[Federal Register Volume 86, Number 177 (Thursday, September 16, 2021)]
[Notices]
[Pages 51705-51706]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-19970]



[[Page 51705]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92934]


Order Granting Application by The Nasdaq Stock Market LLC and 
Nasdaq BX, Inc. for an Exemption Pursuant to Section 36(a) of the 
Exchange Act From the Rule Filing Requirements of Section 19(b) of the 
Exchange Act With Respect to Certain Rules Incorporated by Reference

September 10, 2021.
    The Nasdaq Stock Market LLC (``Nasdaq'') and Nasdaq BX, Inc. 
(``BX'' and together with Nasdaq, the ``Exchanges'') have filed with 
the Securities and Exchange Commission (``Commission'') an application 
for an exemption under Section 36(a)(1) of the Securities Exchange Act 
of 1934 (``Exchange Act'') \1\ from the rule filing requirements of 
Section 19(b) of the Exchange Act \2\ with respect to certain rules of 
the Financial Industry Regulatory Authority, Inc. (``FINRA'') that the 
Exchanges seek to incorporate by reference.\3\ Section 36 of the 
Exchange Act, subject to certain limitations, authorizes the Commission 
to conditionally or unconditionally exempt any person, security, or 
transaction, or any class thereof, from any provision of the Exchange 
Act or rule thereunder, if necessary or appropriate in the public 
interest and consistent with the protection of investors.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78mm(a)(1).
    \2\ 15 U.S.C. 78s(b).
    \3\ See Letter from Angela S. Dunn, Principal Associate General 
Counsel, Nasdaq, to J. Matthew DeLesDernier, Assistant Secretary, 
Commission, dated June 14, 2021 (``Exemptive Request'').
---------------------------------------------------------------------------

    The Exchanges filed proposed rule changes under Section 19(b) of 
the Exchange Act to amend General 9, Section 18 (Payments for Market 
Making) of their respective rulebooks to incorporate by reference FINRA 
5250 (Payments for Market Making).\4\ Because FINRA Rule 5250 
references the definition of ``affiliate'' in FINRA Rule 5121, the 
proposed rule changes also would incorporate by reference the 
definition of ``affiliate'' and related definitions within FINRA Rule 
5121. As such, the Exchanges' members and persons associated with a 
member would be required to comply with FINRA Rule 5250 and the 
definition of ``affiliate'' and related definitions within FINRA Rule 
5121 as though such rules are part of the Exchanges' rulebooks.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 92242 (June 23, 
2021), 86 FR 34286 (June 29, 2021) (SR-NASDAQ-2021-051); 92243 (June 
23, 2021), 86 FR 34288 (June 29, 2021) (SR-BX-2021-029). Although 
the proposed rule changes were filed pursuant to Section 19(b)(3)(A) 
of the Exchange Act, and thereby became immediately effective upon 
filing with the Commission, the Exchanges stipulated in the proposed 
rule changes that the proposals would not be operative until the 
Commission grants this Exemptive Request.
---------------------------------------------------------------------------

    The Exchanges have requested, pursuant to Rule 0-12 under the 
Exchange Act,\5\ that the Commission grant the Exchanges an exemption 
from the rule filing requirements of Section 19(b) of the Exchange Act 
for changes to the Exchanges' rules that are effected solely by virtue 
of a change to FINRA Rule 5250 or to the definition of ``affiliate'' 
and related definitions within FINRA Rule 5121, which are incorporated 
by reference.\6\ Specifically, the Exchanges request that they be 
permitted to incorporate by reference changes made to FINRA Rule 5250 
and the definition of ``affiliate'' and related definitions within 
FINRA Rule 5121 that are cross-referenced in General 9, Section 18 of 
their respective rulebooks without the need for the Exchanges to file 
separately the same proposed rule changes pursuant to Section 19(b) of 
the Act.\7\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.0-12.
    \6\ See Exemptive Request, supra note 3, at 2.
    \7\ See id.
---------------------------------------------------------------------------

    The Exchanges represent that FINRA Rule 5250 and the definition of 
``affiliate'' and related definitions within FINRA Rule 5121 are 
regulatory rules and not trading rules.\8\ The Exchanges represent 
that, as a condition to the requested exemption from Section 19(b) of 
the Exchange Act, the Exchanges will provide written notice to their 
applicants, members, and associated persons whenever FINRA proposes a 
change to a cross-referenced rule.\9\ The Exchanges state that such 
notice will alert their applicants, members, and associated persons to 
the proposed FINRA rule change and give them an opportunity to comment 
on the proposal.\10\ The Exchanges further represent that they will 
inform applicants, members, and associated persons in writing when the 
Commission approves any such proposed rule changes.\11\
---------------------------------------------------------------------------

    \8\ See id. at 2, n.7. The Exchanges also state that they are 
not ``cherry picking'' because the Exchanges would be incorporating 
the entire FINRA Rule 5250, and the definition of ``affiliate'' is 
explicitly cross-referenced within FINRA Rule 5250. See id.
    \9\ See id. at 2-3. The Exchanges represent that they will 
provide such notice via a posting on the same website location where 
the Exchanges post their own rule filings pursuant to Rule 19b-4(1) 
within the time frame required by such rule. See id. at 3, n.8. The 
website posting will include a link to the location on FINRA's 
website where the applicable proposed rule change is posted. See id.
    \10\ See id. at 3.
    \11\ See id.
---------------------------------------------------------------------------

