[Federal Register Volume 85, Number 37 (Tuesday, February 25, 2020)]
[Notices]
[Pages 10746-10752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-03739]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88246; File No. 4-618]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing of an 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 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
February 20, 2020.
Pursuant to Section 17(d) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 17d-2 thereunder,\2\ notice is hereby given that
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''). This
[[Page 10747]]
Agreement amends and restates the agreement by and among the
Participating Organizations approved by the Commission on July 25,
2019.\3\ The Commission is publishing this notice to solicit comments
on the 17d-2 Plan from interested persons.
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\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
\3\ See Securities Exchange Act Release No. 86470, 84 FR 37363
(July 31, 2019).
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I. Introduction
Section 19(g)(1) of the Act,\4\ 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.\5\ 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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\4\ 15 U.S.C. 78s(g)(1).
\5\ 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 \6\ was intended, in part, to eliminate
unnecessary multiple examinations and regulatory duplication.\7\ 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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\6\ 15 U.S.C. 78q(d)(1).
\7\ 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.\8\ 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.\9\ 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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\8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
\9\ 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.\10\ 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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\10\ See Securities Exchange Act Release No. 12935 (October 28,
1976), 41 FR 49091 (November 8, 1976).
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II. The Plan
On December 3, 2010, the Commission approved the SRO participants'
plan for allocating regulatory responsibilities pursuant to Rule 17d-
2.\11\ On October 29, 2015, the Commission approved an amended plan
that added Regulation NMS Rules 606, 607, and 611(c) and (d) and added
additional Participating Organizations that are options markets to the
Plan.\12\ On August 11, 2016, the Commission approved an amended plan
that added IEX and ISE Mercury as Participating Organizations.\13\ On
February 2, 2017, the Commission approved an amended plan that added
MIAX PEARL as a Participating Organization.\14\ On February 4, 2019,
the Commission approved an amended plan that added MIAX Emerald as a
Participating Organization and reflected name changes of certain
Participating Organizations.\15\ On July 25, 2019, the Commission
approved an amended plan that added LTSE as a Participating
Organization and reflected name changes of certain Participating
Organizations.\16\
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\11\ See Securities Exchange Act Release No. 63430, 75 FR 76758
(December 9, 2010).
\12\ See Securities Exchange Act Release No. 76311, 80 FR 68377
(November 4, 2015).
\13\ See Securities Exchange Act Release No. 78552, 81 FR 54905
(August 17, 2016).
\14\ See Securities Exchange Act Release No. 79928, 82 FR 9814
(February 8, 2017).
\15\ See Securities Exchange Act Release No. 85046, 84 FR 2643
(February 7, 2019).
\16\ See Securities Exchange Act Release No. 86470, 84 FR 37363
(July 31, 2019).
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The proposed 17d-2 Plan is intended to reduce regulatory
duplication for firms that are members of more than one Participating
Organization.\17\ 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, 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 1(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), the Plan
provides that the DREA will be the same as the DREA for the rules
pertaining to NMS stocks. 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 1(c) of the Plan.
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\17\ The proposed 17d-2 Plan refers to these members as ``Common
Members.''
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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 Regulation NMS Rules'') that lists
the federal securities laws, rules,
[[Page 10748]]
and regulations, for which the applicable DREA would bear examination
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 relating to compliance by common members
with the Covered Regulation NMS Rules. Covered Regulation NMS 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.\18\ Under the Plan, Participating Organizations retain full
responsibility for surveillance and enforcement with respect to trading
activities or practices involving their own marketplace.\19\
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\18\ See Securities Exchange Act Release No. 84392 (October 10,
2018), 83 FR 52243 (October 16, 2018) (File No. 4-566) (notice of
filing and order approving and declaring effective an amendment to
the insider trading 17d-2 plan).
\19\ See paragraph 1(d) of the Plan.
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III. 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; and (ii) to reflect the
name change of Nasdaq PHLX, Inc. to Nasdaq PHLX LLC.
