[Federal Register Volume 85, Number 105 (Monday, June 1, 2020)]
[Notices]
[Pages 33239-33249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11656]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88948; File No. 4-566]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing and Order Approving and Declaring
Effective an Amendment to the Plan for the Allocation of Regulatory
Responsibilities Among Cboe BZX Exchange, Inc., Cboe BYX Exchange,
Inc., NYSE Chicago, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange,
Inc., Financial Industry Regulatory Authority, Inc., MEMX LLC, Nasdaq
BX, Inc., Nasdaq PHLX LLC, The Nasdaq Stock Market LLC, NYSE National,
Inc., New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc.,
Investors' Exchange LLC, and Long-Term Stock Exchange, Inc. Relating to
the Surveillance, Investigation, and Enforcement of Insider Trading
Rules
May 26, 2020.
Notice is hereby given that the Securities and Exchange Commission
(``Commission'') has issued an Order, pursuant to Section 17(d) of the
Securities Exchange Act of 1934 (``Act''),\1\ approving and declaring
effective an amendment to the plan for allocating regulatory
responsibility (``Plan'') filed on May 19, 2020, pursuant to Rule 17d-2
of the Act,\2\ by Cboe BZX Exchange, Inc. (``BZX''), Cboe BYX Exchange,
Inc. (``BYX''), NYSE Chicago, Inc. (``CHX''), Cboe EDGA Exchange, Inc.
(``EDGA''), Cboe EDGX Exchange, Inc. (``EDGX''), Financial Industry
Regulatory Authority, Inc. (``FINRA''), MEMX LLC (``MEMX''), Nasdaq BX,
Inc. (``BX''), Nasdaq PHLX LLC (``PHLX''), The Nasdaq Stock Market LLC
(``Nasdaq''), NYSE National, Inc. (``NYSE National''), New York Stock
Exchange LLC (``NYSE''), NYSE American LLC (``NYSE American''), NYSE
Arca, Inc. (``NYSE Arca''), Investors' Exchange LLC (``IEX'') and Long-
Term Stock Exchange, Inc. (``LTSE'') (collectively, ``Participating
Organizations'' or ``Parties'').
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\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
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I. Introduction
Section 19(g)(1) of the Act,\3\ 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) \4\ or Section 19(g)(2) \5\ of the Act.
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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\3\ 15 U.S.C. 78s(g)(1).
\4\ 15 U.S.C. 78q(d).
\5\ 15 U.S.C. 78s(g)(2).
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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
[[Page 33240]]
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 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 September 12, 2008, the Commission declared effective the
Participating Organizations' Plan for allocating regulatory
responsibilities pursuant to Rule 17d-2.\11\ The Plan is designed to
eliminate regulatory duplication by allocating regulatory
responsibility over Common FINRA Members \12\ (collectively ``Common
Members'') for the surveillance, investigation, and enforcement of
common insider trading rules (``Common Rules'').\13\ The Plan assigns
regulatory responsibility over Common FINRA Members to FINRA for
surveillance, investigation, and enforcement of insider trading by
broker-dealers, and their associated persons, with respect to Listed
Stocks (as defined in the Plan), irrespective of the marketplace(s)
maintained by the Participating Organizations on which the relevant
trading may occur.
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\11\ See Securities Exchange Act Release No. 58536 (September
12, 2008), 73 FR 54646 (September 22, 2008). See also Securities
Exchange Act Release Nos. 58806 (October 17, 2008), 73 FR 63216
(October 23, 2008); 61919 (April 15, 2010), 75 FR 21051 (April 22,
2010); 63103 (October 14, 2010), 75 FR 64755 (October 20, 2010);
63750 (January 21, 2011), 76 FR 4948 (January 27, 2011); 65991
(December 16, 2011), 76 FR 79714 (December 22, 2011); 78473 (August
3, 2016), 81 FR 52722 (August 9, 2016); 84392 (October 10, 2018), 83
FR 52243 (October 16, 2018); and 86542 (August 1, 2019), 84 FR 38679
(August 7, 2019).
\12\ Common FINRA Members include members of FINRA and at least
one of the Participating Organizations.
\13\ Common rules are defined as: (i) Federal securities laws
and rules promulgated by the Commission pertaining to insider
trading, and (ii) the rules of the Participating Organizations that
are related to insider trading. See Exhibit A to the Plan.
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III. Proposed Amendment to the Plan
On May 19, 2020, the Parties submitted a proposed amendment to the
Plan. The proposed amendment was submitted to add MEMX as a Participant
to the Plan. The text of the proposed amended 17d-2 plan is as follows
(additions are italicized; deletions are [bracketed]):
* * * * *
Agreement for the Allocation of Regulatory Responsibility of
Surveillance, Investigation and Enforcement for Insider Trading
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. (``BYX''), NYSE Chicago, Inc.
(``CHX''), Cboe EDGA Exchange, Inc. (``EDGA''), Cboe EDGX Exchange,
Inc. (``EDGX''), Financial Industry Regulatory Authority, Inc.
(``FINRA''), MEMX LLC (``MEMX''), Nasdaq BX, Inc. (``BX''), Nasdaq PHLX
LLC (``PHLX''), The Nasdaq Stock Market LLC (``Nasdaq''), NYSE
National, Inc. (``NYSE National''), New York Stock Exchange LLC
(``NYSE''), NYSE American LLC (``NYSE American''), NYSE Arca, Inc.
(``NYSE Arca''), Investors' Exchange LLC (``IEX'') 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''), 15
U.S.C. 78q(d), and Securities and Exchange Commission (``SEC'') Rule
17d-2, which allow for plans to allocate regulatory responsibility
among self-regulatory organizations (``SROs''). Upon approval by the
SEC, this Agreement shall amend and restate the agreement among the
Participating Organizations approved by the SEC on [October 10,
2018]August 1, 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 regulatory surveillance, investigation and enforcement of insider
trading;
Whereas, the Participating Organizations are interested in
allocating to FINRA regulatory responsibility for Common FINRA Members
(as defined below) for surveillance, investigation and enforcement of
Insider Trading (as defined below) in NMS Stocks (as defined below)
irrespective of the marketplace(s) maintained by the Participating
Organizations on which the relevant trading may occur in violation of
Common Insider Trading Rules (as defined below);
Whereas, the Participating Organizations will request regulatory
allocation of these regulatory responsibilities by executing and filing
with the SEC a plan for the above stated purposes (this Agreement, also
known herein as the ``Plan'') pursuant to the provisions of Sec. 17(d)
of the Act, and SEC Rule 17d-2 thereunder, as described below; and
Whereas, the Participating Organizations will also enter into a
Regulatory Services Agreement (the ``Insider Trading RSA''), of even
date herewith, to provide for the investigation and enforcement of
suspected Insider Trading against broker-dealers, and their associated
persons, that are not Common FINRA Members in the case of Insider
Trading in NMS Stocks..
