[Federal Register Volume 84, Number 68 (Tuesday, April 9, 2019)]
[Notices]
[Pages 14170-14171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06932]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85505; File No. SR-NASDAQ-2019-007]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 2 and Order Granting Accelerated 
Approval of a Proposed Rule Change, as Modified by Amendment No. 2, To 
Reassign Certain Investigation and Enforcement Functions Under the 
Exchange's Authority and Supervision

April 3, 2019.

I. Introduction

    On February 5, 2019, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') 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 assume operational responsibility for certain 
investigation and enforcement functions currently performed by the 
Financial Industry Regulatory Authority (``FINRA'') under the 
Exchange's authority and supervision. The proposed rule change was 
published for comment in the Federal Register on February 22, 2019.\3\ 
On February 28, 2019, the Exchange filed Amendment No. 1 to the 
proposed rule change, which amended and replaced the proposed rule 
change as originally filed. On March 28, 2019, the Exchange filed 
Amendment No. 2 to the proposed rule change, which amended and replaced 
the proposed rule change, as modified by Amendment No. 1.\4\ The 
Commission did not receive any comment letters on the proposed rule 
change. The Commission is publishing this notice to solicit comments on 
Amendment No. 2 from interested persons, and is approving the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 85153 (February 15, 
2019), 84 FR 5752.
    \4\ In Amendment No. 2, the Exchange: (1) Revised the timing for 
the phased transition; (2) stated that Nasdaq Regulation will 
coordinate with other self-regulatory organizations to the extent it 
is investigating activity occurring on non-Nasdaq options markets; 
(3) specified that Nasdaq BX, Inc. (``BX'') will file a similar 
proposed rule change to request Commission approval for Nasdaq 
Regulation to perform the same functions on behalf of BX; (4) 
provided an example of contested disciplinary proceedings that will 
continue to be handled by FINRA; (5) represented that the 
investigatory and disciplinary processes and related rules 
applicable to its members that FINRA currently follows on the 
Exchange's behalf will remain the same; and (6) made other 
technical, clarifying, and conforming changes. Amendment No. 2 is 
available at https://www.sec.gov/comments/sr-nasdaq-2019-007/srnasdaq2019007-5252816-183726.pdf.
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II. Description of the Proposal

    Since it became a national securities exchange, the Exchange has 
contracted with FINRA through various regulatory services agreements to 
perform certain regulatory functions on its behalf.\5\ At the same 
time, the Exchange has retained operational responsibility for a number 
of regulatory functions, including real-time surveillance, 
qualification of companies listed on the Exchange, and most 
surveillance related to its affiliated options markets.\6\
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    \5\ See Amendment No. 2, supra note 4 at 4.
    \6\ See id.
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    The Exchange now proposes to reallocate operational responsibility 
from FINRA to Nasdaq Regulation for certain investigation and 
enforcement activities, specifically: (1) Investigation and enforcement 
responsibilities for conduct occurring on the Nasdaq Options Market,\7\ 
and (2) investigation and enforcement responsibilities for conduct 
occurring on Nasdaq's equity market only (i.e., not also on non-Nasdaq 
equities markets).\8\ The Exchange states that it anticipates a phased 
transition whereby it would assume increasing investigation and 
enforcement responsibility throughout 2019 and into 2020.\9\ The 
Exchange also anticipates transitioning certain matters currently 
pending with FINRA to the Nasdaq Enforcement Department if Nasdaq 
Regulation believes doing so is consistent with ensuring prompt 
resolution of regulatory matters.\10\
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    \7\ The Exchange states that, as appropriate, Nasdaq Regulation 
will coordinate with other self-regulatory organizations to the 
extent it is investigating activity occurring on non-Nasdaq options 
markets to ensure no regulatory duplication occurs. See id. at 5 
n.7.
    \8\ See id. at 5. The Exchange believes its expertise in its own 
market structure, coupled with its expertise in surveillance 
activities, would enable it to conduct investigation and enforcement 
responsibilities for the Exchange effectively, efficiently, and with 
immediacy. See id. at 6. The Exchange also states that Commission 
approval of the proposal would allow it to better leverage its 
surveillance, investigation, and enforcement teams, to deliver 
increased efficiencies in the regulation of its market, and to act 
promptly and provide more effective regulation. See id. at 9.
    \9\ See id. at 8.
    \10\ See id.
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    The Exchange states that FINRA will continue to perform certain 
functions, including, among other things: (1) The investigation and 
enforcement of conduct occurring on the Nasdaq equity market that also 
relates to cross market activity on non-Nasdaq exchanges; (2) the 
handling of contested disciplinary proceedings arising out of Nasdaq 
Regulation-led investigation and enforcement activities; \11\ and (3) 
matters covered by agreements to allocate regulatory responsibility 
under Rule 17d-2 of the Act.\12\
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    \11\ The Exchange states that, for example, pursuant to Rule 
9216, if at the conclusion of a Nasdaq Regulation-led investigation, 
Nasdaq Regulation has reason to believe that a violation occurred 
but the Respondent disputes the violation and therefore does not 
execute an Acceptance, Waiver, and Consent (``AWC'') letter, or if 
the Respondent executes the AWC letter but the Nasdaq Review 
Council, Review Subcommittee, or FINRA's Office of Disciplinary 
Affairs does not accept the executed letter, the Exchange may decide 
to pursue formal disciplinary proceedings. In such a case, the 
Exchange would refer the matter to FINRA to handle the formal 
disciplinary proceedings on its behalf. FINRA's Office of Hearing 
Officers will continue to be responsible for the administration of 
the hearing process. See id. at 7 n.12.
    \12\ See id. at 7. The Exchange represents that, as with all 
investigation and enforcement work, all tasks delegated to FINRA are 
subject to Nasdaq's supervision and ultimate responsibility. See id.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange \13\ and, in particular,

