Document ID: SEC-2007-1028-0001
Agency: sec
Document Type: Notice
Title: Securities: National Association of Securities Dealers, Inc., et al.; regulatory responsibilities allocation plan
Posted Date: 2007-08-01T04:00Z

[Federal Register: August 1, 2007 (Volume 72, Number 147)]
[Notices]               
[Page 42146-42155]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au07-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56148; File No. 4-544]

 
Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing and Order Approving and Declaring 
Effective a Plan for the Allocation of Regulatory Responsibilities 
Between the National Association of Securities Dealers, Inc., New York 
Stock Exchange, LLC, and NYSE Regulation, Inc.

July 26, 2007.
    Notice is hereby given that the Securities and Exchange Commission 
(``SEC'' or ``Commission'') has issued an Order, pursuant to Sections 
17(d) and 11A(a)(3)(B) \1\ of the Securities Exchange Act of 1934 
(``Act''), approving and declaring effective a plan for the allocation 
of regulatory responsibilities (``17d-2 Plan'' or ``Plan'') that was 
filed pursuant to Rule 17d-2 under the Act,\2\ by the National 
Association of Securities Dealers, Inc. (``NASD''), the New York Stock 
Exchange LLC (``NYSE''), and NYSE Regulation, Inc. (``NYSE 
Regulation'') (collectively, the ``Parties'').
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    \1\ 15 U.S.C. 78q(d) and 15 U.S.C. 78k-1(a)(3)(B), respectively.
    \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 registered 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 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

[[Page 42147]]

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) (adopting Rule 17d-1).
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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 
it determines that the plan is necessary or appropriate in the public 
interest and for the protection of investors, fosters cooperation and 
coordination among the SROs, removes impediments to, and fosters 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) (adopting Rule 17d-2).
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II. The Proposed Plan

A. The Transaction

    In November 2006, NASD and NYSE Group, Inc. (``NYSE Group'') \11\ 
announced their plan to consolidate their member regulation operations 
into a single organization that would provide member firm regulation 
for securities firms that conduct business with the public in the 
United States (the ``Transaction'').\12\ Pursuant to the Transaction, 
the member firm regulation and enforcement functions and employees from 
NYSE Regulation would be transferred to NASD,\13\ and the expanded NASD 
would adopt a new corporate name--the Financial Industry Regulatory 
Authority (``FINRA'').\14\ The consolidation is intended to streamline 
the broker-dealer regulatory system, combine technologies, and permit 
the establishment of a single set of rules and a single set of 
examiners with complementary areas of expertise within a single 
SRO.\15\
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    \11\ NYSE Group recently combined with Euronext N.V. 
(``Euronext'') to form a single, publicly traded holding company 
named NYSE Euronext. NYSE Group and Euronext became separate 
subsidiaries of NYSE Euronext. The corporate structure for the 
businesses of NYSE Group (including the businesses of the NYSE LLC 
and NYSE Arca, Inc., a registered national securities exchange) 
remained unchanged following the combination. Specifically, NYSE LLC 
remains a wholly-owned subsidiary of NYSE Group. NYSE Market remains 
a wholly-owned subsidiary of the NYSE LLC and conducts NYSE LLC's 
business. NYSE Regulation remains a wholly-owned subsidiary of NYSE 
LLC and performs the regulatory responsibilities for NYSE LLC 
pursuant to a delegation agreement with NYSE LLC and many of the 
regulatory functions of NYSE Arca pursuant to a services agreement 
with NYSE Arca. See Securities Exchange Act Release No. 55293 
(February 14, 2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-
120).
    \12\ Currently, both NASD and NYSE Regulation oversee the 
activities of U.S.-based broker-dealers doing business with the 
public, approximately 170 of which are members of both 
organizations.
    \13\ Following the closing of the Transaction, NYSE Regulation 
will continue to oversee market surveillance and listed company 
compliance at the NYSE and NYSE Arca.
    \14\ The closing of the Transaction and the consolidation of the 
member firm regulatory functions of the NASD and NYSE Regulation are 
subject to the execution of definitive agreements between NASD and 
NYSE Group, the Commission's approval of certain proposed rule 
changes, and certain other additional regulatory approvals.
    \15\ See Securities Exchange Act Release No. 55495 (March 20, 
2007), 72 FR 14149 (March 26, 2007) (SR-NASD-2007-023) (proposing to 
amend the By-Laws of NASD to implement governance and related 
changes to accommodate the consolidation of the member firm 
regulatory functions of NASD and NYSE Regulation) (``By-Law 
Amendments Filing'').
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    To effectuate the consolidation, NASD has submitted a proposed rule 
change to incorporate into FINRA's rulebook certain existing NYSE rules 
that pertain to the regulation of member firm conduct (the 
``Incorporated NYSE Rules'').\16\ The Incorporated NYSE Rules will 
apply to members of FINRA that are also members of NYSE on or after the 
date of the closing of the Transaction (such common members are 
referred to as ``Dual Members'').\17\ Consequently, to relieve NYSE of 
its responsibility to examine for, and enforce compliance with, the 
applicable NYSE rules, the Parties have entered into a joint plan for 
the allocation of regulatory responsibilities with respect to Dual 
Members, as discussed below.
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    \16\ See File No. SR-NASD-2007-054 (``Incorporation Filing''). 
The list of Incorporated NYSE Rules is set forth in Exhibit 5 of SR-
NASD-2007-054.
    \17\ See id. See also Proposed 17d-2 Plan (defining Dual Members 
as broker-dealer firms that are members of both the NYSE and FINRA 
on or after the closing date of the Transaction).
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    Subsequent to the closing of the Transaction, FINRA intends to 
begin the process of consolidating its rule set applicable to member 
firms by reducing to one the two sets of rules (i.e., NASD rules and 
the Incorporated NYSE Rules) that are currently applicable to Dual 
Members.\18\
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    \18\ FINRA's efforts to reduce regulatory duplication in this 
regard with respect to Dual Members by consolidating the two 
separate rule sets will constitute a proposed rule change and will 
be subject to Commission approval.
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B. The Proposed Plan

    On July 26, 2007, the Parties submitted the proposed 17d-2 Plan in 
connection with the proposed consolidation of the member regulation 
operations of NASD and NYSE Group. The Plan would reduce regulatory 
duplication for firms that are Dual Members by allocating certain 
regulatory responsibilities for selected NYSE rules from NYSE 
Regulation to FINRA.\19\ Specifically, the Plan includes a list of all 
of those rules (the ``Common Rules,'' which are listed on the ``List of 
Common Rules'' attached as Exhibit 1 to the Plan) for which FINRA would 
assume examination, enforcement, and surveillance responsibilities 
under the Plan relating to compliance by Dual Members to the extent 
that such responsibilities involve member firm regulation.\20\ The NYSE 
rules on the List