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. Definitions. Unless otherwise defined in this Agreement, or the
context otherwise requires, the terms used in this Agreement will have
the same meaning they have under the Act, and the rules and regulations
thereunder. As used in this Agreement, the following terms will have
the following meanings:
a. ``Rule'' of an ``exchange'' or an ``association'' shall have the
meaning defined in Section 3(a)(27) of the Act.
b. ``Common FINRA Members'' shall mean members of FINRA and at
least one of the Participating Organizations.
c. ``Common Insider Trading Rules'' shall mean (i) the federal
securities laws and rules thereunder promulgated by the SEC pertaining
to insider trading, and (ii) the rules of the Participating
Organizations that are related to insider trading, as provided on
Exhibit A to this Agreement.
[[Page 33241]]
d. ``Effective Date'' shall have the meaning set forth in paragraph
27.
e. ``Insider Trading'' shall mean any conduct or action taken by a
natural person or entity related in any way to the trading of
securities by an insider or a related party based on or on the basis of
material non-public information obtained during the performance of the
insider's duties at the corporation, or otherwise misappropriated, that
could be deemed a violation of the Common Insider Trading Rules.
f. ``Intellectual Property'' will mean any: (1) Processes,
methodologies, procedures, or technology, whether or not patentable;
(2) trademarks, copyrights, literary works or other works of
authorship, service marks and trade secrets; or (3) software, systems,
machine-readable texts and files and related documentation.
g. ``Plan'' shall mean this Agreement, which is submitted as a Plan
for the allocation of regulatory responsibilities of surveillance for
insider trading pursuant to Sec. 17(d) of the Act, 15 U.S.C. 78q(d),
and SEC Rule 17d-2.
h. ``NMS Stock(s)'' shall have the meaning set forth in Rule
600(b)(47) of SEC Regulation NMS.
i. ``Listing Market'' shall mean an exchange that lists NMS
[s]Stocks.
2. Assumption of Regulatory Responsibilities. On the Effective Date
of the Plan, FINRA will assume regulatory responsibilities for
surveillance, investigation and enforcement of Insider Trading by
broker-dealers, and their associated persons, for Common FINRA Members
with respect to NMS Stocks, irrespective of the marketplace(s)
maintained by the Participant Organizations on which the relevant
trading may occur in violation of the Common Insider Trading Rules
(``Regulatory Responsibilities'').
3. Certification of Insider Trading Rules.
a. Initial Certification. By signing this Agreement, the
Participating Organizations, other than FINRA, hereby certify to FINRA
that their respective lists of Common Insider Trading Rules contained
in Exhibit A hereto are correct, and FINRA hereby confirms that such
rules are Common Insider Trading Rules as defined in this Agreement.
b. Yearly Certification. Each year following the commencement of
operation of this Agreement, or more frequently if required by changes
in the rules of the Participating Organizations, each Participating
Organization shall submit a certified and updated list of Common
Insider Trading Rules to FINRA for review, which shall (i) add
Participating Organization rules not included in the then-current list
of Common Insider Trading Rules that qualify as Common Insider Trading
Rules as defined in this Agreement; (ii) delete Participating
Organization rules included in the current list of Common Insider
Trading Rules that no longer qualify as Common Insider Trading Rules as
defined in this Agreement; and (iii) confirm that the remaining rules
on the current list of Common Insider Trading Rules continue to be
Participating Organization rules that qualify as Common Insider Trading
Rules as defined in this Agreement. FINRA shall review each
Participating Organization's annual certification and confirm whether
FINRA agrees with the submitted certified and updated list of Common
Insider Trading Rules by each of the Participating Organizations.
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 FINRA under
the terms of this Agreement.
5. Fees. FINRA shall charge Participating Organizations for
performing the Regulatory Responsibilities, as set forth in the
Schedule of Fees, attached as Exhibit B.
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.
7. Exchange Committee; Reports.
a. Exchange Committee. The Participating Organizations shall form a
committee (the ``Exchange Committee''), which shall act on behalf of
all of Participating Organizations in receiving copies of the reports
described below and in reviewing issues that arise under this
Agreement. Each Participating Organization shall appoint a
representative to the Exchange Committee. The Exchange Committee
representatives shall report to their respective executive management
bodies regarding status or issues under this Agreement. The
Participating Organizations agree that the Exchange Committee will meet
regularly up to four (4) times a year, with no more than one meeting
per calendar quarter. At these meetings, the Exchange Committee will
discuss the conduct of the Regulatory Responsibilities and identify
issues or concerns with respect to this Agreement, including matters
related to the calculation of the cost formula and accuracy of fees
charged and provision of information related to the same. The SEC shall
be permitted to attend the meetings as an observer.
b. Reports. FINRA shall provide the reports set forth in Exhibit C
hereto and any additional reports related to this Agreement reasonably
requested by a majority vote of all representatives to the Exchange
Committee at each Exchange Committee meeting, or more often as the
Participating Organizations deem appropriate, but no more often than
once every quarterly billing period.
8. Customer Complaints. If a Participating Organization receives a
copy of a customer complaint relating to Insider Trading or other
activity or conduct that is within FINRA's Regulatory Responsibilities
as set forth in this Agreement, the Participating Organization shall
promptly forward to FINRA, as applicable, a copy of such customer
complaint.
9. Parties to Make Personnel Available as Witnesses. Each
Participating Organization shall make its personnel available to FINRA
to serve as testimonial or non-testimonial witnesses as necessary to
assist FINRA in fulfilling the Regulatory Responsibilities allocated
under this Agreement. FINRA 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 FINRA requires
such employees to serve as witnesses, and provide information or other
assistance pursuant to this Agreement.