    According to the Exchanges, this exemption is necessary and 
appropriate because it would result in the Exchanges' General 9, 
Section 18 being consistent with the relevant cross-referenced FINRA 
rules at all times, thus ensuring consistent regulation of joint 
members of the Exchanges and FINRA with respect to payments for market 
making.\12\
---------------------------------------------------------------------------

    \12\ See id. at 2.
---------------------------------------------------------------------------

    The Commission has issued exemptions similar to the Exchanges' 
request.\13\ In granting similar exemptions, the Commission stated that 
it would consider similar future exemption requests, provided that:
---------------------------------------------------------------------------

    \13\ See, e.g., Securities Exchange Act Release Nos. 83296 (May 
21, 2018), 83 FR 24362 (May 25, 2018) (order granting NYSE National, 
Inc.'s exemptive request relating to rules of FINRA incorporated by 
reference); 83040 (April 12, 2018), 83 FR 17198 (April 18, 2018) 
(order granting MIAX PEARL, LLC's exemptive request relating to 
rules of the Miami International Securities Exchange, LLC 
incorporated by reference); 76998 (January 29, 2016), 81 FR 6066, 
6083-84 (February 4, 2016) (order granting application for 
registration as a national securities exchange of ISE Mercury, LLC 
and exemptive request relating to rules of certain self-regulatory 
organizations (``SROs'') (including FINRA) incorporated by 
reference); 61534 (February 18, 2010), 75 FR 8760 (February 25, 
2010) (order granting BATS Exchange, Inc.'s exemptive request 
relating to rules incorporated by reference by the BATS Exchange 
Options Market rules) (``BATS Options Market Order''); 61152 
(December 10, 2009), 74 FR 66699, 66709-10 (December 16, 2009) 
(order granting application for registration as a national 
securities exchange of C2 Options Exchange, Incorporated and 
exemptive request relating to rules of the Chicago Board Options 
Exchange, Incorporated, incorporated by reference).
---------------------------------------------------------------------------

    <bullet> An SRO wishing to incorporate rules of another SRO by 
reference has submitted a written request for an order exempting it 
from the requirement in Section 19(b) of the Exchange Act to file 
proposed rule changes relating to the rules incorporated by reference, 
has identified the applicable originating SRO(s), together with the 
rules it wants to incorporate by reference, and otherwise has complied 
with the procedural requirements set forth in the Commission's release 
governing procedures for requesting exemptive orders pursuant to Rule 
0-12 under the Exchange Act; \14\
---------------------------------------------------------------------------

    \14\ See 17 CFR 240.0-12 and Securities Exchange Act Release No. 
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission 
Procedures for Filing Applications for Orders for Exemptive Relief 
Pursuant to Section 36 of the Exchange Act; Final Rule).
---------------------------------------------------------------------------

    <bullet> The incorporating SRO has requested incorporation of 
categories of rules (rather than individual rules within a category) 
that are not trading rules (e.g., the SRO has requested incorporation 
of rules such as margin, suitability, or arbitration); and
    <bullet> The incorporating SRO has reasonable procedures in place 
to

[[Page 51706]]

provide written notice to its members each time a change is proposed to 
the incorporated rules of another SRO.\15\
---------------------------------------------------------------------------

    \15\ See BATS Options Market Order, supra note 13 (citing 
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR 
8500 (February 24, 2004) (order granting exemptive request relating 
to rules incorporated by reference by several SROs) (``2004 
Order'')).
---------------------------------------------------------------------------

    The Commission believes that the Exchanges have satisfied each of 
these conditions. The Commission also believes that granting the 
Exchanges an exemption from the rule filing requirements under Section 
19(b) of the Exchange Act will promote efficient use of the 
Commission's and the Exchanges' resources by avoiding duplicative rule 
filings based on simultaneous changes to identical rule text sought by 
more than one SRO.\16\ The Commission therefore finds it appropriate in 
the public interest and consistent with the protection of investors to 
exempt the Exchanges from the rule filing requirements under Section 
19(b) of the Exchange Act with respect to the above-described FINRA 
rules they have incorporated by reference. This exemption is 
conditioned upon the Exchanges promptly providing written notice to 
their applicants, members, and associated persons whenever FINRA 
changes a rule that the Exchanges have incorporated by reference.
---------------------------------------------------------------------------

    \16\ See BATS Options Market Order, supra note 13, 75 FR at 
8761; see also 2004 Order, supra note 15, 69 FR at 8502.
---------------------------------------------------------------------------

    Accordingly, it is ordered, pursuant to Section 36 of the Exchange 
Act,\17\ that the Exchanges are exempt from the rule filing 
requirements of Section 19(b) of the Exchange Act solely with respect 
to changes to the rules identified in the Exemptive Request, provided 
that the Exchanges promptly provide written notice to their applicants, 
members, and associated persons whenever FINRA proposes to change a 
rule that the Exchanges have incorporated by reference.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78mm.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(76).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19970 Filed 9-15-21; 8:45 am]
BILLING CODE 8011-01-P