Document ID: SEC-2020-0509-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market LLC
Posted Date: 2020-04-03T04:00Z

[Federal Register Volume 85, Number 65 (Friday, April 3, 2020)]
[Notices]
[Pages 19042-19044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06959]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88516; File No. SR-NASDAQ-2020-007]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing of Amendment No. 1 and Order Granting Accelerated 
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

March 30, 2020.

I. Introduction

    On February 3, 2020, The Nasdaq Stock Market LLC (``Exchange'' or 
``Nasdaq'') filed with the Securities and

[[Page 19043]]

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. The proposed rule change was 
published for comment in the Federal Register on February 20, 2020.\3\ 
On March 24, 2020, the Exchange filed Amendment No. 1 to the proposed 
rule change, which amended and replaced the proposed rule change.\4\ 
The Commission did not receive any comment letters on the proposed rule 
change. The Commission is publishing this notice to solicit comments on 
Amendment No. 1 from interested persons, and is approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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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. 88209 (February 13, 
2020), 85 FR 9870.
    \4\ In Amendment No. 1, the Exchange: (1) Clarified that the 
Exchange itself, not a third-party, would be assuming operational 
responsibility for certain contested disciplinary matters; (2) 
clarified that FINRA's Office of Hearing Officers would continue to 
administer the hearing process for all contested disciplinary 
matters; and (3) made other technical, clarifying, and conforming 
changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nasdaq-2020-007/srnasdaq2020007-6990674-214688.pdf.
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II. Description of the Proposal

    According to the Exchange, since it became a national securities 
exchange, the Exchange has contracted with FINRA through various 
regulatory services agreements to perform certain regulatory functions 
on its behalf.\5\ At the same time, the 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.\6\ In 
April 2019, the Exchange reallocated operational responsibility from 
FINRA to Nasdaq Regulation for certain investigative and enforcement 
activity, including the investigation and enforcement responsibilities 
for conduct occurring on The Nasdaq Options Market,\7\ and 
investigation and enforcement responsibilities for conduct occurring on 
Nasdaq's equity market only, i.e., not also on non-Nasdaq-affiliated 
equities markets.\8\ According to the Exchange, notwithstanding the 
changes made in April 2019, FINRA continues to perform certain 
functions pursuant to an RSA,\9\ including the handling of contested 
disciplinary proceedings arising out of Nasdaq Regulation-led 
investigation and enforcement activities.
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    \5\ See Amendment No. 1, supra note 4 at 4.
    \6\ See id.
    \7\ According to the Exchange, as appropriate, Nasdaq Regulation 
coordinates with other SROs to the extent it is investigating 
activity occurring on non-Nasdaq options markets to ensure no 
regulatory duplication occurs.
    \8\ Securities Exchange Act Release No. 85505 (April 3, 2019), 
84 FR 14170 (April 9, 2019).
    \9\ 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.
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    The Exchange now proposes to reallocate operational responsibility 
from FINRA to Nasdaq Regulation for certain enforcement activity, 
specifically, the handling of certain contested disciplinary 
proceedings.\10\ 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.\11\ 
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.\12\
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    \10\ See Amendment No. 1, supra note 4, at 6. The Exchange 
states that Nasdaq Regulation's decision to assume operational 
responsibility for any given contested disciplinary proceeding with 
be made on a case by case basis. See Amendment No. 1, supra note 4, 
at 6, fn.13. Furthermore, the Exchange states that for those 
contested disciplinary proceedings that Nasdaq Regulation does not 
assume operational responsibility for, the Exchange will continue to 
use FINRA to litigate those matters. See Amendment No. 1, supra note 
4, at 6.
    \11\ See Amendment No. 1, supra note 4, at 6.
    \12\ See Amendment No. 1, supra note 4, at 6, fn.12; 7.
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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 \13\ and, in particular, 
with Sections 6(b)(5) and 6(b)(7) of the Act.\14\ As noted above, since 
it became a national securities exchange, the Exchange has contracted 
with FINRA through various regulatory services agreements to perform 
certain regulatory functions on its behalf.\15\ Nasdaq General Rule 1, 
Section 7 requires that, unless Nasdaq obtains prior Commission 
approval, the regulatory functions subject to the regulatory services 
agreement in effect at the time when Nasdaq began to operate a national 
securities exchange 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 Nasdaq Regulation.\16\
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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5), (7).
    \15\ See supra note 5 and accompanying text.
    \16\ See supra notes 10 and 11 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.\17\ 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.\18\ 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.\19\ 
Accordingly, the Commission believes that the proposed rule change, as 
modified by Amendment No. 1, is consistent with the Act.
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    \17\ See Amendment No. 1, supra note 4, at 7.
    \18\ See id.
    \19\ See Amendment No. 1, supra note 4, at 7, 9.
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IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 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/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2020-007 on the subject line.

[[Page 19044]]

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2020-007. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2020-007 and should be submitted 
on or before April 24, 2020.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
1 in the Federal Register. The Commission notes that, in Amendment No. 
1, the Exchange provided additional information to clarify and support 
the proposal, and did not materially change the substance of the 
proposal. The Commission also notes that the original proposal was 
subject to a 21-day comment period and no comments were received. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\20\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NASDAQ-2020-007), as 
modified by Amendment No. 1 be, and hereby is, approved on an 
accelerated basis.
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    \21\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06959 Filed 4-2-20; 8:45 am]
BILLING CODE 8011-01-P