10. Market Data; Sharing of Work-Papers, Data and Related
Information.
a. Market Data. FINRA shall obtain raw market data necessary to the
performance of regulation under this Agreement from (a) the
Consolidated Tape Association (``CTA'') and (b) the NASDAQ Unlisted
Trading Privileges Plan.
b. Sharing. A Participating Organization shall make available to
FINRA information necessary to assist FINRA in fulfilling the
Regulatory Responsibilities 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
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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 FINRA
solely for the purposes of fulfilling its Regulatory Responsibilities.
c. 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.
d. Intellectual Property.
(i) Existing Intellectual Property. FINRA is and will remain the
owner of all right, title and interest in and to the proprietary
Intellectual Property it employs in the provision of regulation
hereunder (including the SONAR system), and any derivative works
thereof. To the extent certain elements of FINRA's systems, or portions
thereof, may be licensed or leased from third parties, all such third
party elements shall remain the property of such third parties, as
applicable. Likewise, any other Participating Organization is and will
remain the owner of all right, title and interest in and to its own
existing proprietary Intellectual Property.
(ii) Enhancements to Existing Intellectual Property or New
Developments. In the event FINRA (a) makes any changes, modifications
or enhancements to its Intellectual Property for any reason, or (b)
creates any newly developed Intellectual Property for any reason,
including as a result of requested enhancements or new development by
the Exchange Committee (collectively, the ``New IP''), the
Participating Organizations acknowledge and agree that FINRA shall be
deemed the owner of the New IP created by it (and any derivative works
thereof), and shall retain all right, title and interest therein and
thereto, and each other Participating Organization hereby irrevocably
assigns, transfers and conveys to FINRA without further consideration
all of its right, title and interest in or to all such New IP (and any
derivative works thereof).
(iii) Fees for New IP. FINRA will not charge the Participating
Organizations any fees for any New IP created and used by FINRA;
provided, however, that FINRA will be permitted to charge fees for
software maintenance work performed on systems used in the discharge of
its duties hereunder.
11. Special or Cause Examinations. Nothing in this Agreement shall
restrict or in any way encumber the right of a party to conduct special
or cause examinations of Common FINRA Members as any party, in its sole
discretion, shall deem appropriate or necessary.
12. Dispute Resolution Under this Agreement.
a. Negotiation. The parties to this Agreement 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 parties shall refer the
dispute to binding arbitration.
b. Binding Arbitration. All claims, disputes, controversies, and
other matters in question between the parties to this Agreement arising
out of or relating to this Agreement or the breach thereof that cannot
be resolved by the parties will be resolved through binding
arbitration. Unless otherwise agreed by the parties, a dispute
submitted to binding arbitration pursuant to this paragraph shall be
resolved using the following procedures:
(i) The arbitration shall be conducted in the city of New York 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.
13. 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, (c) in
instances of a breach of confidentiality obligations owed to another
Participating Organization, or (d) in the case of any Participating
Organization paying fees hereunder, for any payments due. 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 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.
14. SEC Approval.
a. The parties 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 this Agreement and of its
impact on their members.
15. 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.
16. Assignment. No Participating Organization may assign this
Agreement without the prior written consent of all the other
Participating Organizations, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that any
Participating Organization may assign this Agreement to a corporation
controlling, controlled by or under common control with the
Participating Organization without the prior written consent of any
other party.
17. 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.
18. Termination.
a. Any Participating Organization may cancel its participation in
this Agreement at any time, provided that it has given 180 days written
notice to the other Participating Organizations (or in
[[Page 33243]]
the case of a change of control in ownership of a Participating
Organization, such other notice time period as that Participating
Organization may choose), and provided that such termination has been
approved by the SEC. The cancellation of its participation in this
Agreement by any Participating Organization shall not terminate this
Agreement as to the remaining Participating Organizations.
b. The Regulatory Responsibilities assumed under this Agreement by
FINRA may be terminated by FINRA against any Participating Organization
as follows. The Participating Organization will have thirty (30) days
from receipt to satisfy the invoice. If the Participating Organization
fails to satisfy the invoice within thirty (30) days of receipt
(``Default''), FINRA will notify the Participating Organization of the
Default. The Participating Organization will have thirty (30) days from
receipt of the Default notice to satisfy the invoice.
c. FINRA will have the right to terminate the Regulatory
Responsibilities assumed under this Agreement if a Participating
Organization has Defaulted in its obligation to pay the invoice on more
than three (3) occasions in any rolling twenty-four (24) month period.
19. Intermarket Surveillance Group (``ISG''). In order to
participate in this Agreement, all Participating Organizations to this
Agreement must be members of the ISG.
20. 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.
