Document ID: SEC-2007-1726-0001
Agency: sec
Document Type: Notice
Title: Regulatory responsibility allocation plan: American Stock Exchange LLC et al.
Posted Date: 2007-12-18T05:00Z

[Federal Register: December 18, 2007 (Volume 72, Number 242)]
[Notices]               
[Page 71723-71725]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de07-77]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56941; File No. 4-551]

 
Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Plan for the 
Allocation of Regulatory Responsibilities Among the American Stock 
Exchange LLC, the Boston Stock Exchange, Inc., the Chicago Board 
Options Exchange, Incorporated, the International Securities Exchange, 
LLC, Financial Industry Regulatory Authority, Inc., NYSE Arca, Inc., 
and the Philadelphia Stock Exchange, Inc.

December 11, 2007
    On October 30, 2007, the American Stock Exchange LLC (``Amex''), 
the Boston Stock Exchange, Inc. (``BSE''), the Chicago Board Options 
Exchange, Incorporated (``CBOE''), the International Securities 
Exchange, LLC (``ISE''), Financial Industry Regulatory Authority, Inc. 
(``FINRA''), NYSE Arca, Inc. (``NYSE Arca''), and the Philadelphia 
Stock Exchange, Inc. (``Phlx'') (collectively, ``Participants'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 17(d) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 17d-2 thereunder,\2\ a proposed plan for the allocation of 
regulatory responsibilities (``Plan'').\3\ The Plan was published for 
comment on November 9, 2007.\4\ The Commission received no comments on 
the Plan. This order approves and declares effective the Plan.
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    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
    \3\ See infra Section II (describing the proposed Plan).
    \4\ See Securities Exchange Act Release No. 56731 (November 1, 
2007), 72 FR 63637 (File No. 4-551) (``Notice'').

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[[Page 71724]]

I. Introduction

    Section 19(g)(1) of the Act,\5\ 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) \6\ or Section 19(g)(2) \7\ of the Act. 
Without this relief, the statutory obligation of each individual SRO 
could result in a pattern of multiple examinations of broker-dealers 
that maintain memberships in more than one SRO (``common members''). 
Such regulatory duplication would add unnecessary expenses for common 
members and their SROs.
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    \5\ 15 U.S.C. 78s(g)(1).
    \6\ 15 U.S.C. 78q(d).
    \7\ 15 U.S.C. 78s(g)(2).
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    Section 17(d)(1) of the Act \8\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\9\ 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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    \8\ 15 U.S.C. 78q(d)(1).
    \9\ 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.\10\ 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.\11\ 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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    \10\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \11\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18808 (May 7, 1976).
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    To address regulatory duplication in these and other areas, the 
Commission adopted Rule 17d-2 under the Act.\12\ Rule 17d-2 permits 
SROs to propose joint plans for the allocation of regulatory 
responsibilities with respect to their common members. Under paragraph 
(c) of Rule 17d-2, the Commission may declare such a plan effective if, 
after providing for 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. 
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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    \12\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. The Plan

    The Plan is intended to reduce regulatory duplication for common 
members by allocating regulatory responsibility for certain options-
related market surveillance matters among the Participants.\13\ Under 
the Plan, a Participant will serve as the Designated Options 
Surveillance Regulator (``DOSR'') for each common member assigned to it 
and will assume regulatory responsibility with respect to that common 
member's compliance with applicable common rules for certain accounts. 
As proposed, the Plan currently is limited to the review of expiring 
exercise declarations pursuant to the common rules listed in proposed 
Exhibit A to the Plan. When an SRO has been named as a common member's 
DOSR, all other SROs to which the common member belongs will be 
relieved of regulatory responsibility for that common member, pursuant 
to the terms of the Plan, with respect to the applicable common rules 
specified in Exhibit A to the Plan. The full text of the proposed Plan 
and Exhibit A thereto can be found in the Notice.
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    \13\ The proposed plan is wholly separate from the multiparty 
options agreement made pursuant to Rule 17d-2 by and among Amex, 
BSE, CBOE, ISE, NASD (n/k/a FINRA), NYSE, NYSE Arca, and Phlx 
involving the allocation of regulatory responsibilities with respect 
to common members for compliance with common rules relating to the 
conduct of 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. See Securities Exchange Act Release Nos. 55145 
(January 22, 2007), 72 FR 3882 (January 26, 2007) (File No. S7-966) 
and 55532 (March 26, 2007), 72 FR 15729 (April 2, 2007) (File No. 
S7-966).
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III. Discussion

