Document ID: SEC-2014-0802-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc., Chicago Board Options Exchange, Inc., and C2 Options Exchange, Inc.
Posted Date: 2014-05-15T04:00Z

[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27965-27966]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11155]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72137; File No. 4-536]

Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Proposed Amended 
Plan for the Allocation of Regulatory Responsibilities Between the 
Financial Industry Regulatory Authority, Inc., the Chicago Board 
Options Exchange, Incorporated, and C2 Options Exchange, Incorporated

May 9, 2014.
    On March 24, 2014, the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), the Chicago Board Options Exchange, Incorporated 
(``CBOE''), and C2 Options Exchange, Incorporated (``C2'') 
(collectively, the ``Parties'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') an amended plan for the 
allocation of regulatory responsibilities, dated March 21, 2014 
(``Amended 17d-2 Plan'' or the ``Amended Plan''). The Amended Plan was 
published for comment on April 23, 2014.\1\ The Commission received no 
comments on the Amended Plan. This order approves and declares 
effective the Amended Plan.
---------------------------------------------------------------------------

    \1\ See Securities Exchange Act Release No. 71964 (April 17, 
2014), 79 FR 22709 (April 23, 2014).
---------------------------------------------------------------------------

I. Introduction

    Section 19(g)(1) of the Securities Exchange Act of 1934 
(``Act''),\2\ 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.\3\ 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.
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78s(g)(1).
    \3\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
---------------------------------------------------------------------------

    Section 17(d)(1) of the Act \4\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q(d)(1).
    \5\ 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).
---------------------------------------------------------------------------

    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 and Rule 17d-2 under the Act.\6\ 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.\7\ 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.
---------------------------------------------------------------------------

    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \7\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18808 (May 7, 1976).
---------------------------------------------------------------------------

    To address regulatory duplication in these and other areas, the 
Commission adopted Rule 17d-2 under the Act.\8\ 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.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
---------------------------------------------------------------------------

II. Proposed Plan

    On May 14, 2007, the Commission declared effective the Plan entered 
into between NASD (n/k/a FINRA) and CBOE for allocating regulatory 
responsibility pursuant to Rule 17d-2.\9\ The Plan was originally 
intended to reduce regulatory duplication for firms that are common 
members of both CBOE and FINRA, by allocating regulatory responsibility 
with respect to certain applicable laws, rules, and regulations, 
including responsibility for CBOE rules applicable to the CBOE Stock 
Exchange, LLC (``CBSX''), an equity exchange facility formerly operated 
by CBOE. Included in the original Plan is an exhibit that lists every 
CBOE rule for which FINRA bears responsibility under the Plan for 
overseeing and enforcing with respect to CBOE members that are also 
members of FINRA and the associated persons therewith 
(``Certification''). On March 24, 2014, the parties submitted a 
proposed amendment to the Plan. The primary purpose of the amendment is 
to add C2 as a participant to the Plan.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 55755 (May 14, 
2007), 72 FR 28087 (May 18, 2007).

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

[[Page 27966]]

III. Discussion

    The Commission finds that the proposed Amended Plan is consistent 
with the factors set forth in Section 17(d) of the Act \10\ and Rule 
17d-2(c) thereunder \11\ in that the proposed Amended Plan 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. In particular, the Commission believes that the proposed 
Amended Plan should reduce unnecessary regulatory duplication by 
allocating to FINRA certain examination and enforcement 
responsibilities for Common Members that would otherwise be performed 
by CBOE, C2, and FINRA. Accordingly, the proposed Amended Plan promotes 
efficiency by reducing costs to Common Members. Furthermore, because 
CBOE, C2, and FINRA will coordinate their regulatory functions in 
accordance with the Amended Plan, the Amended Plan should promote 
investor protection.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q(d).
    \11\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission notes that, under the Amended Plan, CBOE, C2, and 
FINRA have allocated regulatory responsibility for those CBOE and C2 
rules, set forth in the Certification, that are substantially similar 
to the applicable FINRA rules in that examination for compliance with 
such provisions and rules would not require FINRA to develop one or 
more new examination standards, modules, procedures, or criteria in 
order to analyze the application of the rule, or a Common Member's 
activity, conduct, or output in relation to such rule. In addition, 
under the Amended Plan, FINRA would assume regulatory responsibility 
for certain provisions of the federal securities laws and the rules and 
regulations thereunder that are set forth in the Certification. The 
Common Rules covered by the Amended Plan are specifically listed in the 
Certification, as may be amended by the Parties from time to time.
    According to the Amended Plan, CBOE and C2 will review the 
Certification, at least annually, or more frequently if required by 
changes in either the rules of CBOE, C2, or FINRA, and, if necessary, 
submit to FINRA an updated list of Common Rules to add CBOE and C2 
rules not included on the then-current list of Common Rules that are 
substantially similar to FINRA rules; delete CBOE and C2 rules included 
in the then-current list of Common Rules that are no longer 
substantially similar to FINRA rules; and confirm that the remaining 
rules on the list of Common Rules continue to be CBOE and C2 rules that 
are substantially similar to FINRA rules.\12\ FINRA will then confirm 
in writing whether the rules listed in any updated list are Common 
Rules as defined in the Amended Plan. Under the Amended Plan, CBOE and 
C2 will also provide FINRA with a current list of Common Members and 
shall update the list no less frequently than once every six 
months.\13\ The Commission believes that these provisions are designed 
to provide for continuing communication between the Parties to ensure 
the continued accuracy of the scope of the proposed allocation of 
regulatory responsibility.
---------------------------------------------------------------------------

    \12\ See paragraph 2 of the Amended Plan.
    \13\ See paragraph 3 of the Amended Plan.
---------------------------------------------------------------------------

    The Commission is hereby declaring effective an Amended Plan that, 
among other things, allocates regulatory responsibility to FINRA for 
the oversight and enforcement of all CBOE and C2 rules that are 
substantially similar to the rules of FINRA for Common Members of CBOE 
and FINRA, and C2 and FINRA. Therefore, modifications to the 
Certification need not be filed with the Commission as an amendment to 
the Amended Plan, provided that the Parties are only adding to, 
deleting from, or confirming changes to CBOE or C2 rules in the 
Certification in conformance with the definition of Common Rules 
provided in the Amended Plan. However, should the Parties decide to add 
a CBOE or C2 rule to the Certification that is not substantially 
similar to a FINRA rule; delete a CBOE or C2 rule from the 
Certification that is substantially similar to a FINRA rule; or leave 
on the Certification a CBOE or C2 rule that is no longer substantially 
similar to a FINRA rule, then such a change would constitute an 
amendment to the Amended Plan, which must be filed with the Commission 
pursuant to Rule 17d-2 under the Act.\14\
---------------------------------------------------------------------------

    \14\ The Commission also notes that the addition to or deletion 
from the Certification of any federal securities laws, rules, and 
regulations for which FINRA would bear responsibility under the 
Amended Plan for examining, and enforcing compliance by, Common 
Members, also would constitute an amendment to the Amended Plan.
---------------------------------------------------------------------------

IV. Conclusion

    This Order gives effect to the Amended Plan filed with the 
Commission in File No. 4-536. The Parties shall notify all members 
affected by the Amended Plan of their rights and obligations under the 
Amended Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act, that 
the Amended Plan in File No. 4-536, between FINRA, CBOE, and C2, filed 
pursuant to Rule 17d-2 under the Act, is approved and declared 
effective.
    It is further ordered that CBOE and C2 are relieved of those 
responsibilities allocated to FINRA under the Amended Plan in File No. 
4-536.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11155 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P