[[Page 42148]]

of Common Rules are the same rules that are proposed by NASD to be 
incorporated into the FINRA rulebook, so that such rules will be common 
rules of both FINRA and NYSE for purposes of the 17d-2 Plan.\21\
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    \19\ See Incorporation Filing, supra note 16; see also paragraph 
2(a) of the proposed 17d-2 Plan.
    \20\ See Paragraph 1(a) of the proposed 17d-2 Plan.
    \21\ See Paragraph 2(a) of the proposed 17d-Plan.
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    Under the Plan, NYSE would retain full responsibility for: (i) 
Examinations of Dual Member conduct covered by NYSE rules that are not 
Common Rules (``NYSE-only Rules'') and/or by federal laws or 
regulations; (ii) surveillance, investigation, and enforcement with 
respect to conduct relating to trading on or through the systems and 
facilities of NYSE and conduct otherwise covered by NYSE-only Rules, as 
well as surveillance, investigation, and enforcement with respect to 
whether such conduct may constitute a violation of federal laws or 
regulations; (iii) processing of applications for trading licenses or 
other indicia of membership in NYSE; (iv) qualification and 
registration of firm personnel to effect transactions or work on the 
floor of NYSE pursuant to NYSE's applicable qualification and 
registration rules; and (v) the application of any Common Rule as it 
pertains to matters other than member firm regulation, including 
matters relating to the NYSE's exclusive responsibility for the 
aforementioned areas (the ``Non-Exclusive Common Rules'').\22\
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    \22\ See Paragraphs 2(d)(i)-(v) of the proposed 17d-2 Plan; see 
also infra text accompanying notes 29-30 (discussing the Non-
Exclusive Common Rules).
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    The text of the proposed 17d-2 Plan and the Exhibits thereto are as 
follows:

Agreement Between National Association of Securities Dealers, Inc., New 
York Stock Exchange, LLC., and NYSE Regulation, Inc. Pursuant to SEC 
Rule 17d-2 Promulgated by the Securities and Exchange Commission Under 
the Securities Exchange Act of 1934

    This Agreement, between and among National Association of 
Securities Dealers, Inc., a Delaware nonstock membership corporation 
(``NASD''), New York Stock Exchange, LLC., a New York limited liability 
company (the ``NYSE''), and NYSE Regulation, Inc., a New York not-for-
profit corporation and an indirectly wholly-owned subsidiary of NYSE 
Group, Inc. (``NYSE Regulation''), is made this 26th day of July, 2007, 
pursuant to the provisions of Rule 17d-2 promulgated by the Securities 
and Exchange Commission (the ``Commission'') under the Securities 
Exchange Act of 1934, as amended (the ``Act''), which authorizes 
agreements between self-regulatory organizations for plans to reduce or 
eliminate regulatory duplication.
    Whereas, NYSE Group, Inc., a Delaware corporation and direct 
wholly-owned subsidiary of NYSE Euronext (``NYSE Group''), NYSE 
Regulation and NASD intend to enter into an Asset Purchase Agreement 
(the ``Purchase Agreement''), pursuant to which (i) NYSE Regulation 
will agree to transfer to NASD and NASD will agree to assume from NYSE 
Regulation, approximately 470 employees and related expenses and 
revenues from the following functions or groups of NYSE Regulation: (1) 
Member firm regulation (including testing, continuing education and 
registration); (2) risk assessment; (3) arbitration; and (4) 
enforcement (except for the portion thereof that handles cases related 
to market surveillance and NYSE-only Rules (as defined herein) and/or 
related federal laws or regulations), and (ii) NASD will operate under 
a new name, Financial Industry Regulatory Authority, Inc. (``FINRA''); 
and
    Whereas, in connection with the transactions contemplated by the 
Purchase Agreement (collectively, the ``Transaction''), the parties 
seek to reduce duplication in the regulation of broker-dealer firms 
that are members of both the NYSE and FINRA on or after the Effective 
Date, as defined herein, (``Dual Members'') and in the filing and 
processing of certain registration and membership records; and
    Whereas, the parties intend that FINRA will perform various 
functions formerly performed by NYSE Regulation; and
    Whereas, FINRA will perform certain of these functions pursuant to 
a Regulatory Services Agreement to be entered into between and among 
the parties, and will perform certain of these functions pursuant to 
this Agreement among the parties in conformity with the requirements of 
Section 17(d) of the Act and Rule 17d-2 promulgated thereunder; and
    Whereas, the parties intend this Agreement to describe the 
functions to be performed by FINRA pursuant to Section 17(d) of the Act 
and Rule 17d-2 promulgated thereunder, and intend to file such with the 
Commission for its approval.
    Now, Therefore, in consideration of the foregoing, the mutual 
covenants contained hereinafter, and other good and valuable 
consideration, the parties hereby agree as follows:
    1. Assumption of Regulatory Responsibilities.
    (a) On the Effective Date, which shall be the closing date of the 
Transaction, provided that the Commission has approved this Agreement 
as of such closing date, FINRA will assume regulatory responsibilities 
for all Dual Members for the list of rules attached as Exhibit 1 
(``Common Rules'') to this Agreement and made part hereof including 
examination, enforcement and surveillance responsibilities for such 
Common Rules to the extent that such responsibilities involve member 
firm regulation (the ``Regulatory Responsibilities''). This Agreement 
shall not become effective if the Transaction does not close.
    (b) FINRA shall not charge NYSE for performing the Regulatory 
Responsibilities except for the reasonable notification expenses and 
travel and out-of-pocket expenses as provided in paragraphs 4(c) and 5.
    2. Scope of Regulatory Responsibilities.
    (a) Prior to the Effective Date, NASD shall submit a filing to the 
Commission adopting, as of the Effective Date, those NYSE rules listed 
in Exhibit 1 by incorporating into the FINRA rulebook in their entirety 
such NYSE rules in effect as of the Effective Date so that as of the 
Effective Date, the rules shall be Common Rules of both FINRA and the 
NYSE for purposes of this Agreement, Section 17(d) of the Act and Rule 
17d-2 promulgated thereunder.
    (b) Whenever either NYSE or FINRA proposes to make a change to the 
substance of any of the Common Rules, before filing such proposal with 
the SEC, it shall inform the other party to determine whether the other 
party will agree to promptly propose a conforming change to its version 
of the Common Rule. In the event the parties do not agree to propose 
conforming changes, the parties agree that they will file with the SEC 
for approval an amendment to this Agreement deleting such rule from the 
list of Common Rules, such amendment to be effective no earlier than 
the date of SEC approval of the change to the Common Rule proposed by 
the NYSE or FINRA, as the case may be.
    (c) Common Rulebook. FINRA intends to create a single set of Rules 
to replace the FINRA NASD Rules and the NYSE Rules incorporated by 
FINRA. There is a substantial likelihood that each FINRA rule that 
would replace an as then-existing NYSE Rule incorporated by FINRA and 
applicable to Dual Members will be substantially different from the 
then-existing NYSE Rule. In such case, pursuant to paragraph 2(b) 
above, NYSE would need to seek and obtain approval from the Commission 
to amend its corresponding Rule to conform to the new FINRA Rule.

