Notice2021-19970
Order Granting Application by The Nasdaq Stock Market LLC and Nasdaq BX, Inc. for an Exemption Pursuant to Section 36(a) of the Exchange Act From the Rule Filing Requirements of Section 19(b) of the Exchange Act With Respect to Certain Rules Incorporated by Reference
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 16, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 177 (Thursday, September 16, 2021)</title>
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[Federal Register Volume 86, Number 177 (Thursday, September 16, 2021)]
[Notices]
[Pages 51705-51706]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-19970]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92934]
Order Granting Application by The Nasdaq Stock Market LLC and
Nasdaq BX, Inc. for an Exemption Pursuant to Section 36(a) of the
Exchange Act From the Rule Filing Requirements of Section 19(b) of the
Exchange Act With Respect to Certain Rules Incorporated by Reference
September 10, 2021.
The Nasdaq Stock Market LLC (``Nasdaq'') and Nasdaq BX, Inc.
(``BX'' and together with Nasdaq, the ``Exchanges'') have filed with
the Securities and Exchange Commission (``Commission'') an application
for an exemption under Section 36(a)(1) of the Securities Exchange Act
of 1934 (``Exchange Act'') \1\ from the rule filing requirements of
Section 19(b) of the Exchange Act \2\ with respect to certain rules of
the Financial Industry Regulatory Authority, Inc. (``FINRA'') that the
Exchanges seek to incorporate by reference.\3\ Section 36 of the
Exchange Act, subject to certain limitations, authorizes the Commission
to conditionally or unconditionally exempt any person, security, or
transaction, or any class thereof, from any provision of the Exchange
Act or rule thereunder, if necessary or appropriate in the public
interest and consistent with the protection of investors.
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\1\ 15 U.S.C. 78mm(a)(1).
\2\ 15 U.S.C. 78s(b).
\3\ See Letter from Angela S. Dunn, Principal Associate General
Counsel, Nasdaq, to J. Matthew DeLesDernier, Assistant Secretary,
Commission, dated June 14, 2021 (``Exemptive Request'').
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The Exchanges filed proposed rule changes under Section 19(b) of
the Exchange Act to amend General 9, Section 18 (Payments for Market
Making) of their respective rulebooks to incorporate by reference FINRA
5250 (Payments for Market Making).\4\ Because FINRA Rule 5250
references the definition of ``affiliate'' in FINRA Rule 5121, the
proposed rule changes also would incorporate by reference the
definition of ``affiliate'' and related definitions within FINRA Rule
5121. As such, the Exchanges' members and persons associated with a
member would be required to comply with FINRA Rule 5250 and the
definition of ``affiliate'' and related definitions within FINRA Rule
5121 as though such rules are part of the Exchanges' rulebooks.
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\4\ See Securities Exchange Act Release Nos. 92242 (June 23,
2021), 86 FR 34286 (June 29, 2021) (SR-NASDAQ-2021-051); 92243 (June
23, 2021), 86 FR 34288 (June 29, 2021) (SR-BX-2021-029). Although
the proposed rule changes were filed pursuant to Section 19(b)(3)(A)
of the Exchange Act, and thereby became immediately effective upon
filing with the Commission, the Exchanges stipulated in the proposed
rule changes that the proposals would not be operative until the
Commission grants this Exemptive Request.
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The Exchanges have requested, pursuant to Rule 0-12 under the
Exchange Act,\5\ that the Commission grant the Exchanges an exemption
from the rule filing requirements of Section 19(b) of the Exchange Act
for changes to the Exchanges' rules that are effected solely by virtue
of a change to FINRA Rule 5250 or to the definition of ``affiliate''
and related definitions within FINRA Rule 5121, which are incorporated
by reference.\6\ Specifically, the Exchanges request that they be
permitted to incorporate by reference changes made to FINRA Rule 5250
and the definition of ``affiliate'' and related definitions within
FINRA Rule 5121 that are cross-referenced in General 9, Section 18 of
their respective rulebooks without the need for the Exchanges to file
separately the same proposed rule changes pursuant to Section 19(b) of
the Act.\7\
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\5\ 17 CFR 240.0-12.
\6\ See Exemptive Request, supra note 3, at 2.
\7\ See id.
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The Exchanges represent that FINRA Rule 5250 and the definition of
``affiliate'' and related definitions within FINRA Rule 5121 are
regulatory rules and not trading rules.\8\ The Exchanges represent
that, as a condition to the requested exemption from Section 19(b) of
the Exchange Act, the Exchanges will provide written notice to their
applicants, members, and associated persons whenever FINRA proposes a
change to a cross-referenced rule.\9\ The Exchanges state that such
notice will alert their applicants, members, and associated persons to
the proposed FINRA rule change and give them an opportunity to comment
on the proposal.\10\ The Exchanges further represent that they will
inform applicants, members, and associated persons in writing when the
Commission approves any such proposed rule changes.\11\
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\8\ See id. at 2, n.7. The Exchanges also state that they are
not ``cherry picking'' because the Exchanges would be incorporating
the entire FINRA Rule 5250, and the definition of ``affiliate'' is
explicitly cross-referenced within FINRA Rule 5250. See id.