The text of the proposed amended 17d-2 Plan is as follows
(additions are in italics; deletions are in brackets):
* * * * *
Agreement for the Allocation of Regulatory Responsibility for the
Covered Regulation NMS and Consolidated Audit Trail Rules Pursuant to
Sec. 17(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78q(d),
and Rule 17d-2 Thereunder
This agreement (the ``Agreement'') by and among 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[, Inc.] 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''), is
made pursuant to Sec. 17(d) of the Securities Exchange Act of 1934
(the ``Act'' or ``SEA''), 15 U.S.C. 78q(d), and Rule 17d-2 thereunder,
which allow for plans to allocate regulatory responsibility among self-
regulatory organizations (``SROs''). Upon approval by the Securities
and Exchange Commission (``Commission'' or ``SEC''), this Agreement
shall amend and restate the agreement by and among the Participating
Organizations approved by the SEC on [February 4, 2019] July 25, 2019.
WhereaS, the Participating Organizations desire to: (a) Foster
cooperation and coordination among the SROs; (b) remove impediments to,
and foster the development of, a national market system; (c) strive to
protect the interest of investors; [and] (d) eliminate duplication in
their examination and enforcement of (i) SEA Rules 606, 607, 611, [and]
612 and 613 (the ``Covered Regulation NMS Rules'') and (ii) rules of
each Participating Organization related to SEA Rule 613 listed on
Exhibit A hereto (``SRO Covered CAT Rules,'' together with the Covered
Regulation NMS Rules, collectively, the ``Covered Rules'') and (e)
eliminate duplication in their surveillance, examination, investigation
and enforcement of SEA Rule 613 and the SRO Covered CAT Rules;
Whereas, the Participating Organizations are interested in
allocating regulatory responsibilities with respect to broker-dealers
that are members of more than one Participating Organization (the
``Common Members'') relating to the examination and enforcement of the
Covered [Regulation NMS] Rules and the surveillance, examination,
investigation and enforcement of SEA Rule 613 and the SRO Covered CAT
Rules; and
Whereas, the Participating Organizations will request regulatory
allocation of these regulatory responsibilities by executing and filing
with the SEC this plan for the above stated purposes pursuant to the
provisions of Sec. 17(d) of the Act, and Rule 17d-2 thereunder, as
described below.
Now, therefore, in consideration of the mutual covenants contained
hereafter, and other valuable consideration to be mutually exchanged,
the Participating Organizations hereby agree as follows:
1. Assumption of Surveillance Responsibility. The Designated CAT
Surveillance Authority (the ``DCSA'') shall assume surveillance,
investigation and enforcement responsibility relating to compliance by
Common Members with SEA Rule 613 and the SRO Covered CAT Rules listed
on Exhibit A (``Surveillance Responsibility''). Included in the
Surveillance Responsibility assumed hereunder the DCSA shall perform
investigations and enforcement resulting from reports and metrics
concerning potentially non-compliant CAT reporting generated by the
Plan Processor for the National Market System Plan Governing the
Consolidated Audit Trail and as provided for in the Monitoring CAT
Reporter Compliance Policy (dated August 13, 2019 and as amended from
time to time) relating to Common Members. FINRA shall serve as DCSA for
Common Members that are members of FINRA. The DREA allocated below
shall serve as DCSA for Common Members that are not members of FINRA.
[1]2. Assumption of [Regulatory]Examination Responsibility. The
Designated Regulation NMS Examining Authority (the ``DREA'') shall
assume examination and enforcement responsibilities relating to
compliance by Common Members with the Covered [Regulation NMS] Rules to
which the DREA is allocated responsibility (``[Regulatory]Examination
Responsibility''). A list of the Covered [Regulation NMS] Rules is
attached hereto as Exhibit A.
