[Federal Register Volume 84, Number 122 (Tuesday, June 25, 2019)]
[Notices]
[Pages 29923-29925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13464]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86161; File No. 4-274]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving Proposed Amended Plan for the Allocation of
Regulatory Responsibilities Between the Financial Industry Regulatory
Authority, Inc. and the NYSE Chicago, Inc.
June 20, 2019.
On May 8, 2019, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') and the NYSE Chicago, Inc. (``NYSE Chicago'') (together
with FINRA, the ``Parties'') filed with the Securities and Exchange
Commission (``Commission'') a plan for the allocation of regulatory
responsibilities, dated May 7, 2019 (``Amended 17d-2 Plan'' or the
``Amended Plan''). The Amended Plan was published for comment on May
30, 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. 85921 (May 23,
2019), 84 FR 25105.
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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
[[Page 29924]]
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-2under the Act.\8\ Rule 17d-2permits 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 September 26, 1978, the Commission approved the Plan allocating
regulatory responsibilities pursuant to Rule 17d-2 on a provisional
basis.\9\ Under the Plan, the predecessor to FINRA was responsible, in
part, for conducting on-site examination of each dual member for which
it was the DEA. On February 20, 1980, the Commission noticed for
comment an amendment to the Plan, which provided, in part, for the
handling of customer complaints, the review of dual members'
advertising, and the arbitration of disputes under the Plan.\10\ On May
30, 1980, the Commission approved the Plan, as amended.\11\ On
September 8, 2010, the Commission approved an amendment to replace the
previous Plan in its entirety.\12\ On May 8, 2019, the Parties
submitted a proposed amendment to the Plan. The primary purpose of the
amendment is to the extent that it becomes a member of the exchange,
allocate regulatory responsibility to FINRA for NYSE Chicago's
affiliated routing broker-dealer, Archipelago Securities LLC.
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\9\ See Securities Exchange Act Release No. 15191 (September 26,
1978), 43 FR 46093 (October 5, 1978).
\10\ See Securities Exchange Act Release No. 16591 (February 20,
1980), 45 FR 12573 (February 26, 1980).
\11\ See Securities Exchange Act Release No. 16858 (May 30,
1980), 45 FR 37927 (June 5, 1980).
\12\ See Securities Exchange Act Release No. 62866 (September 8,
2010), 75 FR 55833 (September 14, 2010).
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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 \13\ and Rule
17d-2(c) thereunder \14\ 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 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 NYSE Chicago. Accordingly, the proposed Amended Plan
promotes efficiency by reducing costs to common members. Furthermore,
because NYSE Chicago and FINRA will coordinate their regulatory
functions in accordance with the Amended Plan, the Amended 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 Amended Plan, NYSE Chicago and
FINRA have allocated regulatory responsibility for those NYSE Chicago
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, NYSE Chicago will review the
Certification at least annually, or more frequently if required by
changes in either the rules of NYSE Chicago or FINRA, and, if
necessary, submit to FINRA an updated list of common rules to add NYSE
Chicago rules not included on the then-current list of common rules
that are substantially similar to FINRA rules; delete NYSE Chicago
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 NYSE Chicago rules that qualify as
common rules.\15\ 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, NYSE Chicago also will 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. In addition, as
noted above, the primary purpose of the amendment is to the extent that
it becomes a member of the exchange, allocate regulatory responsibility
to FINRA for Chicago's affiliated routing broker-dealer, Archipelago
Securities LLC. The Commission does not believe that the amendment to
the plan raises any new regulatory issues that the Commission has not
previously considered.
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\15\ See paragraph 2 of the Amended Plan.
\16\ 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 NYSE Chicago rules that are
substantially similar to the rules of FINRA for common members of FINRA
and NYSE Chicago. 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 NYSE Chicago rules in the Certification in
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conformance with the definition of common rules provided in the Amended
Plan. However, should the parties decide to add a NYSE Chicago rule to
the Certification that is not substantially similar to a FINRA rule;
delete a NYSE Chicago rule from the Certification that is substantially
similar to a FINRA rule; or leave on the Certification a NYSE Chicago
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.\17\
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\17\ 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. 4-274. 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. 4-274, between FINRA and NYSE Chicago,
filed pursuant to Rule 17d-2 under the Act, hereby is approved and
declared effective.
It is further ordered that NYSE Chicago is relieved of those
responsibilities allocated to FINRA under the Amended Plan in File No.
4-274.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(34).
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Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13464 Filed 6-24-19; 8:45 am]
BILLING CODE 8011-01-P