[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27965-27966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11155]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72137; File No. 4-536]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Approving and Declaring Effective a Proposed Amended
Plan for the Allocation of Regulatory Responsibilities Between the
Financial Industry Regulatory Authority, Inc., the Chicago Board
Options Exchange, Incorporated, and C2 Options Exchange, Incorporated
May 9, 2014.
On March 24, 2014, the Financial Industry Regulatory Authority,
Inc. (``FINRA''), the Chicago Board Options Exchange, Incorporated
(``CBOE''), and C2 Options Exchange, Incorporated (``C2'')
(collectively, the ``Parties'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') an amended plan for the
allocation of regulatory responsibilities, dated March 21, 2014
(``Amended 17d-2 Plan'' or the ``Amended Plan''). The Amended Plan was
published for comment on April 23, 2014.\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. 71964 (April 17,
2014), 79 FR 22709 (April 23, 2014).
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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
On May 14, 2007, the Commission declared effective the Plan entered
into between NASD (n/k/a FINRA) and CBOE for allocating regulatory
responsibility pursuant to Rule 17d-2.\9\ The Plan was originally
intended to reduce regulatory duplication for firms that are common
members of both CBOE and FINRA, by allocating regulatory responsibility
with respect to certain applicable laws, rules, and regulations,
including responsibility for CBOE rules applicable to the CBOE Stock
Exchange, LLC (``CBSX''), an equity exchange facility formerly operated
by CBOE. Included in the original Plan is an exhibit that lists every
CBOE rule for which FINRA bears responsibility under the Plan for
overseeing and enforcing with respect to CBOE members that are also
members of FINRA and the associated persons therewith
(``Certification''). On March 24, 2014, the parties submitted a
proposed amendment to the Plan. The primary purpose of the amendment is
to add C2 as a participant to the Plan.
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\9\ See Securities Exchange Act Release No. 55755 (May 14,
2007), 72 FR 28087 (May 18, 2007).
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[[Page 27966]]
III. Discussion
The Commission finds that the proposed Amended Plan is consistent
with the factors set forth in Section 17(d) of the Act \10\ and Rule
17d-2(c) thereunder \11\ 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 CBOE, C2, and FINRA. Accordingly, the proposed Amended Plan promotes
efficiency by reducing costs to Common Members. Furthermore, because
CBOE, C2, and FINRA will coordinate their regulatory functions in
accordance with the Amended Plan, the Amended Plan should promote
investor protection.
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\10\ 15 U.S.C. 78q(d).
\11\ 17 CFR 240.17d-2(c).
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The Commission notes that, under the Amended Plan, CBOE, C2, and
FINRA have allocated regulatory responsibility for those CBOE and C2
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, CBOE and C2 will review the
Certification, at least annually, or more frequently if required by
changes in either the rules of CBOE, C2, or FINRA, and, if necessary,
submit to FINRA an updated list of Common Rules to add CBOE and C2
rules not included on the then-current list of Common Rules that are
substantially similar to FINRA rules; delete CBOE and C2 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 CBOE and C2 rules that
are substantially similar to FINRA rules.\12\ 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, CBOE and
C2 will also provide FINRA with a current list of Common Members and
shall update the list no less frequently than once every six
months.\13\ 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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\12\ See paragraph 2 of the Amended Plan.
\13\ 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 CBOE and C2 rules that are
substantially similar to the rules of FINRA for Common Members of CBOE
and FINRA, and C2 and FINRA. 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 CBOE or C2 rules in the
Certification in conformance with the definition of Common Rules
provided in the Amended Plan. However, should the Parties decide to add
a CBOE or C2 rule to the Certification that is not substantially
similar to a FINRA rule; delete a CBOE or C2 rule from the
Certification that is substantially similar to a FINRA rule; or leave
on the Certification a CBOE or C2 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.\14\
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\14\ 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
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. 4-536. 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. 4-536, between FINRA, CBOE, and C2, filed
pursuant to Rule 17d-2 under the Act, is approved and declared
effective.
It is further ordered that CBOE and C2 are relieved of those
responsibilities allocated to FINRA under the Amended Plan in File No.
4-536.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(34).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11155 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P