Document ID: SEC-2018-1172-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Amended Plan for the Allocation of Regulatory Responsibilities Among the Financial Industry Regulatory Authority,Inc., Miami International Securities Exchange, LLC, and MIAX PEARL, LLC
Posted Date: 2018-07-27T04:00Z

[Federal Register Volume 83, Number 145 (Friday, July 27, 2018)]
[Notices]
[Pages 35682-35696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16110]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83696; File No. 4-678]

Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing and Order Approving and Declaring 
Effective an Amended Plan for the Allocation of Regulatory 
Responsibilities Among the Financial Industry Regulatory Authority, 
Inc., Miami International Securities Exchange, LLC, and MIAX PEARL, LLC

July 24, 2018.
    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 June 28, 2018, pursuant to Rule 17d-
2 of the Act,\2\ by the Miami International Securities Exchange, LLC 
(``MIAX''), MIAX PEARL, LLC (``MIAX PEARL''), and the Financial 
Industry Regulatory Authority, Inc. (``FINRA'') (collectively, 
``Participating Organizations'' or ``parties''). This agreement amends 
and restates the agreement entered into between FINRA, MIAX, and MIAX 
PEARL on June 27, 2018, entitled ``Agreement between Financial Industry 
Regulatory Authority, Inc., Miami International Securities Exchange, 
LLC and MIAX PEARL, LLC Pursuant to Rule 17d-2 under the Securities 
Exchange Act of 1934,'' and any subsequent amendments thereafter.
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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 member compliance with financial 
responsibility requirements. Rule 17d-1 does not relieve an SRO from 
its obligation to examine a common member for compliance with its own 
rules and provisions of the federal securities laws governing matters 
other than financial responsibility, including sales practices and 
trading activities and practices.
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    \8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \9\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18808 (May 7, 1976).
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    To address regulatory duplication in these and other areas, the 
Commission adopted Rule 17d-2 under the Act.\10\ Rule 17d-2 permits 
SROs to propose joint plans for the allocation of regulatory 
responsibilities with respect to their common members. Under paragraph 
(c) of Rule 17d-2, the Commission may declare such a plan effective if, 
after providing for appropriate notice and opportunity for 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 November 19, 2014, the Commission declared effective the Plan 
entered into between FINRA and MIAX for allocating regulatory 
responsibility pursuant to Rule 17d-2.\11\ The Plan is intended to 
reduce regulatory duplication for firms that are common members of both 
MIAX and FINRA. The plan reduces regulatory duplication for firms that 
are members of MIAX and FINRA by allocating regulatory responsibility 
with respect to certain applicable laws, rules, and regulations. 
Included in the Plan is an exhibit that lists every MIAX rule for which 
FINRA bears responsibility under the Plan for overseeing and enforcing 
with respect to MIAX members that are also members of FINRA and the 
associated persons therewith (``Certification''). On January 12, 2017, 
the parties submitted a proposed amendment to the Plan to add MIAX 
PEARL as a Participant to the Plan.\12\
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    \11\ See Securities Exchange Act Release No. 73641 (November 19, 
2014), 79 FR 70230 (November 25, 2014).
    \12\ See Securities Exchange Act Release No. 79974 (February 6, 
2017), 82 FR 10417 (February 10, 2017).
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III. Proposed Amendment to the Plan

    On June 28, 2018, the parties submitted a proposed amendment to the 
Plan (``Amended Plan''). The primary purpose of the Amended Plan is to 
allocate surveillance, investigation, and enforcement responsibilities 
for Rule 14e-4 under the Act, as well as certain provisions of 
Regulation SHO. The text of the proposed Amended Plan is as follows 
(additions are underlined; deletions are [bracketed]):
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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 4-678 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 4-678. 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 FINRA, MIAX, and MIAX PEARL. 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 4-678 and should be submitted 
on or before August 17, 2018.

V. Discussion

    The Commission finds that the proposed Amended Plan is consistent 
with the factors set forth in Section 17(d) of the Act \14\ and Rule 
17d-2(c) thereunder \15\ 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 FINRA and MIAX or MIAX PEARL. Accordingly, the proposed Amended Plan 
promotes efficiency by reducing costs to Common Members. Furthermore, 
because MIAX, MIAX PEARL, and FINRA will coordinate their regulatory 
functions in accordance with the Amended Plan, the Amended Plan should 
promote investor protection.
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    \14\ 15 U.S.C. 78q(d).
    \15\ 17 CFR 240.17d-2(c).
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    The Commission notes that, under the Amended Plan, MIAX, MIAX 
PEARL, and FINRA have allocated regulatory responsibility for those 
MIAX and MIAX PEARL 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, MIAX and MIAX PEARL will review the 
Certification at least annually, or more frequently if required by 
changes in either the rules of MIAX, MIAX PEARL or FINRA, and, if 
necessary, submit to FINRA an updated list of Common Rules to add MIAX 
or MIAX PEARL rules not included on the then-current list of Common 
Rules that are substantially similar to FINRA rules; delete MIAX or 
MIAX PEARL rules included in the then-current list of Common Rules that 
no longer qualify as common rules; and confirm that the remaining rules 
on the list of Common Rules continue to be MIAX or MIAX PEARL rules 
that qualify as common rules.\16\ 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, MIAX and MIAX 
PEARL also will provide FINRA with a current list of Common Members and 
shall update the list no less frequently than once each quarter.\17\ 
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.
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    \16\ See paragraph 2 of the Amended Plan.
    \17\ See paragraph 3 of the Amended Plan.
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    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 MIAX and MIAX PEARL rules that are 
substantially similar to the rules of FINRA for Common Members of FINRA 
and MIAX, and FINRA and MIAX PEARL. 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 MIAX or MIAX PEARL 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 MIAX or MIAX PEARL rule to the Certification that is not 
substantially similar to a FINRA rule; delete a MIAX or MIAX PEARL rule 
from the Certification that is substantially similar to a FINRA rule; 
or leave on the Certification a MIAX or MIAX PEARL 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.\18\
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    \18\ 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.
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    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 primary purpose of the amendment is to allocate 
surveillance, investigation, and enforcement responsibilities for Rule 
14e-4 under the Act, as well as certain provisions of Regulation SHO. 
By declaring it effective today, the Amended Plan can become effective 
and

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be implemented without undue delay. The Commission notes that the prior 
version of this plan immediately prior to this proposed amendment was 
published for comment and the Commission did not receive any comments 
thereon.\19\ Furthermore, the Commission does not believe that the 
amendment to the plan raises any new regulatory issues that the 
Commission has not previously considered.
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    \19\ See supra note 12 (citing to Securities Exchange Act 
Release No. 79974).
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VI. Conclusion

    This order gives effect to the Amended Plan filed with the 
Commission in File No. 4-678. 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. 4-678, between the FINRA, MIAX, and MIAX 
PEARL, filed pursuant to Rule 17d-2 under the Act, hereby is approved 
and declared effective.
    It is further ordered that MIAX and MIAX PEARL are each relieved of 
those responsibilities allocated to FINRA under the Amended Plan in 
File No. 4-678.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(34).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-16110 Filed 7-26-18; 8:45 am]
 BILLING CODE 8011-01-P