[[Page 42149]]

    (d) Notwithstanding anything contained in this Agreement to the 
contrary, NYSE shall retain regulatory responsibility for the following 
(collectively, the ``Retained Responsibilities''):
    (i) Examinations of conduct or action by a Dual Member that is 
otherwise covered by NYSE rules that are not Common Rules (the ``NYSE-
only Rules'') and/or by related federal laws or regulations;
    (ii) Surveillance of, and investigation and enforcement with 
respect to, conduct or action undertaken in connection with trading on 
or through the systems and facilities of the NYSE, or conduct or 
actions by a Dual Member that are otherwise covered by NYSE-only Rules, 
additionally, in all such cases, surveillance, investigation and 
enforcement with respect to how such conduct may constitute a violation 
of applicable federal laws or regulations;
    (iii) Processing of applications for trading licenses or other 
indicia of membership in the NYSE, including without limitation 
applying NYSE's rules relating to the rights and obligations of Dual 
Members that hold a trading license to effect transactions on the floor 
of the NYSE or through any systems or facilities of the NYSE;
    (iv) Qualification and registration of member firm personnel to 
effect transactions or work as Floor employees on the Floor of the 
NYSE, pursuant to the NYSE's applicable rules regarding qualifications 
and registration; and
    (v) The application of any Common Rule as it pertains to matters 
other than member firm regulation, including matters relating to NYSE's 
exclusive responsibility for (i)-(iv) above (the ``Non-Exclusive Common 
Rules''). The parties have identified the Non-Exclusive Common Rules, 
which are specifically designated on Exhibit 1, as those rules for 
which both NYSE and FINRA will bear responsibility when performing 
their respective regulatory responsibilities.
    3. Violations. (a) Should FINRA become aware of potential 
violations of the NYSE-only Rules, discovered pursuant to the 
performance of the Regulatory Responsibilities assumed hereunder, FINRA 
will promptly notify the NYSE of those potential violations, and such 
matters will be handled by NYSE.
    (b) Should NYSE become aware of potential violations of Common 
Rules, discovered pursuant to the performance of the Retained 
Responsibilities, NYSE will promptly notify FINRA of those potential 
violations, and such matters will be handled by FINRA as provided in 
this Agreement.
    4. Applications for, Qualification for, and Termination of, 
Membership. (a)(i) Dual Members subject to this Agreement will be 
required to submit to FINRA, and FINRA will be responsible for 
processing, and acting upon, all applications (each an ``Application'') 
submitted on behalf of the Dual Member and any individual associated 
with such Dual Member required to be approved by the rules of NYSE and 
FINRA (collectively, an ``Applicant'').
    (ii) Promptly upon receipt of any complete Application, but in any 
event no later than seven (7) business days thereafter, FINRA shall 
advise NYSE of the qualifications and registration status of the 
Applicant required to be approved pursuant to the rules of NYSE and 
FINRA. The NYSE reserves the right to require additional qualifications 
or registrations prior to approving an Applicant as a member of the 
NYSE, pursuant to the process described in NYSE rules.
    (b) FINRA shall promptly advise NYSE of information regarding 
changes in status of any person required to be approved pursuant to the 
rules of NYSE and FINRA that relates to a statutory disqualification, 
involuntary termination from employment or any other submission made to 
FINRA pursuant to NYSE Rule 351(a)-(c). The NYSE reserves the right to 
disqualify a member pursuant to the process described in NYSE rules.
    (c) Dual Members will be required to send to FINRA all letters, 
termination notices or other material respecting persons required to be 
approved pursuant to the rules of NYSE and FINRA. When as a result of 
processing said submissions FINRA becomes aware of a statutory 
disqualification as defined in the Act with respect to a Dual Member or 
person associated with a Dual Member, FINRA will determine pursuant to 
Section 15A(g) or 6(c) of the Act the acceptability or continued 
acceptability of the person to whom such disqualification applies but 
will not make a determination regarding NYSE membership or 
participation, or association of a person with an NYSE member. FINRA 
shall advise NYSE in writing of its actions in this regard. NYSE shall, 
within 30 days of receiving such information from FINRA, determine 
whether to permit a Dual Member that has been determined to be 
statutorily disqualified by FINRA from becoming or remaining an NYSE 
member or a participant, or a person associated with a member. NYSE 
will advise FINRA of its decision. NYSE will reimburse FINRA for 
reasonable expenses incurred in notifying NYSE of FINRA's decision 
regarding a statutory disqualification under Section 15A(g) or Section 
6(c) of the Act.
    FINRA will also be responsible for processing and, if required, 
acting upon all requests for the opening, address changes, and 
terminations of branch offices by Dual Members and any other 
applications required of Dual Members under the Common Rules.
    5. Information Sharing. The parties agree to share information as 
follows:
    (a) General.
    (i) FINRA shall promptly furnish to the NYSE any information that 
FINRA determines indicates possible financial or operational problems 
that may affect the continued ability of any Dual Member to conduct 
business.
    (ii) NYSE shall promptly furnish to FINRA any information that the 
NYSE determines indicates possible financial or operational problems 
that may affect the continued ability of any Dual Member to conduct 
business.
    (b) Reports and Other Documents.
    (i) FINRA shall upon request promptly make available to the NYSE at 
no cost any existing financial, operational, or related report filed 
with FINRA by a Dual Member, as well as any existing files, information 
on customer complaints, termination notices, copies of an examination 
report, examination workpapers, investigative material, enforcement 
referrals or other documents involving compliance with the federal 
securities laws and regulations and the rules of the parties by the 
Dual Member, or other documents in the possession of FINRA relating to 
the Dual Member as necessary to assist the NYSE in fulfilling the 
Retained Responsibilities.
    (ii) NYSE shall upon request promptly make available to FINRA at no 
cost any existing files, information on customer complaints, 
termination notices, copies of an examination report, examination 
workpapers, investigative material, enforcement referrals or other 
documents involving compliance with the federal securities laws and 
regulations and the rules of the parties by the Dual Member, or other 
documents in the possession of NYSE relating to the Dual Member as 
necessary to assist FINRA in fulfilling the self-regulatory 
responsibilities, obligations, and functions allocated to it under this 
Agreement.
    (c) Third-party Complaints.
    (i) If FINRA receives a copy of a complaint from any third-party or 
any report from a Dual Member pursuant to NYSE Rule 351, as 
incorporated by FINRA, relating to possible violations by a Dual Member 
or persons associated with a Dual Member that is not within the 
Regulatory Responsibilities of

