[Federal Register Volume 85, Number 52 (Tuesday, March 17, 2020)]
[Notices]
[Pages 15238-15240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05479]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88366; File No. 4-618]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Proposed 
Amendment to the Plan for the Allocation of Regulatory Responsibilities 
Between Cboe BZX Exchange, Inc., Cboe BYX Exchange, Inc., BOX Exchange 
LLC, Cboe Exchange, Inc., Cboe C2 Exchange, Inc., NYSE Chicago, Inc., 
Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Financial Industry 
Regulatory Authority, Inc., Nasdaq ISE, LLC, Nasdaq GEMX, LLC, Nasdaq 
MRX, LLC, Investors Exchange LLC, Miami International Securities 
Exchange, LLC, MIAX PEARL, LLC, MIAX Emerald, LLC, The Nasdaq Stock 
Market LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, NYSE National, Inc., New 
York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., and Long-
Term Stock Exchange, Inc. Concerning Covered Regulation NMS and 
Consolidated Audit Trail Rules

March 12, 2020.
    On February 3, 2020, Cboe BZX Exchange, Inc. (``BZX''), Cboe BYX 
Exchange, Inc. (``BATS Y''), BOX Exchange LLC (``BOX''), Cboe Exchange, 
Inc. (``Cboe''), Cboe C2 Exchange, Inc. (``C2''), NYSE Chicago, Inc. 
(``CHX''), Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange, 
Inc. (``EDGX''), Financial Industry Regulatory Authority, Inc. 
(``FINRA''), Nasdaq ISE, LLC (``ISE''), Nasdaq GEMX, LLC (``GEMX''), 
Nasdaq MRX, LLC (``MRX''), Investors Exchange LLC (``IEX''), Miami 
International Securities Exchange, LLC (``MIAX''), MIAX PEARL, LLC 
(``MIAX PEARL''), MIAX Emerald, LLC (``MIAX Emerald''), The Nasdaq 
Stock Market LLC (``Nasdaq''), Nasdaq BX, Inc. (``BX''), Nasdaq PHLX 
LLC (``PHLX''), NYSE National, Inc. (``NYSE National''), New York Stock 
Exchange LLC (``NYSE''), NYSE American LLC (``NYSE American''), NYSE 
Arca, Inc. (``NYSE Arca''), and Long-Term Stock Exchange, Inc. 
(``LTSE'') (each, a ``Participating Organization,'' and, together, the 
``Participating Organizations'' or the ``Parties''), filed with the 
Securities and Exchange Commission (``Commission'' or ``SEC'') an 
amended plan for the allocation of regulatory responsibilities (``17d-2 
Plan'' or the ``Plan''). The Plan was published for comment on February 
25, 2020.\1\ The Commission received no comments on the Plan. This 
order approves and declares effective the Plan.
---------------------------------------------------------------------------

    \1\ See Securities Exchange Act Release No. 88246 (February 20, 
2020), 85 FR 10746.
---------------------------------------------------------------------------

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

[[Page 15239]]

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 Amendment to the Plan

    On February 3, 2020, the parties submitted a proposed amendment to 
the Plan. The primary purpose of the amendment is to: (i) Add Rule 613 
under the Act and the rules of each Participating Organization related 
to Rule 613 listed on Exhibit A to the Plan (``SRO Covered CAT 
Rules''); and (ii) to reflect the name change of Nasdaq PHLX, Inc. to 
Nasdaq PHLX LLC.
    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are members of more than one Participating 
Organization.\9\ The Plan provides for the allocation of regulatory 
responsibility according to whether the covered rule pertains to NMS 
stocks or NMS securities. For covered rules that pertain to NMS stocks 
(i.e., Rules 607, 611, and 612), FINRA serves as the ``Designated 
Regulation NMS Examining Authority'' (``DREA'') for common members that 
are members of FINRA, and assumes certain examination and enforcement 
responsibilities for those members with respect to specified Regulation 
NMS rules. For common members that are not members of FINRA, the 
member's DEA serves as the DREA and ``Designated CAT Surveillance 
Authority (``DCSA''), provided that the DEA exchange operates a 
national securities exchange or facility that trades NMS stocks and the 
common member is a member of such exchange or facility. Section 2(c) of 
the Plan contains a list of principles that are applicable to the 
allocation of common members in cases not specifically addressed in the 
Plan. An exchange that does not trade NMS stocks would have no 
regulatory authority for covered Regulation NMS rules pertaining to NMS 
stocks. For covered rules that pertain to NMS securities, and thus 
include options (i.e., Rule 606, Rule 613 and the SRO Covered CAT 
Rules), the Plan provides that the DREA will be the same as the DREA 
for the rules pertaining to NMS stocks and will serve as the DCSA. For 
common members that are not members of an exchange that trades NMS 
stocks, the common member would be allocated according to the 
principles set forth in Section 2(c) of the Plan.
---------------------------------------------------------------------------

