Document ID: SEC-2019-0908-0001
Agency: sec
Document Type: Notice
Title: Program for Allocation of Regulatory Responsibilities: Financial Industry Regulatory Authority, Inc. and the NYSE Chicago, Inc.
Posted Date: 2019-06-25T04:00Z

[Federal Register Volume 84, Number 122 (Tuesday, June 25, 2019)]
[Notices]
[Pages 29923-29925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13464]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86161; File No. 4-274]

Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving Proposed Amended Plan for the Allocation of 
Regulatory Responsibilities Between the Financial Industry Regulatory 
Authority, Inc. and the NYSE Chicago, Inc.

June 20, 2019.
    On May 8, 2019, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') and the NYSE Chicago, Inc. (``NYSE Chicago'') (together 
with FINRA, the ``Parties'') filed with the Securities and Exchange 
Commission (``Commission'') a plan for the allocation of regulatory 
responsibilities, dated May 7, 2019 (``Amended 17d-2 Plan'' or the 
``Amended Plan''). The Amended Plan was published for comment on May 
30, 2019.\1\ The Commission received no comments on the Amended Plan. 
This order approves and declares effective the Amended Plan.
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    \1\ See Securities Exchange Act Release No. 85921 (May 23, 
2019), 84 FR 25105.
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I. Introduction

    Section 19(g)(1) of the Act,\2\ among other things, requires every 
self-regulatory organization (``SRO'') registered as either a national 
securities exchange or national 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) or Section 19(g)(2) of the Act.\3\ 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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    \2\ 15 U.S.C. 78s(g)(1).
    \3\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
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    Section 17(d)(1) of the Act \4\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ 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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    \4\ 15 U.S.C. 78q(d)(1).
    \5\ 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.\6\ 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

[[Page 29924]]

rules.\7\ 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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    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \7\ 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-2under the Act.\8\ Rule 17d-2permits 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 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. 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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    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Amended Plan

    On September 26, 1978, the Commission approved the Plan allocating 
regulatory responsibilities pursuant to Rule 17d-2 on a provisional 
basis.\9\ Under the Plan, the predecessor to FINRA was responsible, in 
part, for conducting on-site examination of each dual member for which 
it was the DEA. On February 20, 1980, the Commission noticed for 
comment an amendment to the Plan, which provided, in part, for the 
handling of customer complaints, the review of dual members' 
advertising, and the arbitration of disputes under the Plan.\10\ On May 
30, 1980, the Commission approved the Plan, as amended.\11\ On 
September 8, 2010, the Commission approved an amendment to replace the 
previous Plan in its entirety.\12\ On May 8, 2019, the Parties 
submitted a proposed amendment to the Plan. The primary purpose of the 
amendment is to the extent that it becomes a member of the exchange, 
allocate regulatory responsibility to FINRA for NYSE Chicago's 
affiliated routing broker-dealer, Archipelago Securities LLC.
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    \9\ See Securities Exchange Act Release No. 15191 (September 26, 
1978), 43 FR 46093 (October 5, 1978).
    \10\ See Securities Exchange Act Release No. 16591 (February 20, 
1980), 45 FR 12573 (February 26, 1980).
    \11\ See Securities Exchange Act Release No. 16858 (May 30, 
1980), 45 FR 37927 (June 5, 1980).
    \12\ See Securities Exchange Act Release No. 62866 (September 8, 
2010), 75 FR 55833 (September 14, 2010).
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III. Discussion