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FINRA and is within the Retained Responsibilities of the NYSE, FINRA 
shall promptly forward to the NYSE copies of such complaints, and NYSE 
shall have responsibility to review and take any appropriate action 
with respect to such complaint.
    (ii) If NYSE receives a copy of a complaint from any third-party 
relating to a Dual Member's activity or conduct that is within the 
Regulatory Responsibilities of FINRA or is otherwise within the scope 
of FINRA's regulatory jurisdiction, the NYSE shall promptly forward to 
FINRA copies of such complaints, and FINRA shall have responsibility to 
review and take any appropriate action with respect to such complaint.
    (d) Information on Formal and Informal Discipline.
    (i) FINRA shall promptly make available to the NYSE information on 
(1) Formal disciplinary actions taken by FINRA involving a Dual Member 
or persons associated with a Dual Member; and (2) informal disciplinary 
actions taken by FINRA involving a Dual Member and such individuals 
identified to FINRA by NYSE that are employed by a Dual Member and who 
have been designated to effect transactions on the Floor of the NYSE or 
to work as Floor employees on the Floor of the NYSE, or to supervise 
such employees. For purposes of this paragraph (d)(i), informal 
disciplinary actions shall mean Letters of Caution.
    (ii) The NYSE shall promptly make available to FINRA information on 
(1) formal disciplinary actions taken by NYSE involving a Dual Member 
or persons associated with a Dual Member; and (2) informal disciplinary 
actions taken by NYSE involving a Dual Member. For purposes of this 
paragraph (d)(ii), informal disciplinary actions shall mean Letters of 
Education, Letters of Admonition, and Summary Fines.
    (e) Parties to Make Personnel Available as Witnesses.
    (i) FINRA shall make its personnel available to the NYSE to serve 
as testimonial or non-testimonial witnesses as necessary to assist the 
NYSE in fulfilling the self-regulatory responsibilities retained by it 
under this Agreement. NYSE shall pay all reasonable travel and other 
out-of-pocket expenses incurred by FINRA's employees to the extent that 
the NYSE requires such employees to serve as a witness, and provide 
information or other assistance pursuant to this Agreement.
    (ii) The NYSE 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. FINRA shall pay 
all reasonable travel and other out-of-pocket expenses incurred by 
NYSE's employees to the extent that FINRA requires such employees to 
serve as a witness, and provide information or other assistance 
pursuant to this Agreement.
    (f) 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. 
Neither party shall assert regulatory or other privileges as against 
the other with respect to documents or information that is required to 
be shared pursuant to this Agreement.
    (g) 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.
    (h) Periodic Meetings. The parties agree that they shall conduct 
regular joint meetings between them for the purposes of reporting on 
the conduct of the Regulatory Responsibilities and current 
investigations involving significant rule violations by a Dual Member, 
and identifying issues or concerns with respect to the regulation of 
Dual Members.
    6. Arbitration of Disputes Under This Agreement.
    (a) Regulatory Services Manager. NYSE and NASD hereby each appoint 
the employee identified on Exhibit 2 hereto as its respective 
Regulatory Services Manager (the ``Regulatory Services Manager'') to, 
among other things, resolve disputes pursuant to Section 6(b) of this 
Agreement and oversee day-to-day management of the services and 
activities contemplated by this Agreement. On reasonable prior written 
notice to the other, NYSE and FINRA shall each have the right to 
replace its respective Regulatory Services Manager with an employee or 
officer with comparable knowledge, expertise and decision-making 
authority.
    (b) Dispute Resolution. Except as otherwise expressly set forth in 
this Agreement, any dispute arising out of or relating to this 
Agreement shall be submitted for resolution to the Regulatory Services 
Managers. In the event the Regulatory Services Managers fail to resolve 
a dispute pursuant to this Section 6(b) within a reasonable time of 
receiving notice of such dispute from a party, then the parties shall 
refer the dispute to the employee identified on Exhibit 2 as its 
respective Senior Officer (the ``Senior Officer'') and such Senior 
Officers shall attempt in good faith to conclusively resolve any such 
dispute. On reasonable prior written notice to the other, NYSE and 
FINRA shall each have the right to replace its respective Senior 
Officer with an officer with comparable rank, knowledge, expertise and 
decision-making authority. If the Senior Officers are unable to resolve 
the dispute amicably within 30 days, the dispute will be resolved by 
binding arbitration between the parties as provided herein. Arbitration 
shall be conducted by a single arbitrator agreed upon by the parties in 
accordance with the arbitration rules of the American Arbitration 
Association (the ``AAA''); provided, that, if the parties cannot agree 
on the identity of the arbitrator, then the arbitrator shall be chosen 
by the AAA in accordance with its rules. All arbitration hearings shall 
be conducted in New York, New York. Each party shall pay its own costs 
for the arbitration, with the cost of the arbitrator to be equally 
divided between the parties; provided, that the arbitrator may, in his 
or her discretion, award reasonable attorneys' fees and expenses to the 
prevailing party. The arbitrator will have no authority to award 
punitive damages or any other damages not measured by the prevailing 
party's actual damages, and may not, in any event, make any ruling, 
finding or award that does not conform to the terms and conditions of 
this Agreement. A judgment upon an award may be entered in any court 
having jurisdiction. No party or the arbitrator may disclose the 
existence, content, or results of any arbitration hereunder without the 
prior written consent of the other parties, other than to the 
Commission. Except as otherwise expressly set forth in this Agreement, 
the procedures set forth in this Section 6(b) must be satisfied as a 
condition precedent to a party commencing any arbitration in connection 
with any dispute arising hereunder. A party's failure to comply with 
the preceding sentence shall constitute cause for the dismissal without 
prejudice of any such arbitration.
    (c) Continuity of Services. Each party acknowledges that the timely 
and complete performance of its obligations pursuant to this Agreement 
is critical to the business and operations of the other party. In the 
event of a dispute between the parties, the parties will continue to 
perform their respective obligations under this Agreement in good faith 
during the resolution of such dispute unless and until this Agreement 
is terminated in accordance with its provisions. Nothing in this 
Section 6(c)

[[Page 42151]]

