rules included in the then-current list of common rules that no 
longer qualify as common rules; and confirm that the remaining rules on 
the list of common rules continue to be MIAX, MIAX PEARL, or MIAX 
Emerald rules that qualify as common rules.\14\ 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, 
MIAX PEARL, and MIAX Emerald also will provide FINRA with a current 
list of common members and shall update the list no less frequently 
than once each quarter.\15\ 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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    \14\ See paragraph 2 of the Amended Plan.
    \15\ See paragraph 3 of the Amended Plan.
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    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, MIAX PEARL, and MIAX Emerald 
rules that are substantially similar to the rules of FINRA for common 
members of FINRA and MIAX, FINRA and MIAX PEARL, and FINRA and MIAX 
Emerald. 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, MIAX PEARL, or MIAX Emerald 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, MIAX 
PEARL, or MIAX Emerald rule to the Certification that is not 
substantially similar to a FINRA rule; delete a MIAX, MIAX PEARL, or 
MIAX Emerald rule from the Certification that is substantially similar 
to a FINRA rule; or leave on the Certification a MIAX, MIAX PEARL, or 
MIAX Emerald 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.\16\
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    \16\ 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.
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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 the FINRA, MIAX, MIAX 
PEARL, and MIAX Emerald, filed pursuant to Rule 17d-2 under the Act, 
hereby is approved and declared effective.
    It is further ordered that MIAX, MIAX PEARL, and MIAX Emerald are 
each 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.\17\
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    \17\ 17 CFR 200.30-3(a)(34).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03584 Filed 2-28-19; 8:45 am]
 BILLING CODE 8011-01-P


