Notice2024-15909
Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing and Order Approving and Declaring Effective an Amended Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and Nasdaq PHLX LLC
Primary source
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Published
July 19, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 139 (Friday, July 19, 2024)</title>
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[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58810-58816]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15909]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100535; File No. 4-818]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Notice of Filing and Order Approving and Declaring
Effective an Amended Plan for the Allocation of Regulatory
Responsibilities Between the Financial Industry Regulatory Authority,
Inc. and Nasdaq PHLX LLC
July 15, 2024.
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 on July 1, 2024, pursuant to Rule 17d-2
of the Act,\2\ the Financial Industry Regulatory Authority, Inc.
(``FINRA'') and Nasdaq PHLX LLC (``PHLX'') (collectively,
``Participating Organizations'' or ``parties''). This Agreement amends
and restates the agreement entered into between FINRA and PHLX approved
by the SEC on January 2, 2024, entitled ``Agreement between Financial
Industry Regulatory Authority, Inc. and Nasdaq PHLX LLC pursuant to
Rule 17d-2 under the Securities Exchange Act of 1934,'' and any
subsequent amendments thereafter.
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\1\ 15 U.S.C. 78q(d).
\2\ 15 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
[[Page 58811]]
appropriate notice and opportunity for 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 January 2, 2024, the Commission declared effective the Plan
entered into between FINRA and PHLX for allocating regulatory
responsibility pursuant to Rule 17d-2.\11\ The Plan is intended to
reduce regulatory duplication for firms that are common members of
FINRA and PHLX by allocating regulatory responsibility with respect to
certain applicable laws, rules, and regulations that are common among
them. Included in the Plan is an exhibit that lists every PHLX rule for
which FINRA bears responsibility under the Plan for overseeing and
enforcing with respect to PHLX members that are also members of FINRA
and the associated persons therewith (``Certification'').
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\11\ See Securities Exchange Act Release No. 99260 (January 2,
2024), 89 FR 981 (January 8, 2024).
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III. Proposed Amendment to the Plan
On July 1, 2024, the parties submitted a proposed amendment to the
Plan (``Amended Plan''). The primary purpose of the Amended Plan is to
update the list of Common Rules and to add surveillance and
investigation coverage for certain Common Rules specified in Exhibit 1
to the Amended Plan. The text of the proposed Amended Plan is as
follows (additions are in italics; deletions are [bracketed]):
* * * * *
Agreement Between Financial Industry Regulatory Authority, Inc. and
NASDAQ PHLX LLC Pursuant to Rule 17d-2 Under the Securities Exchange
Act of 1934
This Agreement, by and between Financial Industry Regulatory
Authority, Inc. (``FINRA'') and Nasdaq PHLX LLC (``PHLX''), is made
this [15th] 27th day of [November, 2023] June, 2024 (the
``Agreement''), pursuant to Section 17(d) of the Securities Exchange
Act of 1934 (the ``Exchange Act'') and Rule 17d-2 thereunder, which
permits agreements between self-regulatory organizations to allocate
regulatory responsibility to eliminate regulatory duplication. FINRA
and PHLX may be referred to individually as a ``party'' and together as
the ``parties.''
This Agreement amends and restates the agreement entered into
between FINRA and PHLX approved by the SEC on January 2, 2024, entitled
``Agreement between Financial Industry Regulatory Authority, Inc. and
Nasdaq PHLX LLC pursuant to Rule 17d-2 under the Securities Exchange
Act of 1934,'' and any subsequent amendments thereafter.
Whereas, FINRA and PHLX desire to reduce duplication in the
examination, surveillance and investigation of their Dual Members (as
defined herein) and in the filing and processing of certain
registration and membership records; and
Whereas, FINRA and PHLX desire to execute an agreement covering
such subjects pursuant to the provisions of Rule 17d-2 under the
Exchange Act and to file such agreement with the U.S. Securities and
Exchange Commission (the ``SEC'' or ``Commission'') for its approval.
Now, Therefore, in consideration of the mutual covenants contained
hereinafter, FINRA and PHLX hereby agree as follows:
1. Definitions. Unless otherwise defined in this Agreement or the
context otherwise requires, the terms used in this Agreement shall have
the same meaning as they have under the Exchange Act and the rules and
regulations thereunder. As used in this Agreement, the following terms
shall have the following meanings:
(a) ``PHLX Rules'' or ``FINRA Rules'' shall mean the rules of PHLX
or FINRA, respectively, as the rules of an exchange or association are
defined in Exchange Act Section 3(a)(27).
