Document ID: SEC-2007-0460-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations: NYSE Arca, Inc. and National Association of Securities Dealers, Inc.; regulatory responsibilities allocation plan
Posted Date: 2007-03-28T04:00Z

[Federal Register: March 28, 2007 (Volume 72, Number 59)]
[Notices]               
[Page 14628-14629]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28mr07-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55505; File No. 4-523]

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

March 22, 2007.
    Pursuant to Sections 17(d) \1\ and 11A(a)(3)(B) \2\ of the 
Securities Exchange Act of 1934 (``Act''), the Securities and Exchange 
Commission (``Commission'') is hereby providing notice of filing and 
issuing an order granting approval and declaring effective a revised 
plan for the allocation of regulatory responsibilities dated February 
9, 2007 (``Revised Plan'') that was filed pursuant to Rule 17d-2 under 
the Act\3\ by NYSE Arca, Inc. (``NYSE Arca'') and the National 
Association of Securities Dealers, Inc. (``NASD'') (together with the 
NYSE Arca, the ``Parties''). The Revised Plan replaces and supersedes 
the agreement entered into between the Parties on July 25, 2006 (``July 
2006 Plan'')\4\ in its entirety. The Revised Plan, which makes minor 
changes to the July 2006 Plan, does not fundamentally alter the 
allocation of regulatory responsibilities between the Parties.\5\ 
Accordingly, in addition to the regulatory responsibility it has under 
the Act, NASD shall retain the regulatory responsibilities allocated to 
it under the Revised Plan. At the same time, NYSE Arca continues to be 
relieved of those regulatory responsibilities allocated to NASD under 
the Revised Plan.
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    \1\ 15 U.S.C. 78q(d).
    \2\ 15 U.S.C. 78k-1(a)(3)(B).
    \3\ 17 CFR 240.17d-2.
    \4\ See Securities Exchange Act Release Nos. 54224 (July 27, 
2006), 71 FR 43823 (August 2, 2006) (notice) and 54394 (August 31, 
2006), 71 FR 52827 (September 7, 2006) (order).
    \5\ The text of the Revised Plan is available at the principal 
offices of NYSE Arca and NASD and at the Commission's Public 
Reference Room.
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I. Introduction

    Section 19(g)(1) of the Act,\6\ 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

[[Page 14629]]