a. For Covered Regulation NMS Rules Pertaining to ``NMS stocks''
(as defined in Regulation NMS) (i.e., Rules 607, 611 and 612): FINRA
shall serve as DREA for Common Members that are members of FINRA. The
Designated Examining Authority (``DEA'') pursuant to SEA Rule 17d-1
shall serve as DREA (and accordingly as DCSA as provided in paragraph 1
above) for Common Members that are not members of FINRA, provided that
the DEA operates a national securities exchange or facility that trades
NMS stocks and the Common Member is a member of such exchange or
facility. For all other Common Members, the Participating Organizations
shall allocate Common Members among the Participating
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Organizations (other than FINRA) that operate a national securities
exchange that trades NMS stocks based on the principles outlined below
and the Participating Organization to which such a Common Member is
allocated shall serve as the DREA for that Common Member. (A
Participating Organization that operates a national securities exchange
that does not trade NMS stocks has no regulatory responsibilities
related to Covered Regulation NMS Rules pertainining to NMS stocks and
will not serve as DREA for such Covered Regulation NMS Rules.)
b. For Covered Regulation NMS Rules Pertaining to ``NMS
securities'' (as defined in Regulation NMS) (i.e., Rule 606 and Rule
613) and the SRO Covered CAT Rules listed on Exhibit A hereto, the DREA
shall be the same as the DREA for Covered Regulation NMS Rules
pertaining to NMS stocks (and shall serve as the DCSA in paragraph 1
above). For Common Members that are not members of a national
securities exchange that trades NMS stocks and thus have not been
appointed a DREA under paragraph a., the Participating Organizations
shall allocate the Common Members among the Participating Organizations
(other than FINRA) that operate a national securities exchange that
trades NMS securities based on the principles outlined below and the
Participating Organization to which such a Common Member is allocated
shall serve as the DREA for that Common Member with respect to Covered
Regulation NMS Rules pertaining to NMS securities. The allocation of
Common Members to DREAs (including FINRA) and accordingly to serve as
DCSA in paragraph 1 above for all Covered [Regulation NMS] Rules is
provided in Exhibit B.
c. For purposes of this paragraph [1]2, any allocation of a Common
Member to a Participating Organization other than as specified in
paragraphs a. and b. above shall be based on the following principles,
except to the extent all affected Participating Organizations consent
to one or more different principles and any such agreement to different
principles would be deemed an amendment to this Agreement as provided
in paragraph [22]24:
i. The Participating Organizations shall not allocate a Common
Member to a Participating Organization unless the Common Member is a
member of that Participating Organization.
ii. To the extent practicable, Common Members shall be allocated
among the Participating Organizations of which they are members in such
a manner as to equalize, as nearly as possible, the allocation among
such Participating Organizations.
iii. To the extent practicable, the allocation will take into
account the amount of NMS stock activity (or NMS security activity, as
applicable) conducted by each Common Member in order to most evenly
divide the Common Members with the largest amount of activity among the
Participating Organizations of which they are a members. The allocation
will also take into account similar allocations pursuant to other plans
or agreements to which the Participating Organizations are party to
maintain consistency in oversight of the Common Members.\1\
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\1\ \1\ For example, if one Participating Organization was
allocated responsibility for a particular Common Member pursuant to
a separate Rule 17d-2 Agreement, that Participant Organization would
be assigned to be the DREA of that Common Member, unless there is
good cause not to make that assignment.
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iv. The Participating Organizations may reallocate Common Members
from time-to-time and in such manner as they deem appropriate
consistent with the terms of this Agreement.
v. Whenever a Common Member ceases to be a member of its DREA
(including FINRA), the DREA shall promptly inform the Participating
Organizations, who shall review the matter and reallocate the Common
Member to another Participating Organization.
vi. The DEA or DREA (including FINRA) may request that a Common
Member be reallocated to another Participating Organization (including
the DEA or DREA (including FINRA)) by giving 30 days written notice to
the Participating Organizations. The Participating Organizations shall
promptly consider such request and, in their discretion, may approve or
disapprove such request and if approved, reallocate the Common Member
to such Participating Organization.
vii. All determinations by the Participating Organizations with
respect to allocations shall be by the affirmative vote of a majority
of the Participating Organizations that, at the time of such
determination, share the applicable Common Member being allocated; a
Participating Organization shall not be entitled to vote on any
allocation related to a Common Member unless the Common Member is a
member of such Participating Organization.
