Document ID: SEC-2019-0832-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2019-06-12T04:00Z

[Federal Register Volume 84, Number 113 (Wednesday, June 12, 2019)]
[Notices]
[Pages 27387-27388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12341]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86051; File No. SR-BX-2019-002]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Reassign 
Certain Investigation and Enforcement Functions Under the Exchange's 
Authority and Supervision

June 6, 2019.

I. Introduction

    On April 5, 2019, Nasdaq BX, Inc. (``Exchange'' or ``BX'') 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 investigation and 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 April 24, 2019.\3\ On May 2, 2019, the Exchange filed 
Amendment No. 1 to the proposed rule change, which amended and replaced 
the proposed rule change as originally filed.\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. 85691 (April 18, 
2019), 84 FR 17219.
    \4\ In Amendment No. 1, the Exchange: (1) Clarified that the 
staff performing surveillance work on behalf of BX's options and 
equities markets is the same that performs surveillance work on 
behalf of all The Nasdaq Stock Market LLC (``Nasdaq'')-affiliated 
equities and options markets; (2) clarified the equities 
surveillance patterns and related review functions that were 
previously reallocated from FINRA to the Exchange; (3) clarified 
that the Exchange bears the ultimate responsibility for self-
regulatory conduct and primary liability for self-regulatory 
failures; and (4) made other technical, clarifying, and conforming 
changes. Amendment No. 1 is available at https://www.sec.gov/comments/sr-bx-2019-002/srbx2019002-5442622-184831.pdf.
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II. Description of the Proposal

    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.\5\ At 
the same time, the Exchange has retained operational responsibility for 
a number of regulatory functions, including real-time surveillance and 
most surveillance related to its affiliated options markets.\6\
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    \5\ See Amendment No. 1, supra note 4 at 4.
    \6\ See id. at 4-5.
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    The Exchange now proposes to reallocate operational responsibility 
from FINRA to the Exchange's Regulation Department \7\ for certain 
investigation and enforcement activities, specifically: (1) 
Investigation and enforcement responsibilities for conduct occurring on 
The BX Options Market,\8\ and (2) investigation and enforcement 
responsibilities for conduct occurring on BX's equity market only 
(i.e., not also on non-Nasdaq-affiliated equities markets).\9\ The 
Exchange states that it anticipates a phased transition whereby it 
would assume increasing investigation and enforcement responsibility 
throughout 2019 and into 2020.\10\ The Exchange also anticipates 
transitioning certain matters currently pending with FINRA to the 
Exchange's Enforcement Department if the Exchange's Enforcement 
Department believes doing so is consistent with ensuring prompt 
resolution of regulatory matters.\11\
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    \7\ The Exchange's Regulation Department includes the Exchange's 
Enforcement Department. See id. at 6 n.7. The Exchange states that 
the staff that comprises the Exchange's Regulation Department is the 
same that comprises the Nasdaq Regulation Department. See id.
    \8\ The Exchange states that, as appropriate, the Exchange's 
Regulation Department will coordinate with other self-regulatory 
organizations to the extent it is investigating activity occurring 
on non-Nasdaq-affiliated options markets to ensure no regulatory 
duplication occurs. See id. at 6 n.8.
    \9\ See id. at 5-6. The Exchange believes its expertise in its 
own market structure, coupled with its expertise in surveillance 
activities, would enable it to conduct investigation and enforcement 
responsibilities for the Exchange effectively, efficiently, and with 
immediacy. See id. at 7. The Exchange also states that Commission 
approval of the proposal would allow it to better leverage its 
surveillance, investigation, and enforcement teams, to deliver 
increased efficiencies in the regulation of its market, and to act 
promptly and provide more effective regulation. See id. at 10.
    \10\ See id. at 9.
    \11\ See id.
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    The Exchange states that FINRA will continue to perform certain 
functions, including, among other things: (1) The investigation and 
enforcement of conduct occurring on the BX equity market that also 
relates to cross market activity on non-Nasdaq-affiliated exchanges; 
(2) the handling of contested disciplinary proceedings arising out of 
BX Regulation-led investigation and enforcement activities; \12\ and 
(3) matters covered by agreements to allocate regulatory responsibility 
under Rule 17d-2 of the Act.\13\
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    \12\ The Exchange states that, for example, pursuant to Rule 
9216, if at the conclusion of a BX Regulation-led investigation, BX 
Regulation has reason to believe that a violation occurred but the 
Respondent disputes the violation and therefore does not execute an 
Acceptance, Waiver, and Consent (``AWC'') letter, or if the 
Respondent executes the AWC letter but the Exchange Review Council, 
Review Subcommittee, or FINRA's Office of Disciplinary Affairs does 
not accept the executed letter, the Exchange may decide to pursue 
formal disciplinary proceedings. In such a case, the Exchange would 
refer the matter to FINRA to handle the formal disciplinary 
proceedings on its behalf. FINRA's Office of Hearing Officers will 
continue to be responsible for the administration of the hearing 
process. See id. at 8 n.15.
    \13\ See id. at 8. The Exchange represents that, as with all 
investigation and enforcement work, all tasks delegated to FINRA are 
subject to BX's supervision and ultimate responsibility. See id.
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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 \14\ and, in particular, 
with Sections 6(b)(5) and 6(b)(7) of the Act.\15\ 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.\16\ BX Rule 0150 
requires that, unless BX obtains prior Commission approval, the 
regulatory functions subject to the regulatory services agreement in 
effect at the time when BX executed the agreement in 2008 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 specific 
investigation and enforcement activities discussed above from FINRA to 
the

