[Federal Register Volume 65, Number 105 (Wednesday, May 31, 2000)]
[Notices]
[Pages 34762-34764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13531]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42815, File No. 4-431]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Granting Approval of Plan Allocating Regulatory 
Responsibility; International Securities Exchange LLC and National 
Association of Securities Dealers, Inc.

May 23, 2000.
    Notice is hereby given that the Securities and Exchange Commission 
(``SEC or Commission'') has issued an Order, pursuant to Sections 17(d) 
\1\ and 11A(a)(3)(B) \2\ of the Securities Exchange Act of 1934 
(``Act''), granting approval of the plan, as amended, for allocating 
regulatory responsibility filed pursuant

[[Page 34763]]

to Rule 17d-2 of the Act,\3\ by the International Securities Exchange 
LLC (``ISE'') and the National Association of Securities Dealer, Inc. 
(``NASD'').
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    \1\ 15 U.S.C. 78q(d).
    \2\ 15 U.S.C. 78k-1(a)(3)(B).
    \3\ 17 CFR 240.17d-2.
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    Accordingly, the NASD shall assume, in addition to the regulatory 
responsibilities it already has under the Act, the regulatory 
responsibilities allocated to it under the plan, as amended. At the 
same time, the ISE is relieved of those regulatory responsibilities 
allocated to the NASD.

I. Introduction

    Section 19(g)(1) of the Act,\4\ among other things, requires every 
national securities exchange and registered securities association 
(``SRO'') 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 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''). This 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. 78s(g)(2).
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    Section 17(d)(1) of the Act was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\6\ 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\ Securities Acts 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 \7\ and Rule 17d-2 under the Act. Rule 17d-1, adopted on 
April 20, 1976,\8\ 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. 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 applicable financial responsibility rules.
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    \7\ 17 CFR 240.17d-1.
    \8\ Securities Exchange Act Release No. 12352 (April 20, 1976), 
41 FR 18809 (May 3, 1976).
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    On its face, Rule 17d-1 deals only with an SRO's obligations to 
enforce broker-dealers' compliance with the 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.
    To address regulatory duplication in these other areas, on October 
28, 1976, the Commission adopted rule 17d-2 under the Act.\9\ This rule 
permits SROs to propose joint plans allocating regulatory 
responsibilities with respect to 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 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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    \9\ Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49093 (November 8, 1976).
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    On April 19, 2000, the Commission published notice of the filing by 
the ISE and the NASD of a joint plan allocating regulatory 
responsibility for common members.\10\ No comments were received. On 
May 1, the parties filed a technical amendment to the plan.\11\ The 
amended plan is intended to reduce regulatory duplication for firms 
that are common members of the ISE and the NASD. Included in the plan 
is an attachment (``ISE Certification'') that clearly delineates 
regulatory responsibilities with respect to ISE rules. The ISE 
Certification lists every ISE rule that, under the plan, the NASD would 
bear responsibility for overseeing and enforcing with respect to common 
members.
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    \10\ Securities Exchange Act Release No. 42668 (April 11, 2000), 
65 FR 21048 (April 19, 2000).
    \11\ See Letter from Sharon Zackula, Assistant General Counsel, 
NASD Regulation, to Belinda Blaine, Associate Director, Division of 
Market Regulation, Commission, dated May 1, 2000 (``Amendment No. 
1''). Amendment No. 1 makes non-substantive changes to the 
provisions of the plan regarding Advertising Materials and 
Regulatory Responsibility.
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II. Discussion

    The Commission finds that the proposed plan is consistent with the 
factors set forth in Section 17(d) of the Act and Rule 17d-2(c), in 
that the proposed plan is necessary or appropriate in the public 
interest and for the protection of investors, fosters cooperation and 
coordination among self-regulatory organizations, and removes 
impediments to and fosters the development of the national market 
system. In particular, the Commission believes that the proposed plan 
is an achievement in cooperation between the ISE and the NASD, which 
will reduce unnecessary regulatory duplication by allocating to the 
NASD certain responsibilities for common members that would otherwise 
be performed by both SROs.\12\ The proposed plan promotes efficiency by 
reducing costs to common members. Furthermore, because the ISE and the 
NASD will coordinate their regulatory functions in accordance with the 
plan, the plan will promote investor protection.
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    \12\ The ISE has further reduced regulatory duplication by 
becoming a participant in the plan allocating regulatory 
responsibility concerning options-related sales practice matters, 
filed by the American Stock Exchange LLC, the Chicago Board Options 
Exchange, Inc., the Chicago Stock Exchange, Inc., the National 
Association of Securities Dealers, Inc., the New York Stock 
Exchange, the Pacific Exchange, Inc., and the Philadelphia Stock 
Exchange, Inc. in 1983 (the ``Options 17d-2 Plan'') See Securities 
Exchange Act Release No. 20158 (September 8, 1983), 48 FR 41256 
(September 14, 1983). On May 23, 2000, the Commission approved an 
amendment to the Options 17d-2 plan, which allows ISE to become a 
participant in the plan. See Securities Exchange Act Release No. 
42816. The plan that is the subject of this approval order 
specifically excludes any obligation or responsibility by the NASD 
to examine common members for compliance with ISE rules for which 
the regulatory responsibility is allocated to an SRO under the 
Options Rule 17d-2 plan.
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III. Conclusion

    This order gives effect to the amended plan filed with the 
Commission that is contained in File No. 4-431. The parties to the plan 
shall notify all members affected by the amended plan of their rights 
and obligations under the amended plan.
    It is therefore ordered, pursuant to Sections 17(d) and 
11A(a)(3)(B) of the Act, that the plan of the ISE and the NASD, as 
amended, filed pursuant to Rule 17d-2 is approved.
    It is therefore ordered that the ISE is relieved of those 
responsibilities allocated to the NASD under the plan, as amended.


[[Page 34764]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(34).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13531 Filed 5-30-00; 8:45 am]
BILLING CODE 8010-01-M