will interfere with a party's right to terminate this Agreement as set 
forth in this Agreement.
    7. No Restrictions on Regulatory Action. Nothing contained in this 
Agreement shall restrict or in any way encumber the right of either 
party to conduct its own independent or concurrent investigation, 
examination or enforcement proceeding of or against Dual Members, as 
either party, in its sole discretion, shall deem appropriate or 
necessary.
    8. Limitation of Liability. None of the parties nor any of their 
respective directors, governors, officers, employees, affiliates or 
agents shall be liable to any other party or such party's directors, 
governors, officers, employees, affiliates or agents for any liability, 
loss or damage resulting from any delays, inaccuracies, errors or 
omissions with respect to its performing or failing to perform its 
obligations under this Agreement, except as otherwise provided for 
under the Act or for any liability, loss or damage resulting from the 
gross negligence, willful misconduct, reckless disregard or breach of 
confidentiality by a party or its directors, governors, officers, 
employees, affiliates or agents. The parties understand and agree with 
each other 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 party to any other party with respect to any 
of the obligations to be performed by the parties hereunder.
    9. Commission Approval. (a) The parties agree to file promptly this 
Agreement with the Commission for its review and approval. This 
Agreement shall be effective upon approval of the Commission, 
contingent upon the closing of the Transaction.
    (b) If approved by the Commission, FINRA will notify Dual Members 
of the general terms of the Agreement and its impact on such members. 
The notice will be sent on behalf of both parties and, prior to being 
sent, NYSE will review and approve the notice.
    10. Applicability of Certain Laws. Notwithstanding any provision 
hereof, this Agreement shall be subject to any applicable federal or 
state statute, or any rule or order of the Commission, or industry 
agreement, restructuring the regulatory framework of the securities 
industry or reassigning regulatory responsibilities between self-
regulatory organizations. To the extent such statute, rule, order or 
agreement is inconsistent with one or more provisions of this 
Agreement, such statute, rule, order or agreement 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.
    11. Definitions. Unless otherwise defined in this Agreement, or 
unless the context otherwise requires, the terms used in this Agreement 
shall have the same meaning as they have under the Act and the rules 
and regulations promulgated by the Commission thereunder.
    12. 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.
    13. Amendment. This Agreement may be amended in writing duly 
approved by each party. All such amendments must be filed with and 
approved by the Commission before they become effective.
    14. Termination. This Agreement may be terminated by NYSE or FINRA 
at any time upon the approval of the Commission after 180 days written 
notice to the other party.
    15. General. The parties 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.
    16. Liaison and Notices. All questions regarding the implementation 
of this Agreement shall be directed to the persons identified in 
subsections (a), (b) and (c), as applicable, below. 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:
    (a) If to NYSE Regulation: NYSE Regulation, Inc., 20 Broad Street, 
New York, New York 10005. Telephone: (212) 656-3000, Facsimile: (212) 
656-8101, Attention: General Counsel Regulatory Services Manager.
    (b) If to New York Stock Exchange, LLC.: New York Stock Exchange, 
LLC., 11 Wall Street, New York, NY 10005. Telephone: (212) 656-3000, 
Facsimile: (212) 656-8101, Attention: General Counsel.
    (c) If to FINRA: Financial Industry Regulatory Authority, Inc., 
1735 K Street, NW., Washington, DC 20006-1500. Telephone: (202) 728-
8071, Facsimile: (202) 728-8075, Attention: General Counsel Regulatory 
Services Manager.
    17. Relief from Regulatory Responsibility. Pursuant to Section 
17(d)(1)(A) of the Act, and Rule 17d-2 thereunder, NASD and the NYSE 
jointly request the SEC, upon its approval of this Agreement, to 
relieve the NYSE of any and all responsibilities with respect to the 
matters allocated to NASD or FINRA pursuant to this Agreement for 
purposes of Sections 17(d) and 19(g) of the Act.
    18. Governing Law. This Agreement shall be deemed to have been made 
in 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 by or for the 
State of New York or the United States District Court for the Southern 
District of New York in connection with any action or proceeding 
relating to this Agreement.
    19. 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 price by the NYSE, and 
any termination of this Agreement shall survive and continue.
    20. Prior Agreements. This Agreement is wholly separate from the 
multiparty Agreement made pursuant to Rule 17d-2 of the Exchange Act 
between the American Stock Exchange LLC, the Boston Stock Exchange, 
Inc., the Chicago Board Options Exchange, Incorporated, the 
International Securities Exchange LLC., the National Association of 
Securities Dealers, Inc., the New York Stock Exchange, LLC., the NYSE 
Arca, Inc., and the Philadelphia Stock Exchange, Inc. involving the 
allocation of regulatory responsibilities with respect to common 
members for compliance with common rules relating to the conduct by 
broker-dealers of accounts for listed options or index warrants entered 
into on December 1, 2006, and as may be amended from time to time.
    21. Counterparts. This Agreement may be executed in one or more 
counterparts, each of which shall be deemed an original, and such 
counterparts together shall constitute but one and the same instrument.
    In Witness Whereof, the parties hereto have caused this Agreement 
to be executed by their respective officers thereunto duly authorized, 
as of the date first written above.

[[Page 42152]]

National Association of Securities Dealers, Inc.
By:--------------------------------------------------------------------
     Name:
     Title:

New York Stock Exchange, LLC.
By:--------------------------------------------------------------------
     Name:
     Title:

    NYSE Regulation, Inc.
By:--------------------------------------------------------------------
     Name:
     Title:

Exhibit 1--List Of Common Rules

    As referenced in paragraph 2(d)(v) of the Agreement, rules 
designated with a ``*'' are Non-Exclusive Common Rules, and NYSE shall 
retain regulatory responsibility for these rules insofar as necessary 
to discharge its Retained Responsibilities.

------------------------------------------------------------------------
               NYSE Rule                            FINRA Rule
------------------------------------------------------------------------
*Rule 1 ``The Exchange''...............  NYSE Rule 1 ``The Exchange.''
*Rule 2 ``Member,'' ``Membership,''      NYSE Rule 2 ``Member,''
 ``Member Firm,'' etc..                   ``Membership,'' ``Member
                                          Firm,'' etc.
*Rule 2A ``Jurisdiction''..............  NYSE Rule 2A ``Jurisdiction.''
*Rule 2B No Affiliation between          NYSE Rule 2B No Affiliation
 Exchange and any Member Organization.    between Exchange and any
                                          Member Organization.