d. The Participating Organizations agree that they shall conduct
meetings among them as needed for the purposes of ensuring proper
allocation of Common Members and identifying issues or concerns with
respect to the regulation of Common Members. To promote consistency in
connection with regulation of Common Members, the Participating
Organizations further agree to conduct meetings to discuss the
overarching principles as to how Covered Rules, in particular SEA Rule
613 and the SRO Covered CAT Rules, should be surveilled, examined,
investigated and enforced. On an ongoing basis, the Participating
Organizations agree to consult with and solicit input from the
Participating Organizations regarding their surveillance, examination,
investigation and enforcement programs regarding SEA Rule 613 and the
SRO Covered CAT Rules. In particular, FINRA will consult with
Participating Organizations prior to finalizing its disposition and
sanctions guidelines with respect to violations of SEA Rule 613 and the
SRO Covered CAT Rules. Further, in the period preceding the full
implementation of CAT for equities and options securities, FINRA will
consult with other Participating Organizations prior to finalizing
dispositions other than no further action that involve their Common
Members.
e. By signing this Agreement, the Participating Organizations
hereby certify that the list of SRO Covered CAT Rules listed on Exhibit
A hereto are correct and are identical or substantially similar to each
other.
f. Each year following the commencement date of operation of this
Agreement, or more frequently if required by changes in any of the SRO
Covered CAT Rules, each Participating Organization shall submit an
updated list of SRO Covered CAT Rules to FINRA for review which shall
(1) add SRO Covered CAT Rules not included in the current list of SRO
Covered CAT Rules that are substantially similar to each other; (2)
delete SRO Covered CAT Rules included in the current list that are no
longer substantially similar; and (3) confirm that the remaining rules
on the current list of SRO Covered CAT Rules continue to be
substantially similar. FINRA shall review each Participating
Organization's annual certification and confirm whether FINRA agrees
with the submitted certified and updated list of SRO Covered CAT Rules.
The DREA/DCSA shall not have Regulatory Responsibility for any
provision in a SRO Covered CAT Rule provision requiring a member of a
Participating Organization to provide notice, reports or any other
filings directly to a Participating Organization.
3. Scope of Responsibility. Notwithstanding anything herein to the
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contrary, it is explicitly understood that the terms ``Surveillance
Responsibility'' and ``Examination Responsibility'' (collectively
referred to herein as the ``Regulatory Responsibility'') do[es] not
include any responsibilities beyond those concerning the Covered Rules,
and each of the Participating Organizations shall retain full
responsibility for, examination, surveillance and enforcement with
respect to trading activities or practices involving its own
marketplace unless otherwise allocated pursuant to a separate Rule 17d-
2 Agreement. The allocation of DCSA Responsibility to a Participating
Organization shall not limit another Participating Organization's
ability to utilize data from the Consolidated Audit Trail to perform
examination, surveillance, investigative, enforcement or other
regulatory work concerning potential or identified violations of
statutes or rules other than the SRO Covered CAT Rules.
[2]4. No Retention of Regulatory Responsibility. The Participating
Organizations do not contemplate the retention of any responsibilities
with respect to the regulatory activities being assumed by the DREA/
DCSA under the terms of this Agreement. Nothing in this Agreement will
be interpreted to prevent a DREA/DCSA from entering into Regulatory
Services Agreement(s) to perform its Regulatory Responsibility.
[3]5. No Charge. A DREA/DCSA shall not charge Participating
Organizations for performing the Regulatory Responsibility under this
Agreement.
[4]6. Applicability of Certain Laws, Rules, Regulations or Orders.
Notwithstanding any provision hereof, this Agreement shall be subject
to any statute, or any rule or order of the SEC. To the extent such
statute, rule, or order is inconsistent with one or more provisions of
this Agreement, the statute, rule, or order shall supersede the
provision(s) hereof to the extent necessary to be properly effectuated
and the provision(s) hereof in that respect shall be null and void.