\9\ See id. at 2-3. The Exchanges represent that they will
provide such notice via a posting on the same website location where
the Exchanges post their own rule filings pursuant to Rule 19b-4(1)
within the time frame required by such rule. See id. at 3, n.8. The
website posting will include a link to the location on FINRA's
website where the applicable proposed rule change is posted. See id.
\10\ See id. at 3.
\11\ See id.
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According to the Exchanges, this exemption is necessary and
appropriate because it would result in the Exchanges' General 9,
Section 18 being consistent with the relevant cross-referenced FINRA
rules at all times, thus ensuring consistent regulation of joint
members of the Exchanges and FINRA with respect to payments for market
making.\12\
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\12\ See id. at 2.
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The Commission has issued exemptions similar to the Exchanges'
request.\13\ In granting similar exemptions, the Commission stated that
it would consider similar future exemption requests, provided that:
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\13\ See, e.g., Securities Exchange Act Release Nos. 83296 (May
21, 2018), 83 FR 24362 (May 25, 2018) (order granting NYSE National,
Inc.'s exemptive request relating to rules of FINRA incorporated by
reference); 83040 (April 12, 2018), 83 FR 17198 (April 18, 2018)
(order granting MIAX PEARL, LLC's exemptive request relating to
rules of the Miami International Securities Exchange, LLC
incorporated by reference); 76998 (January 29, 2016), 81 FR 6066,
6083-84 (February 4, 2016) (order granting application for
registration as a national securities exchange of ISE Mercury, LLC
and exemptive request relating to rules of certain self-regulatory
organizations (``SROs'') (including FINRA) incorporated by
reference); 61534 (February 18, 2010), 75 FR 8760 (February 25,
2010) (order granting BATS Exchange, Inc.'s exemptive request
relating to rules incorporated by reference by the BATS Exchange
Options Market rules) (``BATS Options Market Order''); 61152
(December 10, 2009), 74 FR 66699, 66709-10 (December 16, 2009)
(order granting application for registration as a national
securities exchange of C2 Options Exchange, Incorporated and
exemptive request relating to rules of the Chicago Board Options
Exchange, Incorporated, incorporated by reference).
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<bullet> An SRO wishing to incorporate rules of another SRO by
reference has submitted a written request for an order exempting it
from the requirement in Section 19(b) of the Exchange Act to file
proposed rule changes relating to the rules incorporated by reference,
has identified the applicable originating SRO(s), together with the
rules it wants to incorporate by reference, and otherwise has complied
with the procedural requirements set forth in the Commission's release
governing procedures for requesting exemptive orders pursuant to Rule
0-12 under the Exchange Act; \14\
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\14\ See 17 CFR 240.0-12 and Securities Exchange Act Release No.
39624 (February 5, 1998), 63 FR 8101 (February 18, 1998) (Commission
Procedures for Filing Applications for Orders for Exemptive Relief
Pursuant to Section 36 of the Exchange Act; Final Rule).
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<bullet> The incorporating SRO has requested incorporation of
categories of rules (rather than individual rules within a category)
that are not trading rules (e.g., the SRO has requested incorporation
of rules such as margin, suitability, or arbitration); and
<bullet> The incorporating SRO has reasonable procedures in place
to
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provide written notice to its members each time a change is proposed to
the incorporated rules of another SRO.\15\
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\15\ See BATS Options Market Order, supra note 13 (citing
Securities Exchange Act Release No. 49260 (February 17, 2004), 69 FR
8500 (February 24, 2004) (order granting exemptive request relating
to rules incorporated by reference by several SROs) (``2004
Order'')).
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The Commission believes that the Exchanges have satisfied each of
these conditions. The Commission also believes that granting the
Exchanges an exemption from the rule filing requirements under Section
19(b) of the Exchange Act will promote efficient use of the
Commission's and the Exchanges' resources by avoiding duplicative rule
filings based on simultaneous changes to identical rule text sought by
more than one SRO.\16\ The Commission therefore finds it appropriate in
the public interest and consistent with the protection of investors to
exempt the Exchanges from the rule filing requirements under Section
19(b) of the Exchange Act with respect to the above-described FINRA
rules they have incorporated by reference. This exemption is
conditioned upon the Exchanges promptly providing written notice to
their applicants, members, and associated persons whenever FINRA
changes a rule that the Exchanges have incorporated by reference.
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\16\ See BATS Options Market Order, supra note 13, 75 FR at
8761; see also 2004 Order, supra note 15, 69 FR at 8502.
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Accordingly, it is ordered, pursuant to Section 36 of the Exchange
Act,\17\ that the Exchanges are exempt from the rule filing
requirements of Section 19(b) of the Exchange Act solely with respect
to changes to the rules identified in the Exemptive Request, provided
that the Exchanges promptly provide written notice to their applicants,
members, and associated persons whenever FINRA proposes to change a
rule that the Exchanges have incorporated by reference.
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\17\ 15 U.S.C. 78mm.
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)(76).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-19970 Filed 9-15-21; 8:45 am]
BILLING CODE 8011-01-P
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