Document ID: SEC-2008-1450-0001
Agency: sec
Document Type: Notice
Title: Allocation of Regulatory Responsibilities: American Stock Exchange LLC, BATS Exchange, Inc.,  Boston Stock Exchange, Inc., et al.
Posted Date: 2008-10-23T04:00Z

[Federal Register: October 23, 2008 (Volume 73, Number 206)]
[Notices]               
[Page 63216-63218]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23oc08-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58806; File No. 4-566]

 
Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing and Order Approving and Declaring 
Effective an Amendment to the Plan for the Allocation of Regulatory 
Responsibilities Among the American Stock Exchange LLC, BATS Exchange, 
Inc., Boston Stock Exchange, Inc., Chicago Board Options Exchange, 
Inc., Chicago Stock Exchange, Inc., Financial Industry Regulatory 
Authority, Inc., International Securities Exchange, LLC, The NASDAQ 
Stock Market LLC, National Stock Exchange, Inc., New York Stock 
Exchange, LLC, NYSE Arca Inc., NYSE Regulation, Inc., and Philadelphia 
Stock Exchange, Inc. Relating to the Surveillance, Investigation, and 
Enforcement of Insider Trading Rules

October 17, 2008.
    Notice is hereby given that the Securities and Exchange Commission 
(``Commission'') has issued an Order, pursuant to Section 17(d) of the 
Securities Exchange Act of 1934 (``Act''),\1\ approving and declaring 
effective an amendment to the plan for allocating regulatory 
responsibility (``Plan'') filed pursuant to Rule 17d-2 of the Act,\2\ 
by the American Stock Exchange LLC (``Amex''), BATS Exchange, Inc. 
(``BATS''), Boston Stock Exchange, Inc. (``BSE''), Chicago Board 
Options Exchange, Inc. (``CBOE''), Chicago Stock Exchange, Inc. 
(``CHX''), Financial Industry Regulatory Authority, Inc. (``FINRA''), 
International Securities Exchange, LLC (``ISE''), The NASDAQ Stock 
Market, LLC (``NASDAQ''), National Stock Exchange, Inc. (``NSX''), New 
York Stock Exchange LLC (``NYSE''), NYSE Arca Inc. (``NYSE Arca''), 
NYSE Regulation, Inc. (acting under authority delegated to it by NYSE) 
(``NYSE Regulation''), and Philadelphia Stock Exchange, Inc. (``Phlx'') 
(collectively, ``Participating Organizations'' or ``Parties'') 
concerning the surveillance, investigation, and enforcement of insider 
trading rules.
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    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
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I. Introduction

    Section 19(g)(1) of the Act,\3 \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) \4\ or Section 19(g)(2) \5\ 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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    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 15 U.S.C. 78q(d).
    \5\ 15 U.S.C. 78s(g)(2).
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    Section 17(d)(1) of the Act \6\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\7\ 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. 78q(d)(1).
    \7\ 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.\8\ 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. \9\ 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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    \8\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \9\ 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.\10\ 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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    \10\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. The Plan

    On September 12, 2008, the Commission declared effective the 
Participating Organizations' Plan for allocating regulatory 
responsibilities pursuant to Rule 17d-2.\11\ The Plan is designed to 
eliminate regulatory duplication by allocating regulatory 
responsibility over Common NYSE Members \12\ or Common FINRA 
Members,\13\ as applicable, (collectively,

[[Page 63217]]

``Common Members'') for the surveillance, investigation, and 
enforcement of common insider trading rules (``Common Rules'').\14\ The 
Plan assigns regulatory responsibility over Common NYSE Members to NYSE 
Regulation for surveillance, investigation, and enforcement of insider 
trading by broker-dealers, and their associated persons, with respect 
to NYSE-listed stocks and NYSE Arca-listed stocks, irrespective of the 
marketplace(s) maintained by the Participating Organizations on which 
the relevant trading may occur. The Plan assigns regulatory 
responsibility over Common FINRA Members to FINRA for surveillance, 
investigation, and enforcement of insider trading by broker-dealers, 
and their associated persons, with respect to NASDAQ-listed stocks and 
Amex-listed stocks, as well as any CHX solely-listed stock, 
irrespective of the marketplace(s) maintained by the Participating 
Organizations on which the relevant trading may occur.
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    \11\ See Securities Exchange Act Release No. 58536 (September 
12, 2008), 73 FR 54646 (September 22, 2008) (File No. 4-566).
    \12\ Common NYSE Members include members of the NYSE and at 
least one of the Participating Organizations.
    \13\ Common FINRA Members are members of FINRA and at least one 
of the Participating Organizations.
    \14\ Common Rules are defined as: (i) Federal securities laws 
and rules promulgated by the Commission pertaining to insider 
trading, and (ii) the rules of the Participating Organizations that 
are related to insider trading. See Exhibit A to the Plan.
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III. Proposed Amendment to the Plan