*Rule 3 ``Security''...................  NYSE Rule 3 ``Security.''
*Rule 4 ``Stock''......................  NYSE Rule 4 ``Stock.''
*Rule 5 ``Bond''.......................  NYSE Rule 5 ``Bond.''
*Rule 6 ``Floor''......................  NYSE Rule 6 ``Floor.''
*Rule 8 ``Delivery''...................  NYSE Rule 8 ``Delivery.''
*Rule 9 ``Branch Office Manager''......  NYSE Rule 9 ``Branch Office
                                          Manager.''
*Rule 10 ``Registered Representative''.  NYSE Rule 10 ``Registered
                                          Representative.''
*Rule 11 Effect of Definitions.........  NYSE Rule 11 Effect of
                                          Definitions.
*Rule 12 ``Business Day''..............  NYSE Rule 12 ``Business Day.''
*Rule 134 Differences and Omissions--    NYSE Rule 134 Differences and
 Cleared Transactions.                    Omissions--Cleared
                                          Transactions.
Rule 176 Delivery Time.................  NYSE Rule 176 Delivery Time.
Rule 177 Delivery Time--``Cash''         NYSE Rule 177 Delivery Time--
 Contracts.                               ``Cash'' Contracts.
Rule 180 Failure to Deliver............  NYSE Rule 180 Failure to
                                          Deliver.
Rule 282 Buy-in Procedures.............  NYSE Rule 282 Buy-in
                                          Procedures.
Rule 283 Members Closing Contracts--     NYSE Rule 283 Members Closing
 Procedure.                               Contracts--Procedure.
Rule 285 Notice of Intention to          NYSE Rule 285 Notice of
 Successive Parties.                      Intention to Successive
                                          Parties.
Rule 286 Closing Portion of Contract...  NYSE Rule 286 Closing Portion
                                          of Contract.
Rule 287 Liability of Succeeding         NYSE Rule 287 Liability of
 Parties.                                 Succeeding Parties.
Rule 288 Notice of Closing to            NYSE Rule 288 Notice of Closing
 Successive Parties.                      to Successive Parties.
Rule 289 Must Receive Delivery.........  NYSE Rule 289 Must Receive
                                          Delivery.
Rule 290 Defaulting Party May Deliver    NYSE Rule 290 Defaulting Party
 After ``Buy-In'' Notice.                 May Deliver After ``Buy-In''
                                          Notice.
Rule 291 Failure to Fulfill Closing      NYSE Rule 291 Failure to
 Contract.                                Fulfill Closing Contract.
Rule 292 Restrictions on Members'        NYSE Rule 292 Restrictions on
 Participation in Transaction to Close    Members' Participation in
 Defaulted Contracts.                     Transaction to Close Defaulted
                                          Contracts.
Rule 293 Closing Contracts in Suspended  NYSE Rule 293 Closing Contracts
 Securities.                              in Suspended Securities.
Rule 294 Default in Loan of Money......  NYSE Rule 294 Default in Loan
                                          of Money.
Rule 296 Liquidation of Securities       NYSE Rule 296 Liquidation of
 Loans and Borrowings.                    Securities Loans and
                                          Borrowings.
Rule 311 Formation and Approval of       NYSE Rule 311 Formation and
 Member Organizations.                    Approval of Member
                                          Organizations.
Rule 312 Changes Within Member           NYSE Rule 312 Changes Within
 Organizations.                           Member Organizations.
Rule 313 Submission of Partnership       NYSE Rule 312 Submission of
 Articles--Submission of Corporate        Partnership Articles--
 Documents.                               Submission of Corporate
                                          Documents.
Rule 319 Fidelity Bonds................  NYSE Rule 319 Fidelity Bonds.
Rule 321 Formation of Acquisition of     NYSE Rule 321 Formation of
 Subsidiaries.                            Acquisition of Subsidiaries.
Rule 322 Guarantees by, or Flow Through  NYSE Rule 322 Guarantees by, or
 Benefits for Members or Member           Flow Through Benefits for
 Organizations.                           Members or Member
                                          Organizations.
*Rule 325 Capital Requirements Members   NYSE Rule 325 Capital
 Organizations.                           Requirements Members
                                          Organizations.
Rule 326(a) Growth Capital Requirement.  NYSE Rule 326(a) Growth Capital
                                          Requirement.
Rule 326(b) Business Reduction Capital   NYSE Rule 326(b) Business
 Requirement.                             Reduction Capital Requirement.
Rule 326(c) Business Reduction Capital   NYSE Rule 326(c) Business
 Requirement.                             Reduction Capital Requirement.
Rule 326(d) Reduction of Elimination of  NYSE Rule 326(d) Reduction of
 Loans and Advances.                      Elimination of Loans and
                                          Advances.
Rule 328 Sale-and-Leasebacks,            NYSE Rule 328 Sale-and-
 Factoring, Financing and Similar         Leasebacks, Factoring,
 Arrangements.                            Financing and Similar
                                          Arrangements.
*Rule 342 Offices--Approval,             NYSE Rule 342 Offices--
 Supervision and Control.                 Approval, Supervision and
                                          Control.
Rule 343 Offices--Sole Tenancy, Hours,   NYSE Rule 343 Offices--Sole
 Display of Membership Certificates.      Tenancy, Hours, Display of
                                          Membership Certificates.
Rule 344 Research Analysts and           NYSE Rule 344 Research Analysts
 Supervisory Analysts.                    and Supervisory Analysts.
Rule 345 Employees--Registration,        NYSE Rule 345 Employees--
 Approval, Records.                       Registration, Approval,
                                          Records.
Rule 345A Continuing Education for       NYSE Rule 345A Continuing
 Registered Persons.                      Education for Registered
                                          Persons.
Rule 346 Limitations--Employment and     NYSE Rule 346 Limitations--
 Association with Members and Member      Employment and Association
 Organizations.                           with Members and Member
                                          Organizations.
*Rule 350 Compensation or Gratuities to  NYSE Rule 350 Compensation or
 Employees of Others.                     Gratuities to Employees of
                                          Others.
Rule 351 Reporting Requirements........  NYSE Rule 351 Reporting
                                          Requirements.
Rule 352 Guarantees, Sharing in          NYSE Rule 352 Guarantees,
 Accounts, and Loan Arrangements.         Sharing in Accounts, and Loan
                                          Arrangements.
Rule 353 Rebates and Compensation......  NYSE Rule 353 Rebates and
                                          Compensation.
Rule 354 Reports to Control Persons....  NYSE Rule 354 Reports to
                                          Control Persons.
*Rule 375 Missing the Market...........  NYSE Rule 375 Missing the
                                          Market.
Rule 382 Carrying Agreements...........  NYSE Rule 382 Carrying
                                          Agreements.
Rule 387 COD Orders....................  NYSE Rule 387 COD Orders.