[[Page 27388]]

Exchange's Regulation Department.\17\ 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 it to 
effectively and efficiently conduct the reallocated investigation and 
enforcement activities. The Commission also notes that the proposal 
would be an incremental reallocation of operational responsibility 
because the staff of the Exchange's Regulation Department currently 
performs the same investigative and enforcement work on behalf of 
Nasdaq PHLX LLC, Nasdaq ISE, LLC, Nasdaq GEMX, LLC, and Nasdaq MRX, 
LLC.\18\ Moreover, the Commission recently approved a similar proposal 
by Nasdaq to reallocate operational responsibility for specific 
investigation and enforcement activities from FINRA to Nasdaq.\19\ In 
addition, the Exchange states that BX Regulation has instituted the 
requisite infrastructure to accommodate the internalization of the 
investigative and enforcement work on behalf of the Exchange.\20\ 
Furthermore, the Exchange states that BX Regulation has developed 
comprehensive plans covering the transition and has met regularly for 
more than one year to ensure a smooth transition of the work and 
prevent any gaps in regulatory coverage.\21\ Accordingly, the 
Commission believes that the proposed rule change, as modified by 
Amendment No. 1, is consistent with the Act.
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    \14\ 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).
    \15\ 15 U.S.C. 78f(b)(5), (7).
    \16\ See supra note 5 and accompanying text.
    \17\ See supra notes 7-9 and accompanying text.
    \18\ See Amendment No. 1, supra note 4 at 7. As noted above, the 
staff that comprises the Exchange' Regulation Department is the same 
that comprises the Nasdaq Regulation Department. See supra note 7.
    \19\ See Securities Exchange Act Release No. 85505 (April 3, 
2019), 84 FR 14170 (April 9, 2019) (SR-NASDAQ-2019-007).
    \20\ See Amendment No. 1, supra note 4 at 8. Specifically, BX 
has created a new investigation and enforcement group to perform the 
functions covered by this proposal, which included hiring additional 
staff. See id. at 9. The Exchange would also leverage its existing 
staff of analysts, lawyers, programmers, and market structure 
experts to assist, where necessary, with performing the new 
functions covered by this proposal. See id.
    \21\ See id. The investigatory and disciplinary processes and 
related rules applicable to Exchange members that FINRA currently 
follows on the Exchange's behalf (i.e., the Series 8000 and 9000 
rules) will remain the same. See id. at 9 n.17.
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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-BX-2019-002 on the subject line.

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-BX-2019-002. 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-BX-2019-002 and should be submitted on 
or before July 3, 2019.

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,\22\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \22\ 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,\23\ that the proposed rule change (SR-BX-2019-002), as modified by 
Amendment No. 1 be, and hereby is, approved on an accelerated basis.
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    \23\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-12341 Filed 6-11-19; 8:45 am]
 BILLING CODE 8011-01-P