[5]7. Customer Complaints. If a Participating Organization receives
a copy of a customer complaint relating to a DREA's/DCSA's Regulatory
Responsibility as set forth in this Agreement, the Participating
Organization shall promptly forward to such DREA/DCSA a copy of such
customer complaint. It shall be such DREA's/DCSA's responsibility to
review and take appropriate action in respect to such complaint.
[6]8. Parties to Make Personnel Available as Witnesses. Each
Participating Organization shall make its personnel available to the
DREA/DCSA to serve as testimonial or non-testimonial witnesses as
necessary to assist the DREA/DCSA in fulfilling the Regulatory
Responsibility allocated under this Agreement. The DREA/DCSA shall
provide reasonable advance notice when practicable and shall work with
a Participating Organization to accommodate reasonable scheduling
conflicts within the context and demands as the entity with ultimate
regulatory responsibility. The Participating Organization shall pay all
reasonable travel and other expenses incurred by its employees to the
extent that the DREA/DCSA requires such employees to serve as
witnesses, and provide information or other assistance pursuant to this
Agreement.
[7]9. Sharing of Work-Papers, Data and Related Information.
a. Sharing. A Participating Organization shall make available to
the DREA/DCSA information necessary to assist the DREA/DCSA in
fulfilling the Regulatory Responsibility assumed under the terms of
this Agreement. Such information shall include any information
collected by a Participating Organization in the course of performing
its regulatory obligations under the Act, including information
relating to an on-going disciplinary investigation or action against a
member, the amount of a fine imposed on a member, financial
information, or information regarding proprietary trading systems
gained in the course of examining a member (``Regulatory
Information''). This Regulatory Information shall be used by the DREA/
DCSA solely for the purposes of fulfilling the DREA's/DCSA's Regulatory
Responsibility.
b. No Waiver of Privilege. The sharing of documents or information
between the parties pursuant to this Agreement shall not be deemed a
waiver as against third parties of regulatory or other privileges
relating to the discovery of documents or information.
[8]10. Special or Cause Examinations and Enforcement Proceedings.
Nothing in this Agreement shall restrict or in any way encumber the
right of a Participating Organization to conduct special or cause
examinations of a Common Member, or take enforcement proceedings
against a Common Member as a Participating Organization, in its sole
discretion, shall deem appropriate or necessary.
[9]11. Dispute Resolution Under this Agreement.
a. Negotiation. The Participating Organizations will attempt to
resolve any disputes through good faith negotiation and discussion,
escalating such discussion up through the appropriate management levels
until reaching the executive management level. In the event a dispute
cannot be settled through these means, the Participating Organizations
shall refer the dispute to binding arbitration.
b. Binding Arbitration. All claims, disputes, controversies, and
other matters in question between the Participating Organizations to
this Agreement arising out of or relating to this Agreement or the
breach thereof that cannot be resolved by the Participating
Organizations will be resolved through binding arbitration. Unless
otherwise agreed by the Participating Organizations, a dispute
submitted to binding arbitration pursuant to this paragraph shall be
resolved using the following procedures:
(i) The arbitration shall be conducted in a city selected by the
DREA/DCSA in which it maintains a principal office or where otherwise
agreed to by the Participating Organizations in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
and judgment upon the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof; and
(ii) There shall be three arbitrators, and the chairperson of the
arbitration panel shall be an attorney. The arbitrators shall be
appointed in accordance with the Commercial Arbitration Rules of the
American Arbitration Association.
[10]12. Limitation of Liability. As between the Participating
Organizations, no Participating Organization, including its respective
directors, governors, officers, employees and agents, will be liable to
any other Participating Organization, or its directors, governors,
officers, employees and agents, for any liability, loss or damage
resulting from any delays, inaccuracies, errors or omissions with
respect to its performing or failing to perform regulatory
responsibilities, obligations, or functions, except: (a) As otherwise
provided for under the Act; (b) in instances of a Participating
Organization's gross negligence, willful misconduct or reckless
disregard with respect to another Participating Organization; or (c) in
instances of a breach of confidentiality obligations owed to another
Participating Organization. The Participating Organizations understand
and agree that the regulatory responsibilities are being performed on a
good faith and best effort basis and no warranties, express or implied,
are made by any Participating Organization to any other Participating
Organization with respect
[[Page 10751]]
to any of the responsibilities to be performed hereunder. This
paragraph is not intended to create liability of any Participating
Organization to any third party.