[[Page 42153]]

*Rule 392 Notification Requirements for  NYSE Rule 392 Notification
 Offerings of Listed Securities.          Requirements for Offerings of
                                          Listed Securities.
*Rule 401 Business Conduct.............  NYSE Rule 401 Business Conduct.
Rule 401A Customer Complaints..........  NYSE Rule 401A Customer
                                          Complaints.
Rule 402 Customer Protection-Reserves    NYSE Rule 402 Customer
 and Custody of Securities.               Protection-Reserves and
                                          Custody of Securities.
Rule 404 Individual Members Not To       NYSE Rule 404 Individual
 Carry Accounts.                          Members Not To Carry Accounts.
Rule 405 Diligence as to Accounts......  NYSE Rule 405 Diligence as to
                                          Accounts.
Rule 405A Non-Managed Fee-Based Account  NYSE Rule 405A Non-Managed Fee-
 Programs--Disclosure and Monitoring.     Based Account Programs--
                                          Disclosure and Monitoring.
Rule 406 Designation of Accounts.......  NYSE Rule 406 Designation Of
                                          Accounts.
*Rule 407 Transactions-Employees of      NYSE Rule 407 Transactions--
 Members, Member Organizations and the    Employees of Members, Member
 Exchange.                                Organizations and the
                                          Exchange.
*Rule 407A Disclosure of All Member      NYSE Rule 407A Disclosure of
 Accounts.                                All Member Accounts.
Rule 408 Discretionary Power in          NYSE Rule 408 Discretionary
 Customers' Accounts.                     Power in Customers' Accounts.
Rule 409 Statements of Accounts to       NYSE Rule 409 Statements of
 Customers.                               Accounts to Customers.
Rule 409A SIPC Disclosures.............  NYSE Rule 409A SIPC
                                          Disclosures.
*Rule 410 Records of Orders............  NYSE Rule 410 Records of
                                          Orders.
*Rule 411 Erroneous Reports............  NYSE Rule 411 Erroneous
                                          Reports.
Rule 412 Customer Account Transfer       NYSE Rule 412 Customer Account
 Contracts.                               Transfer Contracts.
Rule 413 Uniform Forms.................  NYSE Rule 413 Uniform Forms.
*Rule 414 Index and Currency Warrants..  NYSE Rule 414 Index and
                                          Currency Warrants.
*Rule 416 Questionnaires and Reports...  NYSE Rule 416 Questionnaires
                                          and Reports.
*Rule 416A Member and Member             NYSE Rule 416A Member and
 Organization Profile Information         Member Organization Profile
 Updates and Quarterly Certifications     Information Updates and
 Via the Electronic Filing Platform.      Quarterly Certifications Via
                                          the Electronic Filing
                                          Platform.
Rule 418 Audit.........................  NYSE Rule 418 Audit.
Rule 420 Reports of Borrowings and       NYSE Rule 420 Reports of
 Subordinate Loans for Capital Purposes.  Borrowings and Subordinate
                                          Loans for Capital Purposes.
Rule 421 Periodic Reports..............  NYSE Rule 421 Periodic Reports.
Rule 424 Reports of Options............  NYSE Rule 424 Reports of
                                          Options.
Rule 430 Partial Delivery of Securities  NYSE Rule 430 Partial Delivery
 to Customers on C.O.D. Purchases.        of Securities to Customers on
                                          C.O.D. Purchases.
Rule 431 Margin Requirements...........  NYSE Rule 431 Margin
                                          Requirements.
Rule 432 Daily Record of Required        NYSE Rule 432 Daily Record of
 Margin.                                  Required Margin.
Rule 434 Required Submission of          NYSE Rule 434 Required
 Requests for Extensions of Time for      Submission of Requests for
 Customers.                               Extensions of Time for
                                          Customers.
*Rule 435 Miscellaneous Prohibitions     NYSE Rule 435 Miscellaneous
 (Excessive Trading by Members).          Prohibitions (Excessive
                                          Trading by Members).
Rule 436 Interest on Credit Balances...  NYSE Rule 436 Interest on
                                          Credit Balances.
*Rule 440 Books and Records............  NYSE Rule 440 Books and
                                          Records.
Rule 440A Telephone Solicitation.......  NYSE Rule 440A Telephone
                                          Solicitation.
Rule 440F Public Short Sale              NYSE Rule 440F Public Short
 Transactions Effected on the Exchange.   Sale Transactions Effected on
                                          the Exchange.
Rule 440G Transactions in Stocks and     NYSE Rule 440G Transactions in
 Warrants for the Accounts of Members,    Stocks and Warrants for the
 Allied Members and Member                Accounts of Members, Allied
 Organizations.                           Members and Member
                                          Organizations.
Rule 440I Records of Compensation        NYSE Rule 440I Records of
 Arrangements--Floor Brokerage.           Compensation Arrangements--
                                          Floor Brokerage.
Rule 445 Anti-Money Laundering           NYSE Rule 445 Anti-Money
 Compliance Program.                      Laundering Compliance Program.
Rule 446 Business Continuity and         NYSE Rule 446 Business
 Contingency Plans.                       Continuity and Contingency
                                          Plans.
Rule 472 Communications with the Public  NYSE Rule 472 Communications
                                          with the Public.
*Rule 477 Retention of Jurisdiction--    NYSE Rule 477 Retention of
 Failure to Cooperate.                    Jurisdiction--Failure to
                                          Cooperate.
Rule 700 Applicability, Definitions and  NYSE Rule 700 Applicability,
 References.                              Definitions and References.
Rule 704 Position Limits...............  NYSE Rule 704 Position Limits.
Rule 705 Exercise Limits...............  NYSE Rule 705 Exercise Limits.
Rule 707 Liquidation of Positions......  NYSE Rule 707 Liquidation of
                                          Positions.
Rule 709 Other Restrictions on Exchange  NYSE Rule 709 Other
 Option Transactions and Exercises.       Restrictions on Exchange
                                          Option Transactions and
                                          Exercises.
Rule 720 Registration of Options         NYSE Rule 720 Registration of
 Principals.                              Options Principals.
Rule 721 Opening of Accounts...........  NYSE Rule 721 Opening of
                                          Accounts.
Rule 722 Supervision of Accounts.......  NYSE Rule 722 Supervision of
                                          Accounts.
Rule 723 Suitability...................  NYSE Rule 723 Suitability.
Rule 724 Discretionary Accounts........  NYSE Rule 724 Discretionary
                                          Accounts.
Rule 725 Confirmations.................  NYSE Rule 725 Confirmations.
Rule 726 Delivery of Options Disclosure  NYSE Rule 726 Delivery of
 Document and Prospectus.                 Options Disclosure Document
                                          and Prospectus.
Rule 727 Transactions with Issuers.....  NYSE Rule 727 Transactions with
                                          Issuers.
Rule 728 Registered Stock..............  NYSE Rule 728 Registered Stock.
Rule 730 Statement of Accounts.........  NYSE Rule 730 Statement of
                                          Accounts.
Rule 732 Customer Complaints...........  NYSE Rule 732 Customer
                                          Complaints.
Rule 780 Exercise of Option Contracts..  NYSE Rule 780 Exercise of
                                          Option Contracts.
Rule 781 Allocation of Exercise          NYSE Rule 781 Allocation of
 Assignment Notices.                      Exercise Assignment Notices.
Rule 791 Communications to Customers...  NYSE Rule 791 Communications to
                                          Customers.
------------------------------------------------------------------------

[[Page 42154]]

Exhibit 2

    For purposes of this Agreement, the Regulatory Services Managers 
required under paragraph 6 shall be:
    For NYSE Regulation: Susan Axelrod, Chief of Staff, NYSE 
Regulation, Inc., 11 Wall Street, New York, NY 10005, (212) 656-2347 
(phone), (212) 656-5788 (fax).
    For NASD/FINRA: James F. Price, Jr., Vice President, Business & 
Exchange Solution, FINRA, 9509 Key West Avenue, Rockville, MD 20850-
3329, (240) 386-4608 (phone), (240) 386-5139 (fax).
    For purposes of this Agreement, the Senior Officers required under 
paragraph 6 shall be:
    For NYSE Regulation: Richard G. Ketchum, Chief Regulatory Officer, 
NYSE Regulation, Inc., 20 Broad Street, New York, NY 10005, (212) 656-
2789 (phone), (212) 656-5809 (fax).
    For NASD/FINRA: Stephen I. Luparello, Senior Executive Vice 
President, FINRA, 1735 K Street, NW., Washington, DC 20006, (202) 728-
6947 (phone), (202) 728-8075 (fax).

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the 17d-2 Plan is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number 4-544 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number 4-544. This file number 
should be included on the subject line if e-mail 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 Web site (http://www.sec.gov/rules/other.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 inspection and copying in the 
Commission's Public Reference Room on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of the Plan also will be 
available for inspection and copying at the principal offices of NASD 
and NYSE. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number 4-544 
and should be submitted on or before August 22, 2007.

IV. Discussion

    The Commission finds that the proposed Plan is consistent with the 
factors set forth in Section 17(d) of the Act \23\ and Rule 17d-2(c) 
thereunder \24\ in that the 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 Plan will reduce unnecessary 
regulatory duplication by fostering cooperation and coordination 
between NYSE and FINRA, and will thereby remove impediments to the 
development of the national market system. In particular, the Plan will 
allocate to FINRA certain responsibilities for Dual Members that would 
otherwise be performed by both NYSE and FINRA following the closing of 
the Transaction. Accordingly, the Plan promotes efficiency by reducing 
costs to Dual Members. Furthermore, because NYSE and FINRA will 
coordinate their regulatory functions in accordance with the Plan, the 
Plan should promote investor protection and the public interest.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78q(d).
    \24\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    Under paragraph (c) of Rule 17d-2, the Commission may, after 
appropriate notice and opportunity for comment, declare a plan, or any 
part of a plan, effective.\25\ In this instance, the Commission 
believes that appropriate notice and comment can take place after the 
proposed Plan is effective. The purpose of the 17d-2 Plan is to 
allocate regulatory responsibilities for certain member conduct rules 
from NYSE to FINRA in connection with the proposed consolidation of 
NYSE Regulation's and NASD's member regulation operations.\26\ As 
discussed above, for an interim period while FINRA develops a single 
rulebook to apply to all Dual Members, it has adopted into its rulebook 
the Incorporated NYSE Rules, and it is those exact same rules that 
constitute the List of Common Rules covered by the 17d-2 Plan. As such, 
the NYSE rules covered by the 17d-2 Plan for which FINRA will assume 
regulatory responsibilities will, at least initially, be identical to 
the Incorporated NYSE Rules on FINRA's own rulebook. Thus, the Plan 
will benefit Dual Members by avoiding duplicative regulation by two 
separate SROs of identical rules. The Commission, therefore, believes 
it is appropriate to herein declare effective the proposed 17d-2 Plan, 
so that it may be effective upon the closing of the Transaction.
---------------------------------------------------------------------------