    The Commission finds that the proposed Amended Plan is consistent 
with the factors set forth in Section 17(d) of the Act \13\ and Rule 
17d-2(c) thereunder \14\ in that the proposed Amended 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 Commission believes that the proposed 
Amended Plan should reduce unnecessary regulatory duplication by 
allocating to FINRA certain examination and enforcement 
responsibilities for common members that would otherwise be performed 
by FINRA and NYSE Chicago. Accordingly, the proposed Amended Plan 
promotes efficiency by reducing costs to common members. Furthermore, 
because NYSE Chicago and FINRA will coordinate their regulatory 
functions in accordance with the Amended Plan, the Amended Plan should 
promote investor protection.
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    \13\ 15 U.S.C. 78q(d).
    \14\ 17 CFR 240.17d-2(c).
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    The Commission notes that, under the Amended Plan, NYSE Chicago and 
FINRA have allocated regulatory responsibility for those NYSE Chicago 
rules, set forth in the Certification, that are substantially similar 
to the applicable FINRA rules in that examination for compliance with 
such provisions and rules would not require FINRA to develop one or 
more new examination standards, modules, procedures, or criteria in 
order to analyze the application of the rule, or a common member's 
activity, conduct, or output in relation to such rule. In addition, 
under the Amended Plan, FINRA would assume regulatory responsibility 
for certain provisions of the federal securities laws and the rules and 
regulations thereunder that are set forth in the Certification. The 
common rules covered by the Amended Plan are specifically listed in the 
Certification, as may be amended by the parties from time to time.
    According to the Amended Plan, NYSE Chicago will review the 
Certification at least annually, or more frequently if required by 
changes in either the rules of NYSE Chicago or FINRA, and, if 
necessary, submit to FINRA an updated list of common rules to add NYSE 
Chicago rules not included on the then-current list of common rules 
that are substantially similar to FINRA rules; delete NYSE Chicago 
rules included in the then-current list of common rules that no longer 
qualify as common rules; and confirm that the remaining rules on the 
list of common rules continue to be NYSE Chicago rules that qualify as 
common rules.\15\ FINRA will then confirm in writing whether the rules 
listed in any updated list are common rules as defined in the Amended 
Plan. Under the Amended Plan, NYSE Chicago also will provide FINRA with 
a current list of common members and shall update the list no less 
frequently than once each quarter.\16\ The Commission believes that 
these provisions are designed to provide for continuing communication 
between the parties to ensure the continued accuracy of the scope of 
the proposed allocation of regulatory responsibility. In addition, as 
noted above, the primary purpose of the amendment is to the extent that 
it becomes a member of the exchange, allocate regulatory responsibility 
to FINRA for Chicago's affiliated routing broker-dealer, Archipelago 
Securities LLC. The Commission does not believe that the amendment to 
the plan raises any new regulatory issues that the Commission has not 
previously considered.
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    \15\ See paragraph 2 of the Amended Plan.
    \16\ See paragraph 3 of the Amended Plan.
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    The Commission is hereby declaring effective an Amended Plan that, 
among other things, allocates regulatory responsibility to FINRA for 
the oversight and enforcement of all NYSE Chicago rules that are 
substantially similar to the rules of FINRA for common members of FINRA 
and NYSE Chicago. Therefore, modifications to the Certification need 
not be filed with the Commission as an amendment to the Amended Plan, 
provided that the parties are only adding to, deleting from, or 
confirming changes to NYSE Chicago rules in the Certification in

[[Page 29925]]

conformance with the definition of common rules provided in the Amended 
Plan. However, should the parties decide to add a NYSE Chicago rule to 
the Certification that is not substantially similar to a FINRA rule; 
delete a NYSE Chicago rule from the Certification that is substantially 
similar to a FINRA rule; or leave on the Certification a NYSE Chicago 
rule that is no longer substantially similar to a FINRA rule, then such 
a change would constitute an amendment to the Amended Plan, which must 
be filed with the Commission pursuant to Rule 17d-2 under the Act.\17\
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    \17\ The addition to or deletion from the Certification of any 
federal securities laws, rules, and regulations for which FINRA 
would bear responsibility under the Amended Plan for examining, and 
enforcing compliance by, common members, also would constitute an 
amendment to the Amended Plan.
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IV. Conclusion

    This order gives effect to the Amended Plan filed with the 
Commission in File No. 4-274. The parties shall notify all members 
affected by the Amended Plan of their rights and obligations under the 
Amended Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act, that 
the Amended Plan in File No. 4-274, between FINRA and NYSE Chicago, 
filed pursuant to Rule 17d-2 under the Act, hereby is approved and 
declared effective.
    It is further ordered that NYSE Chicago is relieved of those 
responsibilities allocated to FINRA under the Amended Plan in File No. 
4-274.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(34).
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Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-13464 Filed 6-24-19; 8:45 am]
 BILLING CODE 8011-01-P