[Federal Register Volume 68, Number 126 (Tuesday, July 1, 2003)]
[Notices]
[Pages 39168-39169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16522]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48064; File No. S7-966]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Granting Approval of Plan and Amendment No. 1 Thereto 
for Allocation of Regulatory Responsibilities Between the National 
Association of Securities Dealers, Inc. and the International 
Securities Exchange, Inc.

June 19, 2003.
    On January 7, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'or ``Association'') and the International Securities 
Exchange, Inc. (``ISE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') a plan, pursuant to Section 
17(d) of the Securities Exchange of 1934 (``Act'') \1\ and Rule 17d-2 
thereunder,\2\ for allocation of regulatory responsibilities relating 
to options-related sales practices.\3\ On May 1, 2003, NASD and ISE 
filed Amendment No. 1 to the plan.\4\ The regulatory responsibilities 
transferred to the NASD under this plan, as amended, for common members 
of the ISE and NASD are all the regulatory responsibilities initially 
allocated to the ISE under a 17d-2 plan for allocating regulatory 
responsibilities with respect to options-related sale practices 
executed by several SROs that was approved by the Commission.\5\
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    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
    \3\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division 
of Market Regulation (``Division''), SEC, dated January 6, 2003.
    \4\ See letter from Michael Simon, Senior Vice President and 
General Counsel, ISE, to Nancy Sanow, Assistant Director, Division, 
SEC, dated April 30, 2003. Amendment No. 1 deleted paragraphs 5.1 
and 5.2 of the plan filed on January 7, 2003.
    \5\ See Securities Exchange Act Release No. 46800 (November 8, 
2002), 67 FR 69774 (November 19, 2002).
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    The plan, including Amendment No. 1, was published for comment on 
May 21, 2003.\6\ The Commission received no comments on the plan. This 
order approves the plan, as amended. Accordingly, the NASD shall 
assume, in addition to the regulatory responsibilities it already has 
under the Act, the regulatory responsibilities allocated to it under 
the plan, as amended. At the same time, the ISE is relieved of those 
regulatory responsibilities allocated to the NASD.
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    \6\ See Securities Exchange Act Release No. 47871 (May 14, 
2003), 68 FR 27869 (May 21, 2003).
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I. Introduction

    Section 19(g)(1) of the Act,\7\ among other things, requires every 
national securities exchange and registered securities association 
(``SRO'') 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 19(g)(2) 
of the Act.\8\ 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''). This regulatory duplication would add unnecessary expenses 
for common members and their SROs.
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    \7\ 15 U.S.C. 78s(g)(1).
    \8\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2).
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    Section 17(d)(1) of the Act was intended, in part, to eliminate

[[Page 39169]]

unnecessary multiple examinations and regulatory duplication.\9\ 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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    \9\ 15 U.S.C. 78q(d). See also Securities Acts 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.\10\ Rule 17d-1, adopted on 
April 20, 1976,\11\ authorizes the Commission to name a single SRO as 
the designated examining authority (``DEA'') to examine common members 
for compliance with financial responsibility requirements imposed by 
the Act, or by Commission or SRO rules. 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 applicable financial responsibility rules.
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    \10\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2.
    \11\ See Securities Exchange Act Release No. 12352, 41 FR 18809 
(May 3, 1976).
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    On its face, Rule 17d-1 deals only with an SRO's obligations to 
enforce broker-dealers' compliance with the 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.
    To address regulatory duplication in these other areas, on October 
28, 1976, the Commission adopted Rule 17d-2 under the Act.\12\ This 
rule permits SROs to propose joint plans allocating regulatory 
responsibilities with respect to common members. Under paragraph (c) of 
Rule 17d-2, the Commission may declare such a plan effective if, after 
providing for 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 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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    \12\ See Securities Exchange Act Release No. 12935, 41 FR 49093 
(November 8, 1976).
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II. Discussion

    The Commission finds that the proposed plan is consistent with the 
factors set forth in Section 17(d) of the Act \13\ and Rule 17d-
2(c)\14\ in that the proposed plan is necessary or appropriate in the 
public interest and for the protection of investors, to foster 
cooperation and coordination among self-regulatory organizations, or to 
remove impediments to and foster the development of the national market 
system. In particular, the Commission believes that the proposed plan 
is an achievement of cooperation between the ISE and NASD which will 
reduce unnecessary regulatory duplication by allocating to NASD certain 
responsibilities related to options-related sale practice regulation 
for members that belong to both the ISE and NASD. Furthermore, because 
the ISE and NASD will coordinate their regulatory functions in 
accordance with the plan, the plan will promote investor protection.
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    \13\ 15 U.S.C. 78q(d).
    \14\ 17 CFR 240.17d-2(c).
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III. Conclusion

    This order gives effect to the plan, as amended, filed with the 
Commission that is contained in File S7-966. The parties shall notify 
all members affected by the plan, as amended, of their rights and 
obligations under the amended plan.
    It Is Therefore ordered, pursuant to Sections 17(d) \15\ and 
11A(a)(3)(B) \16\ of the Act, that the plan of the ISE and NASD, as 
amended, filed pursuant to Rule 17d-2,\17\ is approved.
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    \15\ 15 U.S.C. 78q(d).
    \16\ 15 U.S.C. 78k-1(a)(3)(B).
    \17\ 17 CFR 240.17d-2.
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    It Is Therefore ordered that the ISE is relieved of those 
responsibilities allocated to NASD under the plan, as amended.
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    \18\ 17 CFR 200.30-3(a)(34).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16522 Filed 6-30-03; 8:45 am]
BILLING CODE 8010-01-P