21. Liaison and Notices. All questions regarding the implementation
of this Agreement shall be directed to the persons identified below, as
applicable. All notices and other communications required or permitted
to be given under this Agreement shall be in writing and shall be
deemed to have been duly given upon (i) actual receipt by the notified
party or (ii) constructive receipt (as of the date marked on the return
receipt) if sent by certified or registered mail, return receipt
requested, to the following addresses:
For Cboe BZX Exchange, Inc.: Greg Hoogasian, Chief Regulatory Officer,
Cboe BZX Exchange, Inc., 400 S LaSalle Street, Chicago, IL 60605,
Telephone: (312) 786-7844, Facsimilie: (312) 786-7982, Email:
[email protected]
For Cboe BYX Exchange, Inc.: Greg Hoogasian, Chief Regulatory Officer,
Cboe BZX Exchange, Inc., 400 S LaSalle Street, Chicago, IL 60605,
Telephone: (312) 786-7844, Facsimilie: (312) 786-7982, Email:
[email protected]
For NYSE Chicago, Inc.: Anthony Albanese, Chief Regulatory Officer,
NYSE Group, Inc., 11 Wall Street, New York, NY 10005, Telephone: (212)
656-8297, Facsimile: (212) 656-2027, Email: [email protected]
For Cboe EDGA Exchange, Inc.: Greg Hoogasian, Chief Regulatory Officer,
Cboe BZX Exchange, Inc., 400 S LaSalle Street, Chicago, IL 60605,
Telephone: (312) 786-7844, Facsimilie: (312) 786-7982, Email:
[email protected]
For Cboe EDGX Exchange, Inc.: Greg Hoogasian, Chief Regulatory Officer,
Cboe BZX Exchange, Inc., 400 S LaSalle Street, Chicago, IL 60605,
Telephone: (312) 786-7844, Facsimilie: (312) 786-7982, Email:
[email protected]
For Financial Industry Regulatory Authority, Inc.: [Cameron
Funkhouser], [Executive Vice President,], Sam Draddy, Senior Vice
President, Office of Fraud Detection and Market Intelligence, FINRA,
1735 K Street NW, Washington, DC 20006, Telephone: (240) 386-
[5021]5042, Facsimile: (301) 407-4635, Email:
[Cameron.Funkhouser][email protected]
For MEMX LLC: Scott Palmer, Chief Regulatory Officer, MEMX LLC, 111
Town Square Place, Suite 520, Jersey City, NJ 07310, Telephone: (201)
596-6995, Facsimilie: (201) 331-7904, Email: [email protected]
For Nasdaq BX, Inc.: John A. Zecca, [Senior] Executive Vice President
and Chief Legal and Regulatory Officer, The Nasdaq Stock Market LLC,
[9600 Blackwell Road], 805 King Farm Boulevard, Rockville, MD 20850,
Telephone: (301) 978-8498, Facsimile: (301) 978-8472, Email:
John.Zecca@nasdaq[omx].com
For Nasdaq PHLX LLC: Joseph P. Cusick, Chief Regulatory Officer, Nasdaq
PHLX LLC, [1900 Market Street], FMC Tower, Level 8, 2929 Walnut Street,
Philadelphia, PA 1910[3]4, Telephone: (215) 496-1576, Facsimile: (215)
496-5104, Email: jo[e]seph.cusick@nasdaq[omx].com
For The Nasdaq Stock Market LLC: John A. Zecca, [Senior]Executive Vice
President and Chief Legal and Regulatory Officer, The Nasdaq Stock
Market LLC, [9600 Blackwell Road], 805 King Farm Boulevard, Rockville,
MD 20850, Telephone: (301) 978-8498, Facsimile: (301) 978-8472, Email:
John.Zecca@nasdaq[omx].com
For NYSE National, Inc.: Anthony Albanese, Chief Regulatory Officer,
NYSE National, Inc., 11 Wall Street, New York, NY 10005, Telephone:
(212) 656-8927, Facsimile: (212) 656-2027, Email:
[email protected]
For New York Stock Exchange LLC: Anthony Albanese, Chief Regulatory
Officer, NYSE, 11 Wall Street, New York, NY 10005, Telephone: (212)
656-8927, Facsimile: (212) 656-2027, Email: [email protected]
For NYSE American LLC: Anthony Albanese, Chief Regulatory Officer, NYSE
American, 11 Wall Street, New York, NY 10005, Telephone: (212) 656-
8927, Facsimile: (212) 656-2027, Email: [email protected]
For NYSE Arca, Inc.: Anthony Albanese, Chief Regulatory Officer, NYSE
Arca, 11 Wall Street, New York, NY 10005, Telephone: (212) 656-8927,
Facsimile: (212) 656-2027, Email: [email protected]
For Investors' Exchange LLC.: Claudia Crowley, Chief Regulatory
Officer, IEX, [4]3 World Trade Center, 1[50]75 Greenwich Street,
[44]58th Floor, New York, NY 10007, Telephone: (646) 343-2041,
Facsimile: (646) 365-6862, Email: [email protected]
For Long-Term Stock Exchange, Inc.: [Howard Steinberg]Gary Goldsholle,
[General Counsel and] Chief Regulatory Officer, LTSE, [300 Montgomery
St., STE 790,], [San Francisco, CA 94104], 100 Greenwich St., Suite
11A, New York, NY 10006, Telephone: (202) [880-4022]580-5752, Email:
[howard][email protected]
22. Confidentiality. The parties 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. No party 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, as defined by
paragraph 10, above.
23. Regulatory Responsibility. Pursuant to Section 17(d)(1)(A) of
the Act, and Rule 17d-2 thereunder, the Participating Organizations
jointly and severally request the SEC, upon its approval of this
Agreement, to relieve the Participating Organizations, jointly and
severally, of any and all responsibilities with respect to the matters
allocated to FINRA pursuant to this Agreement for purposes of
Sec. Sec. 17(d) and 19(g) of the Act.
24. Governing Law. This Agreement shall be deemed to have been made
in
[[Page 33244]]
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 parties 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.
25. Survival of Provisions. Provisions intended by their terms or
context to survive and continue notwithstanding delivery of the
regulatory services by FINRA, the payment of the Fees by the
Participating Organizations, and any expiration of this Agreement shall
survive and continue.
26. Amendment.
a. This Agreement may be amended to add a new Participating
Organization, provided that such Participating Organization does not
assume regulatory responsibility, solely by an amendment executed by
FINRA and such new Participating Organization. All other Participating
Organizations expressly consent to allow FINRA to add new Participating
Organizations to this Agreement as provided above. FINRA 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, must be filed with and approved by the SEC before they
become effective.
27. 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 SEC Rule 17d-2
thereunder.
28. 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 between the parties.
{Remainder of Page Intentionally Left Blank.{time}
In witness whereof, the parties hereto have each caused this
Agreement for the Allocation of Regulatory Responsibility of
Surveillance, Investigation and Enforcement for Insider Trading to be
signed and delivered by its duly authorized representative.
Exhibit A: Common Insider Trading Rules
1. Securities Exchange Act of 1934 Section 10(b), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 10b-5 (as it pertains to insider trading), which
states that:
Rule 10b-5--Employment of Manipulative and Deceptive Devices
It shall be unlawful for any person, directly or indirectly, by the
use of any means or instrumentality of interstate commerce, or of the
mails or of any facility of any national securities exchange,
a. To employ any device, scheme, or artifice to defraud,
b. To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading, or
c. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
2. Securities Exchange Act of 1934 Section 17(a), and rules and
regulations promulgated there under in connection with insider trading,
including SEC Rule 17a-3 (as it pertains to insider trading).
