Document ID: SEC-2020-0905-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2020-06-10T04:00Z

[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35453-35454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12516]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89010; File No. SR-BX-2020-007]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Assume Operational Responsibility for Certain Enforcement Functions 
Currently Performed by FINRA Under the Exchanges Authority and 
Supervision

June 4, 2020.

I. Introduction

    On April 16, 2020, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to assume 
operational responsibility for certain enforcement functions currently 
performed by the Financial Industry Regulatory Authority (``FINRA'') 
under the Exchange's authority and supervision. On April 23, 2020, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposed rule change. The proposed rule 
change, as modified by Amendment No. 1, was published for comment in 
the Federal Register on April 30, 2020.\3\ The Commission did not 
receive any comment letters on the proposed rule change. The Commission 
is approving the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 88746 (April 24, 
2020), 85 FR 24064 (``Release'').
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II. Description of the Proposal, as Modified by Amendment No. 1

    According to the Exchange, since its acquisition by The NASDAQ OMX 
Group, Inc., the Exchange has contracted with FINRA through various 
regulatory services agreements (``RSAs'') to perform certain regulatory 
functions on its behalf.\4\ At the same time, the

[[Page 35454]]

Exchange retained operational responsibility for a number of regulatory 
functions, including real-time surveillance, qualification of companies 
listed on the Exchange, and most surveillance related to its affiliated 
options markets.\5\ In June 2019, the Exchange reallocated operational 
responsibility from FINRA to BX Regulation for certain investigative 
and enforcement activity, including the investigation and enforcement 
responsibilities for conduct occurring on The BX Options Market,\6\ and 
investigation and enforcement responsibilities for conduct occurring on 
BX's equity market only, i.e., not also on non-Nasdaq-affiliated 
equities markets.\7\ According to the Exchange, notwithstanding the 
changes made in June 2019, FINRA continues to perform certain functions 
pursuant to an RSA,\8\ including the handling of contested disciplinary 
proceedings arising out of BX Regulation-led investigation and 
enforcement activities.
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    \4\ See Release, supra note 3, at 24065.
    \5\ See id.
    \6\ According to the Exchange, as appropriate, BX Regulation 
coordinates with other SROs to the extent it is investigating 
activity occurring on non-Nasdaq options markets to ensure no 
regulatory duplication occurs. See Release, supra note 3, at 24065 
fn.9.
    \7\ Securities Exchange Act Release No. 86051 (June 6, 2019), 84 
FR 27387 (June 12, 2019).
    \8\ In addition to work performed pursuant to a RSA, FINRA also 
performs work for matters covered by agreements to allocate 
regulatory responsibility under Rule 17d-2 of the Act. See Release, 
supra note 3, at 24065 fn.11.
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    The Exchange now proposes to reallocate operational responsibility 
from FINRA to BX Regulation for certain enforcement activity, 
specifically, the handling of certain contested disciplinary 
proceedings.\9\ The Exchange states that it anticipates handling those 
contested disciplinary proceedings that FINRA is unable or unwilling to 
handle due to strained resources or other similar limitations.\10\ 
Furthermore, the Exchange states that in all cases, the Exchange will 
continue to use FINRA's Office of Hearing Officers to administer the 
hearing process, and that the rules applicable to the disciplinary 
process will remain the same.\11\
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    \9\ See Release, supra note 3, at 24065. The Exchange states 
that BX Regulation's decision to assume operational responsibility 
for any given contested disciplinary proceeding with be made on a 
case by case basis. See Release, supra note 3, at 24065 fn.14. 
Furthermore, the Exchange states that for those contested 
disciplinary proceedings that BX Regulation does not assume 
operational responsibility for, the Exchange will continue to use 
FINRA to litigate those matters. See Release, supra note 3, at 
24065.
    \10\ See Release, supra note 3, at 24065.
    \11\ See Release, supra note 3, at 24065 fn.12.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange \12\ and, in particular, 
with Sections 6(b)(5) and 6(b)(7) of the Act.\13\ As noted above, since 
its acquisition by The NASDAQ OMX Group, Inc., the Exchange has 
contracted with FINRA through various regulatory services agreements to 
perform certain regulatory functions on its behalf.\14\ BX General Rule 
2, Section 7 requires that, unless BX obtains prior Commission 
approval, the regulatory functions subject to RSAs in effect at the 
time when BX executed the FINRA Regulatory Contract must at all times 
continue to be performed by FINRA or an affiliate thereof or by another 
independent self-regulatory organization. The Exchange now proposes to 
reallocate operational responsibility for the certain contested 
disciplinary activities discussed above from FINRA to BX 
Regulation.\15\
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    \12\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5), (7).
    \14\ See supra note 4 and accompanying text.
    \15\ See supra notes 9 and 10 and accompanying text.
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    The Commission believes that the Exchange could leverage its 
knowledge of its markets and members, its experience with investigation 
and enforcement work, and its surveillance, investigation, and 
enforcement staff, in helping to effectively, efficiently, and with 
immediacy, litigate certain contested disciplinary proceeds.\16\ The 
Commission also notes that, as discussed above, the proposal would not 
change or alter in any way the disciplinary process around how 
contested matters are handled, and FINRA's Office of Hearing Officers 
will continue to administer the hearing process for all contested 
disciplinary proceedings.\17\ Furthermore, as the Exchange states, by 
assuming operational responsibility for certain contested disciplinary 
proceedings, the Exchange may be able to deliver increased efficiencies 
in the regulation of its markets and to act promptly and provide more 
effective regulation by enabling timely and more efficient action.\18\ 
Accordingly, the Commission believes that the proposed rule change, as 
modified by Amendment No. 1, is consistent with the Act.
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    \16\ See Release, supra note 3, at 24065.
    \17\ See id.
    \18\ See id.
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-BX-2020-007), as modified by 
Amendment No. 1 be, and hereby is, approved.
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    \19\ Id.

    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)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12516 Filed 6-9-20; 8:45 am]
 BILLING CODE 8011-01-P