    \25\ Id.
    \26\ See By-Law Amendments Filing, supra note 15.
---------------------------------------------------------------------------

    The Commission notes that, under the proposed Plan, NYSE and NASD 
have allocated regulatory responsibility for the Common Rules to the 
extent that such responsibilities involve member firm regulation.\27\ 
The Plan further sets forth those areas for which NYSE will retain full 
regulatory responsibility, including: Examinations of Dual Member 
conduct covered by NYSE-only Rules and/or by federal laws or 
regulations; surveillance, investigation, and enforcement with respect 
to conduct relating to trading on or through the systems and facilities 
of NYSE and conduct otherwise covered by NYSE-only Rules, as well as 
whether such conduct may constitute a violation of federal laws or 
regulations; processing of applications for trading licenses or other 
membership in NYSE; and qualification and registration of firm 
personnel to effect transactions or work on the Floor of NYSE pursuant 
to its unique rules.\28\
---------------------------------------------------------------------------

    \27\ See infra text accompanying notes 29-30 (discussing those 
Common Rules that are deemed to be Non-Exclusive Common Rules, for 
which NYSE will retain certain regulatory responsibilities).
    \28\ See Paragraphs 2(d)(i)-(iv) of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    The Commission notes that the proposed Plan also provides that NYSE 
will retain regulatory responsibility for the application of any Common 
Rule as it pertains to matters other than member firm regulation, 
including matters relating to the NYSE's exclusive retained 
responsibilities as set forth in the Plan and noted above (the ``Non-
Exclusive Common Rules'').\29\ The Non-

[[Page 42155]]

Exclusive Common Rules are specifically annotated in the List of Common 
Rules and include those rules for which FINRA and NYSE will each bear 
their respective regulatory responsibilities, consistent with the scope 
of the 17d-2 Plan. Notably, such rules are ``non-exclusive'' in the 
sense that they have aspects that may relate to member firm regulation 
(for which FINRA would assume regulatory responsibility) and aspects 
that may relate to matters other than member firm regulation (for which 
the NYSE would retain regulatory responsibility).\30\ Accordingly, both 
NYSE and FINRA will bear responsibility for the application of each 
Non-Exclusive Common Rule as it relates to their particular regulatory 
responsibilities.
---------------------------------------------------------------------------

    \29\ See Paragraph 2(d)(v) of the proposed 17d-2 Plan and the 
List of Common Rules. Because NYSE will retain responsibility for 
all rules related to market regulation, as well as Common Rules as 
they pertain to matters other than member regulation, the Commission 
staff believes that the proposed Plan does not adversely affect 
NYSE's ability to ensure compliance with the outstanding 
undertakings contained in two recent settlement orders relating to 
trading violations by certain NYSE floor members. See Order 
Instituting Public Administrative Proceedings Pursuant to Sections 
19(h)(1) and 21C of the Securities Exchange Act of 1934, Making 
Findings, Ordering Compliance with Undertakings, and Imposing a 
Censure and Cease-and-Desist Order, File No. 3-11892, Release No. 
34-51524 (April 12, 2005); and Order Instituting Public Proceedings 
Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934, 
Making Findings and Ordering Compliance with Undertakings, File No. 
3-9925, Release No. 34-41574 (June 29, 1999).
    \30\ For example, a Non-Exclusive Common Rule may contain 
multiple provisions, certain of which relate to matters of NYSE's 
retained responsibilities under the Plan, such as trading-related 
provisions.
---------------------------------------------------------------------------

    According to the Plan, whenever either NYSE or FINRA wishes to make 
a change to the substance of any Common Rule, before filing such 
proposed rule change with the Commission, it will inform the other 
party of the intended change to determine whether the other party will 
propose a conforming change to its version of the Common Rule. If the 
Parties do not agree to propose conforming changes, the Parties agree 
to file with the Commission an amendment to the 17d-2 Plan to delete 
such rule from the list of Common Rules.\31\ Similarly, the Parties 
anticipate that when FINRA creates a consolidated rulebook, it is 
likely that the new FINRA rules that would replace existing 
Incorporated NYSE Rules might be substantially different from the then-
existing NYSE rules. In such case, the NYSE would need to submit a 
proposed rule change and seek approval from the Commission to amend its 
corresponding rule to conform to the new FINRA rule.\32\
---------------------------------------------------------------------------

    \31\ See Paragraph 2(b) of the Plan.
    \32\ See Paragraph 2(c) of the Plan. Further, the Parties 
thereafter would need to consider whether any amendments to the Plan 
or the List of Common Rules are required.
---------------------------------------------------------------------------

    Additionally, the Commission notes that, since the Plan allocates 
regulatory responsibility to FINRA for the oversight and enforcement of 
all NYSE rules on the list of Common Rules to the extent that such 
responsibilities involve member firm regulation, any additions to, 
deletions from, or other changes to the List of Common Rules pursuant 
to the aforementioned provisions or otherwise would constitute an 
amendment to the Plan, which must be filed with the Commission pursuant 
to Rule 17d-2 under the Act.
    The Plan permits NYSE and FINRA to terminate the Plan at any time, 
subject to 180 days written notice to the other party. The Commission 
notes, however, that while the Plan permits the Parties to terminate 
the Plan, the Parties cannot by themselves reallocate the regulatory 
responsibilities set forth in the Plan, since Rule 17d-2 under the Act 
requires that any allocation or re-allocation of regulatory 
responsibilities be filed with, and approved by, the Commission.\33\
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    \33\ The Commission notes that paragraph 14 of the Plan reflects 
the fact that Commission approval of any termination of the Plan is 
required.
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    Finally, the Plan also requires the Parties to share information on 
a number of matters. Specifically, the Parties must provide information 
to one another relating to possible financial or operational problems 
that may affect the ability of any Dual Member to conduct business and 
must also, upon request, make available to one another certain reports 
and documents set forth in the Plan, such as existing files, copies of 
examination reports, examination work papers, or investigative 
materials. Further, the Parties must promptly provide one another with 
copies of third-party complaints that relate to the other party's 
regulatory responsibilities under the Plan. The Parties also must 
promptly share information relating to any formal disciplinary actions 
or informal disciplinary actions taken involving a Dual Member or other 
certain individuals. The Commission believes that the information 
sharing provisions contained in the Plan further foster cooperation and 
coordination between NYSE and FINRA, thereby promoting investor 
protection and removing impediments to the development of a national 
market system.

V. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-544. The Parties shall notify all members affected by the 
Plan of their rights and obligations under the Plan.
    It is therefore ordered, pursuant to Sections 17(d) and 
11A(a)(3)(B) of the Act, that the Plan in File No. 4-544, between NASD, 
NYSE, and NYSE Regulation filed pursuant to Rule 17d-2 under the Act, 
is approved and declared effective.
    It is therefore ordered that NYSE is relieved of those 
responsibilities allocated to FINRA under the Plan in File No. 4-544.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-14877 Filed 7-31-07; 8:45 am]

BILLING CODE 8010-01-P