    \9\ The proposed 17d-2 Plan refers to these members as ``Common 
Members.''
---------------------------------------------------------------------------

    The text of the Plan delineates the proposed regulatory 
responsibilities with respect to the Parties. Included in the proposed 
Plan is an exhibit (the ``Covered Rules'') that lists the federal 
securities laws, rules, and regulations, for which the applicable DREA 
would bear examination and enforcement responsibility, and for which 
the applicable DCSA would bear surveillance, investigation, and 
enforcement responsibility, under the Plan for common members of the 
Participating Organization and their associated persons.
    Specifically, the applicable DREA assumes examination and 
enforcement responsibility, and the applicable DCSA assumes 
surveillance, investigation, and enforcement responsibility, relating 
to compliance by common members with the Covered Rules. Covered Rules 
do not include the application of any rule of a Participating 
Organization, or any rule or regulation under the Act, to the extent 
that it pertains to violations of insider trading activities, because 
such matters are covered by a separate multiparty agreement under Rule 
17d-2.\10\ Under the Plan, Participating Organizations retain full 
responsibility for surveillance and enforcement with respect to trading 
activities or practices involving their own marketplace.\11\
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act Release No. 86542 (August 1, 
2019), 84 FR 38679 (August 7, 2019) (File No. 4-566) (notice of 
filing and order approving and declaring effective an amendment to 
the insider trading 17d-2 plan).
    \11\ See paragraph 3 of the Plan.
---------------------------------------------------------------------------

III. Discussion

    The Commission finds that the Plan, as amended, is consistent with 
the factors set forth in Section 17(d) of the Act \12\ and Rule 17d-
2(c) thereunder \13\ 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 the applicable DREA certain examination and enforcement 
responsibilities, and to the applicable DCSA certain surveillance, 
investigation, and enforcement responsibilities, for Common Members 
that would otherwise be performed by multiple Parties. Accordingly, the 
proposed amended Plan promotes efficiency by reducing costs to Common 
Members. Furthermore, because the Parties will coordinate their 
regulatory functions in accordance with the proposed amended Plan, the 
amended Plan should promote investor protection.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q(d).
    \13\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission is hereby declaring effective a plan that allocates 
regulatory responsibility for certain provisions of the federal 
securities laws, rules, and regulations as set forth in Exhibit A to 
the Plan. The Commission notes that any amendment to the Plan must be 
approved by the relevant Parties as set forth in Paragraph 24 of the 
Plan and must be filed with and approved by the Commission before it 
may become effective.\14\
---------------------------------------------------------------------------

    \14\ See Paragraph 24 of the Plan. The Commission notes, 
however, that changes to Exhibit B to the Plan (the allocation of 
Common Members to DREAs) are not required to be filed with, and 
approved by, the Commission before they become effective.
---------------------------------------------------------------------------

IV. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-618. 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. 4-618 is hereby approved and declared effective.
    It is further ordered that the Parties who are not the DREA or DCSA 
as to a particular Common Member are relieved of those regulatory 
responsibilities allocated to the Common Member's

[[Page 15240]]

DREA or DCSA under the Plan to the extent of such allocation.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-05479 Filed 3-16-20; 8:45 am]
 BILLING CODE 8011-01-P