[Federal Register Volume 81, Number 49 (Monday, March 14, 2016)]
[Notices]
[Pages 13434-13435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05589]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77321; File No. 4-697]


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 the Financial 
Industry Regulatory Authority, Inc. and ISE Mercury, LLC

March 8, 2016.
    On February 9, 2016, ISE Mercury, LLC (``ISE Mercury'') and the 
Financial Industry Regulatory Authority, Inc. (``FINRA'') (together 
with ISE Mercury, the ``Parties'') filed with the Securities and 
Exchange Commission (``Commission'' or ``SEC'') a plan for the 
allocation of regulatory responsibilities, dated February 8, 2016 
(``17d-2 Plan'' or the ``Plan''). The Plan was published for comment on 
February 19, 2016.\1\ The Commission received no comments on the Plan. 
This order approves and declares effective the Plan.
---------------------------------------------------------------------------

    \1\ See Securities Exchange Act Release No. 77122 (February 11, 
2016), 81 FR 8566.
---------------------------------------------------------------------------

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 Plan

    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are common members of both ISE Mercury and 
FINRA.\9\ Pursuant to the proposed 17d-2 Plan, FINRA would assume 
certain examination and enforcement responsibilities for common members 
with respect to certain applicable laws, rules, and regulations.
---------------------------------------------------------------------------

    \9\ The proposed 17d-2 Plan refers to these common members as 
``Dual Members.'' See Paragraph 1(c) of the proposed 17d-2 Plan. On 
January 29, 2016, the Commission approved ISE Mercury's application 
for registration as a national securities exchange. See Securities 
Exchange Act Release No. 76998, 81 FR 6066 (February 4, 2016).
---------------------------------------------------------------------------

    The text of the Plan delineates the proposed regulatory 
responsibilities with respect to the Parties. Included in the proposed 
Plan is an exhibit (the ``ISE Mercury Certification of Common Rules,'' 
referred to herein as the ``Certification'') that lists every ISE 
Mercury rule, and select federal securities laws, rules, and 
regulations, for which FINRA would bear

[[Page 13435]]

responsibility under the Plan for overseeing and enforcing with respect 
to ISE Mercury members that are also members of FINRA and the 
associated persons therewith (``Dual Members'').
    Specifically, under the 17d-2 Plan, FINRA would assume examination 
and enforcement responsibility relating to compliance by Dual Members 
with the rules of ISE Mercury that are substantially similar to the 
applicable rules of FINRA,\10\ as well as any provisions of the federal 
securities laws and the rules and regulations thereunder delineated in 
the Certification (``Common Rules''). In the event that a Dual Member 
is the subject of an investigation relating to a transaction on ISE 
Mercury, the plan acknowledges that ISE Mercury may, in its discretion, 
exercise concurrent jurisdiction and responsibility for such 
matter.\11\
---------------------------------------------------------------------------

    \10\ See paragraph 1(b) of the proposed 17d-2 Plan (defining 
Common Rules). See also paragraph 1(f) of the proposed 17d-2 Plan 
(defining Regulatory Responsibilities). Paragraph 2 of the Plan 
provides that annually, or more frequently as required by changes in 
either ISE Mercury rules or FINRA rules, the parties shall review 
and update, if necessary, the list of Common Rules. Further, 
paragraph 3 of the Plan provides that ISE Mercury shall furnish 
FINRA with a list of Dual Members, and shall update the list no less 
frequently than once each calendar quarter.
    \11\ See paragraph 6 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    Under the Plan, ISE Mercury would retain full responsibility for 
surveillance and enforcement with respect to trading activities or 
practices involving ISE Mercury's own marketplace, including, without 
limitation, registration pursuant to its applicable rules of associated 
persons (i.e., registration rules that are not Common Rules); its 
duties as a DEA pursuant to Rule 17d-1 under the Act; and any ISE 
Mercury rules that are not Common Rules.\12\
---------------------------------------------------------------------------

    \12\ See paragraph 2 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

III. 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) 
thereunder \14\ 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 FINRA certain 
examination and enforcement responsibilities for common members that 
would otherwise be performed by ISE Mercury and FINRA. Accordingly, the 
proposed Plan promotes efficiency by reducing costs to common members. 
Furthermore, because ISE Mercury and FINRA will coordinate their 
regulatory functions in accordance with the Plan, the Plan should 
promote investor protection.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q(d).
    \14\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission notes that, under the Plan, ISE Mercury and FINRA 
have allocated regulatory responsibility for those ISE Mercury 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 
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 Plan are specifically listed in the Certification, as 
may be amended by the Parties from time to time.
    According to the Plan, ISE Mercury will review the Certification, 
at least annually, or more frequently if required by changes in either 
the rules of ISE Mercury or FINRA, and, if necessary, submit to FINRA 
an updated list of Common Rules to add ISE Mercury rules not included 
on the then-current list of Common Rules that are substantially similar 
to FINRA rules; delete ISE Mercury 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 ISE Mercury rules that are substantially similar to 
FINRA rules.\15\ FINRA will then confirm in writing whether the rules 
listed in any updated list are Common Rules as defined in the Plan. 
Under the Plan, ISE Mercury will also provide FINRA with a current list 
of common members and shall update the list no less frequently than 
once each quarter.\16\ 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.
---------------------------------------------------------------------------

    \15\ See paragraph 2 of the Plan.
    \16\ See paragraph 3 of the Plan.
---------------------------------------------------------------------------

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

    \17\ 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 Plan 
for examining, and enforcing compliance by, common members, also 
would constitute an amendment to the Plan.
---------------------------------------------------------------------------

IV. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-697. 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. 4-697, between FINRA and ISE Mercury, filed 
pursuant to Rule 17d-2 under the Act, is approved and declared 
effective.
    It is further ordered that ISE Mercury is relieved of those 
responsibilities allocated to FINRA under the Plan in File No. 4-697.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

[FR Doc. 2016-05589 Filed 3-11-16; 8:45 am]
 BILLING CODE 8011-01-P