[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35453-35454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12516]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89010; File No. SR-BX-2020-007]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To
Assume Operational Responsibility for Certain Enforcement Functions
Currently Performed by FINRA Under the Exchanges Authority and
Supervision
June 4, 2020.
I. Introduction
On April 16, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to assume
operational responsibility for certain enforcement functions currently
performed by the Financial Industry Regulatory Authority (``FINRA'')
under the Exchange's authority and supervision. On April 23, 2020, the
Exchange filed Amendment No. 1 to the proposed rule change, which
amended and replaced the proposed rule change. The proposed rule
change, as modified by Amendment No. 1, was published for comment in
the Federal Register on April 30, 2020.\3\ The Commission did not
receive any comment letters on the proposed rule change. The Commission
is approving the proposed rule change, as modified by Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 88746 (April 24,
2020), 85 FR 24064 (``Release'').
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II. Description of the Proposal, as Modified by Amendment No. 1
According to the Exchange, since its acquisition by The NASDAQ OMX
Group, Inc., the Exchange has contracted with FINRA through various
regulatory services agreements (``RSAs'') to perform certain regulatory
functions on its behalf.\4\ At the same time, the
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Exchange retained operational responsibility for a number of regulatory
functions, including real-time surveillance, qualification of companies
listed on the Exchange, and most surveillance related to its affiliated
options markets.\5\ In June 2019, the Exchange reallocated operational
responsibility from FINRA to BX Regulation for certain investigative
and enforcement activity, including the investigation and enforcement
responsibilities for conduct occurring on The BX Options Market,\6\ and
investigation and enforcement responsibilities for conduct occurring on
BX's equity market only, i.e., not also on non-Nasdaq-affiliated
equities markets.\7\ According to the Exchange, notwithstanding the
changes made in June 2019, FINRA continues to perform certain functions
pursuant to an RSA,\8\ including the handling of contested disciplinary
proceedings arising out of BX Regulation-led investigation and
enforcement activities.
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\4\ See Release, supra note 3, at 24065.
\5\ See id.
\6\ According to the Exchange, as appropriate, BX Regulation
coordinates with other SROs to the extent it is investigating
activity occurring on non-Nasdaq options markets to ensure no
regulatory duplication occurs. See Release, supra note 3, at 24065
fn.9.
\7\ Securities Exchange Act Release No. 86051 (June 6, 2019), 84
FR 27387 (June 12, 2019).
\8\ In addition to work performed pursuant to a RSA, FINRA also
performs work for matters covered by agreements to allocate
regulatory responsibility under Rule 17d-2 of the Act. See Release,
supra note 3, at 24065 fn.11.
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The Exchange now proposes to reallocate operational responsibility
from FINRA to BX Regulation for certain enforcement activity,
specifically, the handling of certain contested disciplinary
proceedings.\9\ The Exchange states that it anticipates handling those
contested disciplinary proceedings that FINRA is unable or unwilling to
handle due to strained resources or other similar limitations.\10\
Furthermore, the Exchange states that in all cases, the Exchange will
continue to use FINRA's Office of Hearing Officers to administer the
hearing process, and that the rules applicable to the disciplinary
process will remain the same.\11\
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\9\ See Release, supra note 3, at 24065. The Exchange states
that BX Regulation's decision to assume operational responsibility
for any given contested disciplinary proceeding with be made on a
case by case basis. See Release, supra note 3, at 24065 fn.14.
Furthermore, the Exchange states that for those contested
disciplinary proceedings that BX Regulation does not assume
operational responsibility for, the Exchange will continue to use
FINRA to litigate those matters. See Release, supra note 3, at
24065.
\10\ See Release, supra note 3, at 24065.
\11\ See Release, supra note 3, at 24065 fn.12.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange \12\ and, in particular,
with Sections 6(b)(5) and 6(b)(7) of the Act.\13\ As noted above, since
its acquisition by The NASDAQ OMX Group, Inc., the Exchange has
contracted with FINRA through various regulatory services agreements to
perform certain regulatory functions on its behalf.\14\ BX General Rule
2, Section 7 requires that, unless BX obtains prior Commission
approval, the regulatory functions subject to RSAs in effect at the
time when BX executed the FINRA Regulatory Contract must at all times
continue to be performed by FINRA or an affiliate thereof or by another
independent self-regulatory organization. The Exchange now proposes to
reallocate operational responsibility for the certain contested
disciplinary activities discussed above from FINRA to BX
Regulation.\15\
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\12\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\13\ 15 U.S.C. 78f(b)(5), (7).
\14\ See supra note 4 and accompanying text.
\15\ See supra notes 9 and 10 and accompanying text.
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The Commission believes that the Exchange could leverage its
knowledge of its markets and members, its experience with investigation
and enforcement work, and its surveillance, investigation, and
enforcement staff, in helping to effectively, efficiently, and with
immediacy, litigate certain contested disciplinary proceeds.\16\ The
Commission also notes that, as discussed above, the proposal would not
change or alter in any way the disciplinary process around how
contested matters are handled, and FINRA's Office of Hearing Officers
will continue to administer the hearing process for all contested
disciplinary proceedings.\17\ Furthermore, as the Exchange states, by
assuming operational responsibility for certain contested disciplinary
proceedings, the Exchange may be able to deliver increased efficiencies
in the regulation of its markets and to act promptly and provide more
effective regulation by enabling timely and more efficient action.\18\
Accordingly, the Commission believes that the proposed rule change, as
modified by Amendment No. 1, is consistent with the Act.
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\16\ See Release, supra note 3, at 24065.
\17\ See id.
\18\ See id.
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\19\ that the proposed rule change (SR-BX-2020-007), as modified by
Amendment No. 1 be, and hereby is, approved.
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\19\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12516 Filed 6-9-20; 8:45 am]
BILLING CODE 8011-01-P