    On October 16, 2008, the Participating Organizations submitted a 
proposed amendment to the Plan. The purpose of the amendment is to: (1) 
Add BATS as a participant to the Plan; (2) substitute CBOE as a 
participant for CBOE Stock Exchange, LLC; (3) clarify that CBOE's 
allocation of regulatory responsibilities under the Plan is limited to 
the activities of the CBOE Stock Exchange, LLC, a facility of CBOE; (4) 
clarify that ISE's allocation of regulatory responsibilities under the 
Plan is limited to the activities of the ISE Stock Exchange, LLC, a 
facility of ISE; and (5) add language to facilitate the addition of new 
SROs to the Plan where such new SROs do not assume regulatory 
responsibilities under the Plan. The amended agreement replaces the 
previous agreement in its entirety. The text of the proposed amendments 
to the Plan is as follows (additions are italicized; deletions are 
[bracketed]):
* * * * *

Agreement for the Allocation of Regulatory Responsibility of 
Surveillance, Investigation and Enforcement for Insider Trading 
pursuant to Sec.  17(d) of the Securities Exchange Act of 1934, 15 
U.S.C. 78q (d), and Rule 17d-2 Thereunder

    This agreement (the ``Agreement'') by and among the American Stock 
Exchange LLC (``Amex''), BATS Exchange, Inc. (``BATS''), Boston Stock 
Exchange, Inc., [CBOE Stock Exchange, LLC] Chicago Board Options 
Exchange, Inc. (``CBOE'') [dagger]\1\, Chicago Stock Exchange, Inc. 
(``CHX''), Financial Industry Regulatory Authority, Inc. (``FINRA''), 
International Securities Exchange, LLC (``ISE'') [dagger]\2\, The 
NASDAQ Stock Market LLC (``NASDAQ''), National Stock Exchange, Inc., 
New York Stock Exchange, LLC (``NYSE''), NYSE Arca Inc. (``NYSE 
Arca''), NYSE Regulation, Inc. (pursuant to delegated authority) 
(``NYSE Regulation''), and Philadelphia Stock Exchange, Inc. (together, 
the ``Participating Organizations''), is made pursuant to Sec.  17(d) 
of the Securities Exchange Act of 1934 (the ``Act''), 15 U.S.C. Sec.  
78q(d), and Securities and Exchange Commission (``SEC'') Rule 17d-2, 
which allow for plans to allocate regulatory responsibility among self-
regulatory organizations (``SROs''). Upon approval by the SEC, this 
Agreement shall amend and restate the agreement among the Participating 
Organizations (except BATS and CBOE, the latter of which replaces CBOE 
Stock Exchange, LLC) approved by the SEC on September 12, 2008.
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    [dagger]\1\ CBOE's allocation of certain regulatory 
responsibilities to NYSE/FINRA under this Agreement is limited to 
the activities of the CBOE Stock Exchange, LLC, a facility of CBOE.
    [dagger]\2\ ISE's allocation of certain regulatory 
responsibilities to NYSE/FINRA under this Agreement is limited to 
the activities of the ISE Stock Exchange, LLC, a facility of ISE.
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* * * * *
    27. Amendment.
    a. This Agreement may be amended [by any writing duly]to add a new 
Participating Organization, provided that such Participating 
Organization does not assume regulatory responsibility, solely by an 
amendment executed by NYSE Regulation, FINRA and such new Participating 
Organization. All other Participating Organizations expressly consent 
to allow NYSE Regulation and FINRA to jointly add new Participating 
Organizations to the Agreement as provided above. NYSE Regulation and 
FINRA will promptly notify all Participating Organizations of any such 
amendments to add a new Participating Organization.
    b. All other amendments must be made approved by each Participating 
Organization. [The addition of]All amendments, including adding a new 
Participating Organization[ to the Agreement will require an amendment. 
All such amendments], must be filed with and approved by the Commission 
before they become effective.
* * * * *