3. The following SRO Rules as they pertain to violations of insider
trading:
FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade)
FINRA Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent
Devices)
FINRA Rule 3110 (Supervision)
FINRA Rule 4511 (General Requirements)
FINRA Rule 4512 (Customer Account Information)
MEMX Rule 3.1 (Business Conduct of Members)
MEMX Rule 3.2 (Violations Prohibited)
MEMX Rule 3.3 (Use of Fraudulent Devices)
MEMX Rule 4.1 (Requirements)
MEMX Rule 5.1 (Written Procedures)
MEMX Rule 5.3 (Records)
MEMX Rule 5.5 (Prevention of Misuse of Material, Nonpublic Information)
MEMX Rule 12.4 (Manipulative Transactions)
NYSE Rule 440 (Books and Records)
NYSE Rule 476(a) (Disciplinary Proceedings Involving Charges Against
Members, Member Organizations, Principal Executives, Approved Persons,
Employees, or Others)
NYSE Rule 2010 (Standards of Commercial Honor and Principles of Trade)
NYSE Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent
Devices)
NYSE Rule 3110 (Supervision)
NYSE American General and Floor Rule 3(j) (General Prohibitions and
Duty to Report)
NYSE American Rule 2.24-E (ETP Books and Records)
NYSE American Rule 476(a) (Disciplinary Proceedings Involving Charges
Against Members, Member Organizations, Principal Executives, Approved
Persons, Employees, or Others)
NYSE American Rule 2010 (Equities. Standards of Commercial Honor and
Principles of Trade)
NYSE American Rule 2020 (Equities. Use of Manipulative, Deceptive or
Other Fraudulent Devices)
NYSE American Rule 3110 (Equities. Supervision)
Nasdaq Rule [2010A]General 9, Section 1(a) (Standards of Commercial
Honor and Principles of Trade)
Nasdaq Rule [2120]General 9, Section 1(g) (Use of Manipulative,
Deceptive or Other Fraudulent Devices)
Nasdaq Rule [3010]General 9, Section 20 (Supervision)
Nasdaq Rule [4511A]General 9, Section 43 (General Requirements
Nasdaq Rule [4512A]General 9, Section 45 (Customer Account Information)
CHX Article 8, Rule 3 (Fraudulent Acts)
CHX Article 9, Rule 2 (Just & Equitable Trade Principles)
CHX Article 11, Rule 2 (Maintenance of Books and Records)
CHX Article 6, Rule 5 (Supervision of Registered Persons and Branch and
Resident Offices)
PHLX Rule [707]Options 9, Section 1 (Conduct Inconsistent with Just and
Equitable Principles of Trade)
PHLX Rule [748]General 9, Section 20 (Supervision)
PHLX Rule [760]Options 6E, Section 1 (Maintenance, Retention and
Furnishing of Books, Records and Other Information)
PHLX Rule [761]General 9, Section 21 (Supervisory Procedures Relating
to ITSFEA and to Prevention of Misuse or Material Nonpublic
Information)
PHLX Rule [782]General 9, Section 1(b) (Manipulative Operations)
NYSE Arca Rule 2.28 (Books and Records)
NYSE Arca Rule 5.1-E(a)(2)(v)(D) (General Provisions and Unlisted
Trading Privileges)
NYSE Arca Rule 11.1 (Adherence to Law)
NYSE Arca Rule 11.2(b) (Prohibited Acts (J&E))
NYSE Arca Rule 11.3 (Prevention of the Misuse of Material, Nonpublic
Information)
NYSE Arca Rule 11.18 (Supervision)
NYSE Arca Rule 9.1-E(c) (Office Supervision)
[[Page 33245]]
NYSE Arca Rule 9.2-E(b) (Account Supervision)
NYSE Arca Rule 9.2-E(c) (Customer Records)
NYSE Arca Rule 9.2010-E (Standards of Commercial Honor and Principles
of Trade)
NYSE Arca Rule 9.2020-E (Use of Manipulative, Deceptive or Other
Fraudulent Devices)
NYSE National Rule 5.1(a)(2)(D)(iv) (Unlisted Trading Privileges)
NYSE National Rule 11.3.1 (Business Conduct of ETP Holders)
NYSE National Rule 11.3.2 (Violations Prohibited)
NYSE National Rule 11.3.3 (Use of Fraudulent Devices)
NYSE National Rule 11.4.1 (Requirements)
NYSE National Rule 11.5.1 (Written Procedures)
NYSE National Rule 11.5.3 (Records)
NYSE National Rule 11.5.5 (Prevention of the Misuse of Material,
Nonpublic Information)
NYSE National Rule 11.12.4 (Manipulative Transactions)
BX Rule [2110]General 9, Section 1(a) (Standards of Commercial Honor
and Principles of Trade)
BX Rule [2120]General 9, Section 1(i) (Use of Manipulative, Deceptive
or Other Fraudulent Devices)
BX Rule [3010]General 9, Section 20 (Supervision)
BX Rule [3110 (a) and (c)]General 9, Section 30(a) and (b) (Books and
Records; Financial Condition)
BZX Rule 3.1 (Business Conduct of Members)
BZX Rule 3.2 (Violations Prohibited)
BZX Rule 3.3 (Use of Fraudulent Devices)
BZX Rule 4.1 (Requirements)
BZX Rule 5.1 (Written Procedures)
BZX Rule 5.3 (Records)
BZX Rule 5.5 (Prevention of the Misuse of Material, Non-Public
Information)
BZX Rule 12.4 (Manipulative Transactions)
BYX Rule 3.1 (Business Conduct of ETP Holders)
BYX Rule 3.2 (Violations Prohibited)
BYX Rule 3.3 (Use of Fraudulent Devices)
BYX Rule 4.1 (Requirements)
BYX Rule 5.1 (Written Procedures)
BYX Rule 5.3 (Records)
BYX Rule 5.5 (Prevention of the Misuse of Material, Non-Public
Information)
BYX Rule 12.4 (Manipulative Transactions)
EDGA Rule 3.1 (Business Conduct of Members)
EDGA Rule 3.2 (Violations Prohibited)
EDGA Rule 3.3 (Use of Fraudulent Devices)
EDGA Rule 4.1 (Requirements)
EDGA Rule 5.1 (Written Procedures)
EDGA Rule 5.3 (Records)
EDGA Rule 5.5 (Prevention of Misuse of Material, Nonpublic Information)
EDGA Rule 12.4 (Manipulative Transactions)
EDGX Rule 3.1 (Business Conduct of Members)
EDGX Rule 3.2 (Violations Prohibited)
EDGX Rule 3.3 (Use of Fraudulent Devices)
EDGX Rule 4.1 (Requirements)
EDGX Rule 5.1 (Written Procedures)
EDGX Rule 5.3 (Records)
EDGX Rule 5.5 (Prevention of Misuse of Material, Nonpublic Information)
EDGX Rule 12.4 (Manipulative Transactions)