[[Page 14171]]

with Sections 6(b)(5) and 6(b)(7) of the Act.\14\ As noted above, since 
it became a national securities exchange, the Exchange has contracted 
with FINRA through various regulatory services agreements to perform 
certain regulatory functions on its behalf.\15\ Nasdaq Rule 0150 
requires that, unless Nasdaq obtains prior Commission approval, the 
regulatory functions subject to the regulatory services agreement in 
effect at the time when Nasdaq began to operate a national securities 
exchange must at all times continue to be performed by FINRA or an 
affiliate thereof or by another independent self-regulatory 
organization. The Exchange now proposes to reallocate operational 
responsibility for the specific investigation and enforcement 
activities discussed above from FINRA to Nasdaq Regulation.\16\ The 
Commission believes that the Exchange could leverage its knowledge of 
its markets and members, its experience with investigation and 
enforcement work, and its surveillance, investigation, and enforcement 
staff, in helping it to effectively and efficiently conduct the 
reallocated investigation and enforcement activities. The Commission 
also notes that the proposal would be an incremental reallocation of 
operational responsibility because Nasdaq Regulation currently performs 
the same investigative and enforcement work on behalf of Nasdaq PHLX 
LLC, Nasdaq ISE, LLC, Nasdaq GEMX, LLC, and Nasdaq MRX, LLC.\17\ In 
addition, the Exchange states that Nasdaq Regulation has instituted the 
requisite infrastructure to accommodate the internalization of the 
investigative and enforcement work on behalf of the Exchange.\18\ 
Moreover, the Exchange states that Nasdaq Regulation has developed 
comprehensive plans covering the transition and has met regularly for 
more than one year to ensure a smooth transition of the work and 
prevent any gaps in regulatory coverage.\19\ Accordingly, the 
Commission believes that the proposed rule change, as modified by 
Amendment No. 2, is consistent with the Act.
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    \13\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5), (7).
    \15\ See supra note 5 and accompanying text.
    \16\ See supra notes 7-8 and accompanying text.
    \17\ See Amendment No. 2, supra note 4 at 6.
    \18\ See id. at 7. Specifically, Nasdaq has created a new 
investigation and enforcement group to perform the functions covered 
by this proposal, which included hiring additional staff. See id. at 
8. Nasdaq would also leverage its existing staff of analysts, 
lawyers, programmers, and market structure experts to assist, where 
necessary, with performing the new functions covered by this 
proposal. See id.
    \19\ See id. The investigatory and disciplinary processes and 
related rules applicable to Exchange members that FINRA currently 
follows on the Exchange's behalf (i.e., the Series 8000 and 9000 
rules) will remain the same. See id. at 8 n.14.
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IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2019-007 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2019-007. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://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. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2019-007 and should be submitted 
on or before April 30, 2019.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
2 in the Federal Register. The Commission notes that, in Amendment No. 
2, the Exchange revised the timing for the phased transition, provided 
that BX will file a separate proposal to request Commission approval 
for Nasdaq Regulation to perform the same functions on behalf of BX, 
provided additional information to clarify and support the proposal, 
and did not materially change the substance of the proposal. The 
Commission also notes that the original proposal was subject to a 21-
day comment period and no comments were received. Accordingly, the 
Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\20\ to approve the proposed rule change, as modified by Amendment 
No. 2, on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NASDAQ-2019-007), as 
modified by Amendment No. 2 be, and hereby is, approved on an 
accelerated basis.
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    \21\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06932 Filed 4-8-19; 8:45 am]
BILLING CODE 8011-01-P