EXHIBIT A: COMMON INSIDER TRADING RULES

* * * * *
BATS Rule 3.1 Business Conduct of ETP Holders
BATS Rule 3.2. Violations Prohibited
BATS Rule 3.3. Use of Fraudulent Devices
BATS Rule 4.1 Requirements
BATS Rule 5.1. Written Procedures
BATS Rule 5.3 Records
BATS Rule 5.5 Chinese Wall Procedures
BATS Rule 12.4 Manipulative Transactions
* * * * *

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number 4-566 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, Station Place, 100 F Street, NE., Washington, 
DC 20549-1090.
    All submissions should refer to File Number 4-566. This file number 
should be included on the subject line if e-mail 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 Web site (http://www.sec.gov/rules/other.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed plan that are filed with the 
Commission, and all written communications relating to the proposed 
plan 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 inspection and copying in the 
Commission's Public Reference Room, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of the plan also will be 
available for inspection and copying at the principal offices of Amex, 
BATS, BSE, CBOE, CHX, FINRA, ISE, NASDAQ, NSX, NYSE, NYSE Arca, NYSE 
Regulation, and Phlx. All comments received will

[[Page 63218]]

be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number 4-566 and should be submitted on or before 
November 13, 2008.

V. Discussion

    The Commission finds that the Plan, as proposed to be amended, is 
consistent with the factors set forth in Section 17(d) of the Act \15\ 
and Rule 17d-2 thereunder \16\ in that it 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. The Commission 
continues to believe that the Plan, as proposed to be amended, should 
reduce unnecessary regulatory duplication by allocating regulatory 
responsibility for the surveillance, investigation, and enforcement of 
Common Rules over Common NYSE Members, with respect to NYSE-listed 
stocks and NYSE Arca-listed stocks, to NYSE and over Common FINRA 
Members, with respect to NASDAQ-listed stocks, Amex-listed stocks, and 
any CHX solely-listed stock, to FINRA. Accordingly, the proposed Plan 
promotes efficiency by consolidating these regulatory functions in a 
single SRO based on the listing market for a stock, with regard to 
Common NYSE Members and Common FINRA Members.
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    \15\ 15 U.S.C. 78q(d).
    \16\ 17 CFR 240.17d-2.
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    Under paragraph (c) of Rule 17d-2, the Commission may, after 
appropriate notice and comment, declare a plan, or any part of a plan, 
effective. In this instance, the Commission believes that appropriate 
notice and comment can take place after the proposed amendment is 
effective. The primary purpose of the amendment is to add BATS as a 
participant to the Plan. By approving the amendment today, BATS can be 
included in the Plan prior to beginning operations as a national 
securities exchange.\17\ In addition, the amendment would facilitate 
the process of adding new participants to the Plan in the future. This 
amendment also makes technical changes to the Plan to clarify that 
CBOE's allocation of regulatory responsibilities under the Plan is 
limited to the activities of the CBOE Stock Exchange, LLC, a facility 
of CBOE, CBOE is a participant to the Plan instead of CBOE Stock 
Exchange, LLC, and ISE's allocation of regulatory responsibilities 
under the Plan is limited to the activities of the ISE Stock Exchange, 
LLC, a facility of ISE. By declaring it effective today, the amended 
Plan can become effective and be implemented without undue delay. In 
addition, the Commission notes that the prior version of this Plan was 
published for comment, and the Commission did not receive any comments 
thereon.\18\ Finally, 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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    \17\ See Securities Exchange Act Release No. 58375 (August 18, 
2008), 73 FR 49498 (August.)
    \18\ See supra note 11.
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VI. Conclusion

    This order gives effect to the amended Plan submitted to the 
Commission that is contained in File No. 4-566.
    It is therefore ordered, pursuant to Section 17(d) of the Act,\19\ 
that the Plan, as amended, made by and among Amex, BATS, BSE, CBOE, 
CHX, FINRA, ISE, NASDAQ, NSX, NYSE, NYSE Arca, NYSE Regulation, and 
Phlx filed with the Commission pursuant to Rule 17d-2 on October 16, 
2008 is hereby approved and declared effective.
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    \19\ 15 U.S.C. 78q(d).
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    It is further ordered that the Participating Organizations are 
relieved of those regulatory responsibilities allocated to NYSE and 
FINRA under the Plan in File No. 4-566.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Lynn Taylor,
Assistant Secretary.
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    \20\ 17 CFR 200.30-3(a)(34).
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[FR Doc. E8-25240 Filed 10-22-08; 8:45 am]

BILLING CODE 8011-01-P