responsibility pursuant to Section 17(d) \7\ or 19(g)(2) \8\ of the 
Act. Section 17(d)(1) of the Act\9\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication for those 
broker-dealers that maintain memberships in more than one SRO (``common 
members'').\10\ 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. 78s(g)(1).
    \7\ 15 U.S.C. 78q(d).
    \8\ 15 U.S.C. 78s(g)(2).
    \9\ 15 U.S.C. 78q(d)(1).
    \10\ 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\11\ and Rule 17d-2 under the Act.\12\ Rule 17d-2 permits 
SROs to propose joint plans for the allocation of regulatory 
responsibilities, other than financial responsibility rules, with 
respect to their common members. Under paragraph (c) of Rule 17d-2, the 
Commission may declare such a plan effective if, after providing for 
appropriate notice and comment, it determines that the plan is 
necessary or appropriate in the public interest and for the protection 
of investors, to foster cooperation and coordination among the SROs, to 
remove impediments to, and foster the development of, a national market 
system and a national clearance and settlement system, and is in 
conformity with the factors set forth in Section 17(d) of the Act. Upon 
effectiveness of a plan filed pursuant to Rule 17d-2, an SRO is 
relieved of those regulatory responsibilities for common members that 
are allocated by the plan to another SRO.
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    \11\ 17 CFR 240.17d-1. 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.
    \12\ 17 CFR 240.17d-2.
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    The Revised Plan, which makes minor changes to the July 2006 Plan 
(and replaces and supersedes the July 2006 Plan in its entirety), is 
intended to reduce regulatory duplication for firms that are common 
members of NYSE Arca and NASD. Except as noted immediately below, the 
Revised Plan retains the same allocation of regulatory responsibilities 
among the Parties with respect to common members as the July 2006 Plan. 
In particular, the Revised Plan: (1) Eliminates paragraph 11 of the 
July 2006 Plan that allocated to NASD the responsibility to receive and 
act upon requests for extension of time pursuant to Federal Reserve 
Regulation T and Rule 15c3-3 under the Act, since the monitoring of 
such requirements is the obligation of a member's DEA as provided by 
Rule 17d-1 under the Act; \13\ (2) changes from ``monthly'' to ``upon 
request'' the obligation of NASD to share information with NYSE Arca 
regarding notice of changes in allied members, partners, officers, 
registered personnel and other persons, and the opening, address 
change, and termination of main and branch offices and the names of 
branch office managers; \14\ and (3) makes other technical and 
formatting changes, such as renumbering paragraphs and reformatting 
headings.
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    \13\ 17 CFR 240.17d-1. Further, NYSE Arca represents that it 
currently does not serve as the DEA for any firms that hold or carry 
customer accounts, and therefore does not currently perform any 
duties pursuant to Regulation T and Rule 15c3-3 with respect to 
considering requests for extension of time. See Telephone 
conversation between Greg O'Connor, Director, NYSE Group, Inc., and 
Richard Holley III, Special Counsel, Division of Market Regulation, 
Commission, on March 16, 2007. Additionally, Paragraph 2(c) of the 
July 2006 Plan, as well as the Revised Plan, provides that NYSE Arca 
retains full responsibility for the discharge of its DEA duties and 
obligations. Accordingly, NASD did not undertake any 
responsibilities pursuant to paragraph 11 of the July 2006 Plan and 
the Parties consider the deletion of paragraph 11 to be a non-
material change. See id.
    \14\ See Paragraph 7 of the Revised Plan.
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    Included in the Revised Plan is an attachment (``NYSE Arca Rules 
Certification for 17d-2 Agreement with NASD,'' referred to herein as 
the ``Certification'') that lists every NYSE Arca rule and federal 
securities law, rule and regulation thereunder for which, under the 
Revised Plan, NASD would bear responsibility for examining, and 
enforcing compliance by, common members. No changes to the 
Certification are proposed in the Revised Plan.

II. Discussion

    The Commission finds that the Revised Plan is consistent with the 
factors set forth in Section 17(d) of the Act \15\ and Rule 17d-2(c) 
thereunder \16\ in that the Revised 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 Revised Plan makes minor changes to the July 2006 Plan and does not 
fundamentally alter the allocation of regulatory responsibilities 
between the Parties that was contained in the July 2006 Plan. 
Additionally, no changes to the Certification are proposed in the 
Revised Plan.
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    \15\ 15 U.S.C. 78q(d).
    \16\ 17 CFR 240.17d 2(c).
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    As was the case for the July 2006 Plan, the Commission continues to 
believe that the Revised Plan could reduce unnecessary regulatory 
duplication by allocating to NASD certain responsibilities for common 
members that would otherwise be performed by both NYSE Arca and NASD. 
Accordingly, the Revised Plan should promote efficiency by reducing 
costs to common members. Furthermore, because NYSE Arca and NASD will 
coordinate their regulatory functions in accordance with the Revised 
Plan, the Revised Plan should promote investor protection.
    The Commission is hereby declaring effective and approving a plan 
that, among other things, allocates regulatory responsibility to NASD 
for the oversight and enforcement of all NYSE Arca rules that are 
substantially similar to the rules of the NASD for common members of 
NYSE Arca and NASD.

III. Conclusion

    This Order gives effect to the Revised Plan filed with the 
Commission in File No. 4-523. The Parties shall notify all members 
affected by the Revised Plan of their rights and obligations under the 
Revised Plan.
    It is therefore ordered, pursuant to Sections 17(d) and 
11A(a)(3)(B) of the Act, that the Revised Plan in File No. 4-523, 
between NYSE Arca and NASD, filed pursuant to Rule 17d-2 under the Act, 
is approved and declared effective.
    It is therefore ordered that NYSE Arca is relieved of those 
responsibilities allocated to NASD under the Revised Plan in File No. 
4-523.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \17\
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    \17\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-5637 Filed 3-27-07; 8:45 am]

BILLING CODE 8010-01-P