[11]13. SEC Approval.
a. The Participating Organizations agree to file promptly this
Agreement with the SEC for its review and approval. FINRA shall file
this Agreement on behalf, and with the explicit consent, of all
Participating Organizations.
b. If approved by the SEC, the Participating Organizations will
notify their members of the general terms of the Agreement and of its
impact on their members.
[12]14. Subsequent Parties; Limited Relationship. This Agreement
shall inure to the benefit of and shall be binding upon the
Participating Organizations hereto and their respective legal
representatives, successors, and assigns. Nothing in this Agreement,
expressed or implied, is intended or shall: (a) Confer on any person
other than the Participating Organizations hereto, or their respective
legal representatives, successors, and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, (b)
constitute the Participating Organizations hereto partners or
participants in a joint venture, or (c) appoint one Participating
Organization the agent of the other.
[13]15. Assignment. No Participating Organization may assign this
Agreement without the prior written consent of the DREAs/DCSAs
performing Regulatory Responsibility on behalf of such Participating
Organization, which consent shall not be unreasonably withheld,
conditioned or delayed; provided, however, that any Participating
Organization may assign the Agreement to a corporation controlling,
controlled by or under common control with the Participating
Organization without the prior written consent of such Participating
Organization's DREAs/DCSAs. No assignment shall be effective without
Commission approval.
[14]16. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
[15]17. Termination. Any Participating Organization may cancel its
participation in the Agreement at any time upon the approval of the
Commission after 180 days written notice to the other Participating
Organizations (or in the case of a change of control in ownership of a
Participating Organization, such other notice time period as that
Participating Organization may choose). The cancellation of its
participation in this Agreement by any Participating Organization shall
not terminate this Agreement as to the remaining Participating
Organizations.
[16]18. General. The Participating Organizations agree to perform
all acts and execute all supplementary instruments or documents that
may be reasonably necessary or desirable to carry out the provisions of
this Agreement.
[17]19. Written Notice. Any written notice required or permitted to
be given under this Agreement shall be deemed given if sent by
certified mail, return receipt requested, or by a comparable means of
electronic communication to each Participating Organization entitled to
receipt thereof, to the attention of the Participating Organization's
representative at the Participating Organization's then principal
office or by email.
[18]20. Confidentiality. The Participating Organizations agree that
documents or information shared shall be held in confidence, and used
only for the purposes of carrying out their respective regulatory
obligations under this Agreement, provided, however, that each
Participating Organization may disclose such documents or information
as may be required to comply with applicable regulatory requirements or
requests for information from the SEC. Any Participating Organization
disclosing confidential documents or information in compliance with
applicable regulatory or oversight requirements will request
confidential treatment of such information. No Participating
Organization shall assert regulatory or other privileges as against the
other with respect to Regulatory Information that is required to be
shared pursuant to this Agreement.
[19]21. Regulatory Responsibility. Pursuant to Section 17(d)(1)(A)
of the Act, and Rule 17d-2 thereunder, the Participating Organizations
request the SEC, upon its approval of this Agreement, to relieve the
Participating Organizations which are participants in this Agreement
that are not the DREA or DCSA as to a Common Member of any and all
responsibilities with respect to the matters allocated to the DREA or
DCSA pursuant to this Agreement for purposes of Sec. Sec. 17(d) and
19(g) of the Act.
[20]22. Governing Law. This Agreement shall be deemed to have been
made in the State of New York, and shall be construed and enforced in
accordance with the law of the State of New York, without reference to
principles of conflicts of laws thereof. Each of the Participating
Organizations hereby consents to submit to the jurisdiction of the
courts of the State of New York in connection with any action or
proceeding relating to this Agreement.
[21]23. Survival of Provisions. Provisions intended by their terms
or context to survive and continue notwithstanding delivery of the
regulatory services by the DREA/DCSA and any expiration of this
Agreement shall survive and continue.