IEX Rule 3.110 (Business Conduct of Members)
IEX Rule 3.120 (Violations Prohibited)
IEX Rule 3.130 (Use of Fraudulent Devices)
IEX Rule 4.511 (General Requirements)
IEX Rule 4.512 (Customer Account Information)
IEX Rule 5.110 (Supervision)
IEX Rule 5.150 (Prevention of Misuse of Material, Non-Public
Information)
IEX Rule 10.140 (Manipulative Transactions)
LTSE Rule 3.110 (Business Conduct of Members)
LTSE Rule 3.120 (Violations Prohibited)
LTSE Rule 3.130 (Use of Fraudulent Devices)
LTSE Rule 4.511 (General Requirements)
LTSE Rule 4.512 (Customer Account Information)
LTSE Rule 5.110 (Supervision)
LTSE Rule 5.150 (Prevention of Misuse of Material, Non-Public
Information)
LTSE Rule 10.140 (Manipulative Transactions)
Exhibit B: Fee Schedule
1. Fees. FINRA shall charge each Participating Organization a
Quarterly Fee in arrears for the performance of FINRA's Regulatory
Responsibilities under the Plan (each, a ``Quarterly Fee,'' and
together, the ``Fees'').
a. Quarterly Fees.
(1) Quarterly Fees for each Participating Organization will be
charged by FINRA according to the Participating Organization's
``Percentage of Publicly Reported Trades'' occurring over three-month
billing periods. The ``Percentage of Publicly Reported Trades'' shall
equal a Participating Organization's total number of reported NMS Stock
trades during the relevant period as specified in paragraph 1b. (the
``Numerator''), divided by the total number of all NMS Stock trades for
the same period as specified in paragraph 1b.(the ``Denominator''). For
purposes of clarification, ADF and Trade Reporting Facility (``TRF'')
activity will be included in the Denominator. Additionally, with regard
to TRFs, TRF trade volume will be charged to FINRA. Consequently, for
purposes of calculating the Quarterly Fees, the volume for each
Participant Organization's TRF will be calculated separately (that is,
TRF volume will be broken out from the Participating Organization's
overall Percentage of Publicly Reported Trades) and the fees for such
will be billed to FINRA in accordance with paragraph 1a.(2), rather
than to the applicable Participating Organization.
(2) The Quarterly Fees shall be determined by FINRA in the
following manner for each Participating Organization:
(a) Less than 1.0%: If the Participating Organization's Percentage
of Publicly Reported Trades for the relevant three-month billing period
is less than 1.0%, the Quarterly Fee shall be $6,250, per quarter
(``Static Fee'');
(b) Less than 2.0% but No Less than 1.0%: If the Participating
Organization's Percentage of Publicly Reported Trades for the relevant
three-month billing period is less than 2.0% but no less than 1.0%, the
Quarterly Fee shall be $18,750, per quarter (``Static Fee'');
(c) 2.0% or Greater: If the Participating Organization's Percentage
of Publicly Reported Trades for the relevant three-month billing period
is 2.0% or greater, the Quarterly Fee shall be the amount equal to the
Participating Organization's Percentage of Publicly Reported Trades
multiplied by FINRA's total charge (``Total Charge'') for its
performance of Regulatory Responsibilities for the relevant three-month
billing period.
(3) Increases in Static Fees. FINRA will re-evaluate the Quarterly
Fees on an annual basis during the annual budget process outlined in
paragraph 1.c. below. During each annual re-evaluation, FINRA will have
the discretion to increase the Static Fees by a percentage no greater
than the percentage increase in the Final Budget over the preceding
year's Final Budget. Any changes to the Static Fees shall not require
an amendment to this Agreement, but rather shall be memorialized
through the budget process.
(4) Increases in Total Charges. Any change in the Total Charges
(whether a Final Budget increase or any mid year change) shall not
require an amendment to this Agreement, but rather shall be
memorialized through the budget process.
[[Page 33246]]
b. Source of Data. For purposes of calculation of the Percentage of
Publicly Reported Trades for each Participating Organization, FINRA
will use trades reported to the two SIPs (a) the Consolidated Tape
Association (``CTA''), and (b) the Unlisted Trading Privileges Plan. In
each case, FINRA will use the total trades as may be adjusted by the
Participating Organization. Adjustments will include any separation or
breakup of the number of trades as a result of reporting of bunched or
bundled trades by a Participating Organization but will not include any
adjustments resulting from single-priced opening, reopening or closing
auction trades. Each Participating Organization that reports bunched or
bundled trades will report to FINRA any adjustments to its total number
of NMS Stock trades on the 15th of the month following the end of the
quarter.
c. Annual Budget Forecast. FINRA will notify the Participating
Organizations of the forecasted costs of its insider trading program
for the following calendar year by close of business on October 15 of
the then-current year (the ``Forecasted Budget''). FINRA shall use best
efforts to provide as accurate a forecast as possible. FINRA shall then
provide a final submission of the costs following approval of such
costs by its Board of Governors (the ``Final Budget''). Subject to
paragraph 1d. below, in the event of a difference between the
Forecasted Budget and the Final Budget, the Final Budget will govern.
d. Increases in Fees over Five Percent.