    The Commission finds that the proposed Plan is consistent with the 
factors set forth in Section 17(d) of the Act \14\ and Rule 17d-2(c) 
thereunder \15\ in that the proposed 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 a national market system. In particular, the 
Commission believes that the proposed Plan is an achievement in 
cooperation among the Participants and should reduce regulatory 
duplication by allocating to the DOSR the responsibility for certain 
options-related market surveillance matters that would otherwise be 
performed by multiple Participants. Accordingly, the proposed Plan 
promotes efficiency by reducing costs to common members. Furthermore, 
because the Participants will coordinate their regulatory functions in 
accordance with the Plan, the Plan should promote investor protection.
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    \14\ 15 U.S.C. 78q(d).
    \15\ 17 CFR 240.17d-2(c).
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    The Commission notes that the Plan will be administered by a 
committee known as the Options Surveillance Group (the ``OSG''). The 
Commission further notes that, under the Plan, the Participants will 
allocate among themselves certain regulatory responsibilities relating 
to compliance by their common members with such options rules of the 
Participants as the Participants shall determine are substantially 
similar and shall approve from time to time, insofar as such rules 
relate to market surveillance (collectively, the ``Common Rules''). The 
Common Rules covered by the Plan are specifically listed in Exhibit A 
to the Plan, as may be amended by the Participants from time to time 
upon unanimous written agreement by the Participants. The Commission 
notes that each year, or more frequently if required by changes in the 
rules of a Participant, each Participant will submit to the other 
Participants, through the Chair of the OSG, an updated list of Common 
Rules for review, and each Participant will confirm in writing to the 
Chair of the OSG whether that Participant's rules listed in Exhibit A 
continue to qualify

[[Page 71725]]

as Common Rules under the Plan. In reviewing the list of Common Rules, 
the Participants may add additional rules that qualify as Common Rules, 
will delete rules that are no longer identical or substantially similar 
to the Common Rules, and will confirm that the remaining rules included 
on Exhibit A continue to qualify as Common Rules. The Commission notes 
that all amendments to the Plan, excluding certain changes to Exhibits 
A and B, must be filed with and approved by the Commission.\16\
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    \16\ With respect to this proposed Plan, the Participants may 
include an additional rule in the list of Common Rules on Exhibit A 
without having to file an amendment to the Plan with the Commission, 
as long as such rules of each Participant that are to be included in 
Exhibit A meet the definition of Common Rules contained in the Plan 
and are otherwise consistent with the allocation of regulatory 
responsibility pursuant to the terms of the Plan.
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    In addition, no less frequently than every two years, the OSG will 
allocate common members that conduct an options business among the 
Participants, and the Participant to which a common member is allocated 
will serve as the DOSR for that common member. The Plan also permits 
the Participants, subject to notice, to terminate the Plan or cancel 
their participation in the Plan. The Commission notes that a cancelling 
Participant will retain its regulatory responsibilities under the Plan 
until such time as the Commission has approved the cancellation or 
termination of the Plan.
    The Commission also notes that the proposed Plan is wholly separate 
from the multiparty options agreement made pursuant to Rule 17d-2 by 
and among Amex, BSE, CBOE, ISE, NASD (n/k/a FINRA), NYSE, NYSE Arca, 
and Phlx involving the allocation of regulatory responsibilities with 
respect to common members for compliance with common rules relating to 
the conduct of 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.\17\
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    \17\ See Securities Exchange Act Release Nos. 55145 (January 22, 
2007), 72 FR 3882 (January 26, 2007) (File No. S7-966) (notice) and 
55532 (March 26, 2007), 72 FR 15729 (April 2, 2007) (File No. S7-
966) (order).
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IV. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-551. The Participants shall notify all members affected by 
the Plan of their rights and obligations under the Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act,\18\ 
that the Plan in File No. 4-551 by and between Amex, BSE, CBOE, ISE, 
FINRA, NYSE Arca, and Phlx, filed pursuant to Rule 17d-2 under the 
Act,\19\ is hereby approved and declared effective.
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    \18\ 15 U.S.C. 78q(d).
    \19\ 17 CFR 240.17d-2.
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    It is further ordered that those SRO Participants that are not the 
DOSR as to a particular common member are relieved of those regulatory 
responsibilities allocated to the common member's DOSR under the Plan.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-24467 Filed 12-17-07; 8:45 am]

BILLING CODE 8011-01-P