[22]24. Amendment.
a. This Agreement may be amended to add a new Participating
Organization, provided that such Participating Organization does not
assume regulatory responsibility, by an amendment executed by all
applicable DREAs/DCSAs and such new Participating Organization. All
other Participating Organizations expressly consent to allow such
DREAs/DCSAs to jointly add new Participating Organizations to the
Agreement as provided above. Such DREAs/DCSAs will promptly notify all
Participating Organizations of any such amendments to add a new
Participating Organization.
b. All other amendments must be approved by each Participating
Organization. All amendments, including adding a new Participating
Organization but excluding changes to Exhibit B, must be filed with and
approved by the Commission before they become effective.
[23]25. Effective Date. The Effective Date of this Agreement will
be the date the SEC declares this Agreement to be effective pursuant to
authority conferred by Sec. 17(d) of the Act, and Rule 17d-2
thereunder.
[24]26. Counterparts. This Agreement may be executed in any number
of counterparts, including facsimile, each of which will be deemed an
original, but all of which taken together shall constitute one single
agreement among the Participating Organizations.
* * * * *
Exhibit A
Covered [Regulation NMS] Rules
Covered Regulation NMS Rules
SEA Rule 606--Disclosure of Order Routing Information.*
SEA Rule 607--Customer Account Statements.
[[Page 10752]]
SEA Rule 611--Order Protection Rule.
SEA Rule 612--Minimum Pricing Increment.
SEA Rule 613(g)(2)--Consolidated Audit Trail *
* Covered Regulation NMS Rules with asterisks (*) pertain to NMS
securities. Covered Regulation NMS Rules without asterisks pertain to
NMS stocks.
SRO Covered CAT Rules
BZX-Rules 4.5-4.16
BATS-Y--Rules 4.5-4.16
BOX--Rules 16020-16095
Cboe--Rules 7.20-7.32
C2--Chapter 6, Section F
EDGA--Rules 4.5-4.16
EDGX--Rules 4.5-4.16
FINRA--Rules 6810-6895
IEX--Rules 11.610-11.695
MIAX--Rules 1701-1712
MIAX PEARL--Rules 1701-1712
MIAX Emerald--Rules 1701-1712
Nasdaq--General 7, Sections 1-13
BX Equities Rules--General 7
PHLX--General 7
ISE--General 7
GEMX--General 7
MRX--General 7
NYSE--Rules 6810-6895
NYSE Arca--Rules--11.6810-11.6895
NYSE American--Rules 6810-6895
NYSE Chicago--Rules 6810-6895
NYSE National--Rules 6.6810-6.6895
LTSE--Rules 11.610-11.695
IV. Date of Effectiveness of the Proposed Plan and Timing for
Commission Action
Pursuant to Section 17(d)(1) of the Act \20\ and Rule 17d-2
thereunder,\21\ after March 11, 2020, the Commission may, by written
notice, declare the plan submitted by the Participating Organizations,
File No. 4-618, to be effective if the Commission finds that the plan
is necessary or appropriate in the public interest and for the
protection of investors, to foster cooperation and coordination among
self-regulatory organizations, or to remove impediments to and foster
the development of the national market system and a national system for
the clearance and settlement of securities transactions and in
conformity with the factors set forth in Section 17(d) of the Act.
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\20\ 15 U.S.C. 78q(d)(1).
\21\ 17 CFR 240.17d-2.
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V. Solicitation of Comments
In order to assist the Commission in determining whether to approve
the proposed 17d-2 Plan and to relieve the Participating Organizations
of the responsibilities which would be assigned to FINRA, interested
persons are invited to submit written data, views, and arguments
concerning the foregoing. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/other.shtml); or
Send an email to [email protected]. Please include
File Number 4-618 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, Station Place, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number 4-618. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (http://www.sec.gov/rules/other.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the plan also will be available for inspection and
copying at the principal offices of the Participating Organizations.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number 4-618 and should be submitted
on or before March 11, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(34).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-03739 Filed 2-24-20; 8:45 am]
BILLING CODE 8011-01-P