(1) In the event that any proposed increase to Fees by FINRA for a
given calendar year (which increase may arise either during the annual
budgetary forecasting process or through any mid-year increase) will
result in a cumulative increase in such calendar year's Fees of more
than five percent (5%) above the preceding calendar year's Final Budget
(a ``Major Increase''), then senior management of any Participating
Organization (a) that is a Listing Market or (b) for which the
Percentage of Publicly Reported Trades is then currently twenty percent
(20%) or greater, shall have the right to call a meeting with the
senior management of FINRA in order to discuss any disagreement over
such proposed Major Increase. By way of example, if FINRA provides a
Final Budget for 2011 that represents an 4% increase above the Final
Budget for 2010, the terms of this paragraph 1.d.(1) shall not apply;
if, however, in April of 2011, FINRA notifies the Exchange Committee of
an increase in Fees that represents an additional 3% increase above the
Final Budget for 2010, then the increase shall be deemed a Major
Increase, and the terms of this paragraph 1.d.(1) shall become
applicable (i.e., 4% and 3% represents a cumulative increase of 7%
above the 2010 Final Budget).
(2) In the event that senior management members of the involved
parties are unable to reach an agreement regarding the proposed Major
Increase, then the matter shall be referred back to the Exchange
Committee for final resolution. Prior to the matter being referred back
to the Exchange Committee, nothing shall prohibit the parties from
conferring with the SEC. Resolution shall be reached through a vote of
no fewer than all Participating Organizations seated on the Exchange
Committee, and a simple majority shall be required in order to reject
the proposed Major Increase.
e. Time Tracking. FINRA shall track the time spent by staff on
insider trading responsibilities under this Agreement; however, time
tracking will not be used to allocate costs.
2. Invoicing and Payment. FINRA shall invoice each Participating
Organization for the Quarterly Fee associated with the regulatory
activities performed pursuant to this Agreement during the previous
three-month billing period within forty five (45) days of the end of
such previous 3-month billing period. A Participating Organization
shall have thirty (30) days from date of invoice to make payment to
FINRA on such invoice. The invoice will reflect the Participating
Organization's Percentage of Publicly Reported Trades for that billing
period.
3. Disputed Invoices; Interest. In the event that a Participating
Organization disputes an invoice or a portion of an invoice, the
Participating Organization shall notify FINRA in writing of the
disputed item(s) within fifteen (15) days of receipt of the invoice. In
its notification to FINRA of the disputed invoice, the Participating
Organization shall identify the disputed item(s) and provide a brief
explanation of why the Participating Organization disputes the charges.
FINRA may charge a Participating Organization interest on any
undisputed invoice or the undisputed portions of a disputed invoice
that a Participating Organization fails to pay within thirty (30) days
of its receipt of such invoice. Such interest shall be assessed
monthly. Interest will mean one and one half percent per month, or the
maximum allowable under applicable law, whichever is less.
4. Taxes. In the event any governmental authority deems the
regulatory activities allocated to FINRA to be taxable activities
similar to the provision of services in a commercial context, the other
Participating Organizations agree that they shall bear full
responsibility, on a joint and several basis, for the payment of any
such taxes levied on FINRA, or, if such taxes are paid by FINRA
directly to the governmental authority, the other Participating
Organizations agree that they shall reimburse FINRA for the amount of
any such taxes paid.
5. Audit Right; Record Keeping.
a. Audit Right.
(i) Once every rolling twelve (12) month period, FINRA shall permit
no more than one audit (to be performed by one or more Participating
Organizations) of the Fees charged by FINRA to the Participating
Organizations hereunder and a detailed cost analysis supporting such
Fees (the ``Audit''). The Participating Organization or Organizations
that conduct this Audit will select a nationally-recognized independent
auditing firm (or may use its regular independent auditor, providing it
is a nationally-recognized auditing firm) (``Auditing Firm'') to act on
its, or their behalf, and will provide reasonable notice to other
Participating Organizations of the Audit. FINRA will permit the
Auditing Firm reasonable access during FINRA's normal business hours,
with reasonable advance notice, to such financial records and
supporting documentation as are necessary to permit review of the
accuracy of the calculation of the Fees charged to the Participating
Organizations. The Participating Organization, or Organizations, as
applicable, other than FINRA, shall be responsible for the costs of
performing any such audit.
(ii) If, through an Audit, the Exchange Committee determines that
FINRA has inaccurately calculated the Fees for any Participating
Organization, the Exchange Committee will promptly notify FINRA in
writing of the amount of such difference in the Fees, and, if
applicable, FINRA shall issue a reimbursement of the overage amount to
the relevant Participating Organization(s), less any amount owed by the
Participating Organization under any outstanding, undisputed
invoice(s). If such an Audit reveals that any Participating
Organization paid less than what was required pursuant to the
Agreement, then that Participating Organization shall promptly pay
FINRA the difference between what the Participating Organization owed
pursuant to the Agreement and what that Participating Organization
originally paid FINRA. If FINRA disputes the results of an Audit
regarding the accuracy of the Fees, it
[[Page 33247]]
will submit the dispute for resolution pursuant to the dispute
resolution procedures in paragraph 12 of the Agreement.
(iii) In the event that through the review of any supporting
documentation provided during the Audit, any one or more Participating
Organizations desire to discuss with FINRA the supporting documentation
and any questions arising therefrom with regard to the manner in which
regulation was conducted, the Participating Organization(s) shall call
a meeting with FINRA. FINRA shall in turn notify the Exchange Committee
of this meeting in advance, and all Participating Organizations shall
be welcome to attend (the ``Fee Analysis Meeting''). The parties to
this Agreement acknowledge and agree that while FINRA commits to
discuss the supporting documentation at the Fee Analysis Meeting, FINRA
shall not be subject, by virtue of the above Audit rights or any
discussions during the Fee Analysis Meeting or otherwise, to any
limitation whatsoever, other than the Increase in Fee provisions set
forth in paragraph 1.d. of this Exhibit, on its discretion as to the
manner and means by which it conducts its regulatory efforts in its
role as the SRO primarily liable for regulatory decisions under this
Agreement. To that end, no disagreement among the Participating
Organizations as to the manner or means by which FINRA conducts its
regulatory efforts hereunder shall be subject to the dispute resolution
procedures hereunder, and no Participating Organization shall have the
right to compel FINRA to alter the manner or means by which it conducts
its regulatory efforts. Further, a Participating Organization shall not
have the right to compel a rebate or reassessment of fees for services
rendered, on the basis that the Participating Organization would have
conducted regulatory efforts in a different manner than FINRA in its
professional judgment chose to conduct its regulatory efforts.
b. Record Keeping. In anticipation of any audit that may be
performed by the Exchange Committee under paragraph 5.a. above, FINRA
shall keep accurate financial records and documentation relating to the
Fees charged by it under this Agreement.
