[Federal Register Volume 79, Number 227 (Tuesday, November 25, 2014)]
[Notices]
[Pages 70230-70232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27878]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73641; File No. 4-678]
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 the Miami International
Securities Exchange, LLC
November 19, 2014.
On October 14, 2014, Miami International Securities Exchange, LLC
(``MIAX'') and the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (together with MIAX, the ``Parties'') filed with the
Securities and Exchange Commission (``Commission'' or ``SEC'') a plan
for the allocation of regulatory responsibilities, dated October 13,
2014 (``17d-2 Plan'' or the ``Plan''). The Plan was published for
comment on October 23, 2014.\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. 73383 (October 17,
2014), 79 FR 63448.
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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
[[Page 70231]]
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 MIAX 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. The
text of the Plan delineates the proposed regulatory responsibilities
with respect to the Parties. Included in the proposed Plan is an
exhibit (Miami International Securities Exchange, LLC Rules
Certification for 17d-2 Agreement with FINRA, referred to herein as the
``Certification'') that lists every MIAX rule for which FINRA would
bear responsibility under the Plan for overseeing and enforcing with
respect to MIAX members that are also members of FINRA and the
associated persons therewith (``Dual Members'').
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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.
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Specifically, under the 17d-2 Plan, FINRA would assume examination
and enforcement responsibility relating to compliance by Dual Members
with the rules of MIAX 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 MIAX, the
plan acknowledges that MIAX 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 MIAX 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 MIAX 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, MIAX would retain full responsibility for
surveillance, examination and enforcement with respect to trading
activities or practices involving MIAX'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 and obligations as a DEA pursuant to Rule 17d-1
under the Act; and any MIAX 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 MIAX and FINRA. Accordingly, the
proposed Plan promotes efficiency by reducing costs to common members.
Furthermore, because MIAX 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, MIAX and FINRA have
allocated regulatory responsibility for those MIAX 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, MIAX will review the Certification, at least
annually, or more frequently if required by changes in either the rules
of MIAX or FINRA, and, if necessary, submit to FINRA an updated list of
Common Rules to add MIAX rules not included on the then-current list of
Common Rules that are substantially similar to FINRA rules; delete MIAX
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 MIAX 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, MIAX 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 MIAX rules that are substantially
similar to the rules of FINRA for common members of MIAX 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 MIAX rules
in the Certification in conformance with the definition of Common Rules
provided in the Plan. However, should the Parties decide to add a MIAX
rule to the Certification that is not substantially similar to a FINRA
rule; delete a MIAX rule from the Certification that is substantially
similar to a FINRA rule; or leave on the Certification a MIAX 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. 4-678. The Parties shall notify all
[[Page 70232]]
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. 4-678, between FINRA and MIAX, filed pursuant to
Rule 17d-2 under the Act, is approved and declared effective.
It is further ordered that MIAX is relieved of those
responsibilities allocated to FINRA under the Plan in File No. 4-678.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27878 Filed 11-24-14; 8:45 am]
BILLING CODE 8011-01-P