[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]
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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.
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\1\ See Securities Exchange Act Release No. 77122 (February 11,
2016), 81 FR 8566.
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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.
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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 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.
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\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).
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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\
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\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.
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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\
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\12\ See paragraph 2 of the proposed 17d-2 Plan.
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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.
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\13\ 15 U.S.C. 78q(d).
\14\ 17 CFR 240.17d-2(c).
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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.
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\15\ See paragraph 2 of the Plan.
\16\ See paragraph 3 of the Plan.
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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\
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\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.
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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.
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\18\ 17 CFR 200.30-3(a)(34).
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[FR Doc. 2016-05589 Filed 3-11-16; 8:45 am]
BILLING CODE 8011-01-P