Exhibit C: Reports
FINRA shall provide the following information in reports to the
Exchange Committee, which information covers activity occurring under
this Agreement:
1. Alert Summary Statistics: Total number of surveillance system
alerts generated by quarter along with associated number of reviews and
investigations. In addition, this paragraph shall also reflect the
number of reviews and investigations originated from a source other
than an alert. A separate table would be presented for the trading
activity of the NMS Stocks listed on each Participating Organization's
exchange.
----------------------------------------------------------------------------------------------------------------
2008 Surveillance alerts Investigations
----------------------------------------------------------------------------------------------------------------
1st Quarter
----------------------------------------------------------------------------------------------------------------
2nd Quarter
----------------------------------------------------------------------------------------------------------------
3rd Quarter
----------------------------------------------------------------------------------------------------------------
4th Quarter
----------------------------------------------------------------------------------------------------------------
2008 Total
----------------------------------------------------------------------------------------------------------------
2. Aging of Open Matters: Would reflect the aging for all currently
open matters for the quarterly period being reported. A separate table
would be presented for the trading activity of the NMS Stocks listed on
each Participating Organization's exchange.
Example:
----------------------------------------------------------------------------------------------------------------
Surveillance alerts Investigations
----------------------------------------------------------------------------------------------------------------
0-6 months
----------------------------------------------------------------------------------------------------------------
6-9 months
----------------------------------------------------------------------------------------------------------------
9-12 months
----------------------------------------------------------------------------------------------------------------
12+ months
----------------------------------------------------------------------------------------------------------------
Total
----------------------------------------------------------------------------------------------------------------
3. Timeliness of Completed Matters: Would reflect the total age of
those matters that were completed or closed during the quarterly period
being reported. FINRA will provide total referrals to the SEC.
Example:
----------------------------------------------------------------------------------------------------------------
Surveillance alerts Investigations
----------------------------------------------------------------------------------------------------------------
0-6 months
----------------------------------------------------------------------------------------------------------------
6-9 months
----------------------------------------------------------------------------------------------------------------
9-12 months
----------------------------------------------------------------------------------------------------------------
[[Page 33248]]
12+ months
----------------------------------------------------------------------------------------------------------------
Total
----------------------------------------------------------------------------------------------------------------
4. Disposition of Closed Matters: Would reflect the disposition of
those matters that were completed or closed during the quarterly period
being reported. A separate table would be presented for the trading
activity of the NMS Stocks listed on each Participating Organization's
exchange.
Example:
----------------------------------------------------------------------------------------------------------------
Surveillance YTD Investigations YTD
----------------------------------------------------------------------------------------------------------------
No Further Review
----------------------------------------------------------------------------------------------------------------
Letter of Caution/Admonition Fine
----------------------------------------------------------------------------------------------------------------
Referred to Legal/Enforcement
----------------------------------------------------------------------------------------------------------------
Referred to SEC/SRO
----------------------------------------------------------------------------------------------------------------
Merged
----------------------------------------------------------------------------------------------------------------
Other
----------------------------------------------------------------------------------------------------------------
Total
----------------------------------------------------------------------------------------------------------------
5. Pending Reviews. In addition to the above reports, the Chief
Regulatory Officer (CRO) (or his or her designee) of any Participating
Organization that is also a Listing Market may inquire about pending
reviews involving stocks listed on that Participating Organization's
market. FINRA will respond to such inquiries from a CRO; provided,
however, that (a) the CRO must hold any information provided by FINRA
in confidence and (b) FINRA will not be compelled to provide
information in contradiction of any mandate, directive or order from
the SEC, U.S. Attorney's Office, the Office of any State Attorney
General or court of competent jurisdiction.
IV. Solicitation of Comments
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/sro.shtml); or
Send an email to [email protected]. Please include
File Number 4-566 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number 4-566. 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/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed plan that are filed with the
Commission, and all written communications relating to the proposed
plan 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 4-566 and should be submitted
on or before June 22, 2020.
V. Discussion
The Commission finds that the Plan, as proposed to be amended, is
consistent with the factors set forth in Section 17(d) of the Act \14\
and Rule 17d-2 thereunder \15\ in that it 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. The Commission
continues to believe that the Plan, as amended, should reduce
unnecessary regulatory duplication by allocating regulatory
responsibility for the surveillance, investigation, and enforcement of
Common Rules to FINRA. Accordingly, the proposed amendment to the Plan
promotes efficiency by consolidating these regulatory functions in a
single SRO.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78q(d).
\15\ 17 CFR 240.17d-2.
---------------------------------------------------------------------------
Under paragraph (c) of Rule 17d-2, the Commission may, after
appropriate notice and comment, declare a plan, or any part of a plan,
effective. In this instance, the Commission believes that appropriate
notice and comment can take place after the proposed amendment is
effective. The amendment adds MEMX as a Participant to the Plan.\16\
The Commission believes that the current amendment to the Plan does not
raise any new regulatory issues that the Commission has not previously
considered, and therefore believes that
[[Page 33249]]
the amended Plan should become effective without any undue delay.
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\16\ The Commission notes that the most recent prior amendment
to the Plan, which, among other things, added LTSE as a Party to the
Plan, was published for comment and the Commission did not receive
any comments thereon. See supra note 11.
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VI. Conclusion
This order gives effect to the amended Plan submitted to the
Commission that is contained in File No. 4-566.
It is therefore ordered, pursuant to Section 17(d) of the Act,\17\
that the Plan, as amended, filed with the Commission pursuant to Rule
17d-2 on May 19, 2020, is hereby approved and declared effective.
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\17\ 15 U.S.C. 78q(d).
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It is further ordered that the Participating Organizations are
relieved of those regulatory responsibilities allocated to FINRA under
the amended Plan to the extent of such allocation.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-11656 Filed 5-29-20; 8:45 am]
BILLING CODE 8011-01-P