(b) ``Common Rules'' shall mean the PHLX Rules that are
substantially similar to the applicable FINRA Rules and certain
provisions of the Exchange Act and SEC rules set forth on Exhibit 1 in
that examination, surveillance or investigation for compliance with
such provisions and rules would not require FINRA to develop one or
more new examination, surveillance or investigation standards, modules,
procedures, or criteria in order to analyze the application of the
rule, or a Dual Member's activity, conduct, or output in relation to
such provision or rule; provided, however, Common Rules shall not
include the application of the SEC, PHLX or FINRA rules as they pertain
to violations of insider trading activities, which is covered by a
separate 17d-2 Agreement by and among Cboe BZX Exchange, Inc., Cboe BYX
Exchange, Inc., Chicago Stock Exchange, Inc., Cboe EDGA Exchange, Inc.,
Cboe EDGX Exchange, Inc., Financial Industry Regulatory Authority,
Inc., MEMX LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, The
Nasdaq Stock Market LLC, NYSE National, Inc., New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca, Inc., Investors' Exchange LLC and
Long-Term Stock Exchange, Inc. approved by the Commission on September
23, 2020, as may be amended from time to time. Common Rules shall not
include any provisions regarding: (i) notice, reporting or any other
filings made directly to or from PHLX; (ii) incorporation by reference
of other PHLX Rules that are not Common Rules; (iii) exercise of
discretion in a manner that differs from FINRA's exercise of discretion
including, but not limited to exercise of exemptive authority by PHLX;
(iv) prior written approval of PHLX; and (v) payment of fees or fines
to PHLX.
(c) ``Dual Members'' shall mean those PHLX members that are also
members of FINRA and the associated persons therewith.
(d) ``Effective Date'' shall [have the meaning set forth in
paragraph 13] be the date this Agreement is approved by the Commission.
(e) ``Enforcement Responsibilities'' shall mean the conduct of
appropriate proceedings, in accordance with the FINRA Code of Procedure
(the Rule 9000 Series) and other applicable FINRA procedural rules, to
determine whether violations of Common Rules have occurred, and if such
violations are deemed to have occurred, the imposition of appropriate
sanctions as specified under the FINRA Code of Procedure and FINRA's
sanction guidelines.
(f) ``Regulatory Responsibilities'' shall mean the examination,
surveillance and investigation responsibilities and Enforcement
Responsibilities relating to compliance by the Dual Members with the
Common Rules and the provisions of the Exchange Act and the rules and
regulations thereunder, and other applicable laws, rules and
regulations, each as set forth on Exhibit 1 attached hereto. [The term
``Regulatory Responsibilities'' shall also include the surveillance,
investigation and Enforcement Responsibilities relating to compliance
by Dual Members with Rule 14e-4 of the Exchange Act (``Rule 14e-4''),
with a focus on the standardized call option provision of Rule 14e-
4(a)(1)(ii)(D).]
2. Regulatory Responsibilities. FINRA shall assume Regulatory
[[Page 58812]]
Responsibilities for Dual Members. Attached as Exhibit 1 to this
Agreement and made part hereof, PHLX furnished FINRA with a current
list of Common Rules and certified to FINRA that such rules are
substantially similar to the corresponding FINRA Rules (the
``Certification''). FINRA hereby agrees that the rules listed in the
Certification are Common Rules as defined in this Agreement. Each year
following the Effective Date of this Agreement, or more frequently if
required by changes in either the PHLX Rules or FINRA Rules, PHLX shall
submit an updated list of Common Rules to FINRA for review which shall
add PHLX Rules not included in the current list of Common Rules that
qualify as Common Rules as defined in this Agreement; delete PHLX Rules
included in the current list of Common Rules that no longer qualify as
Common Rules as defined in this Agreement; and confirm that the
remaining rules on the current list of Common Rules continue to be PHLX
Rules that qualify as Common Rules as defined in this Agreement. Within
30 days of receipt of such updated list, FINRA shall confirm in writing
whether the rules listed in any updated list are Common Rules as
defined in this Agreement. Notwithstanding anything herein to the
contrary, it is explicitly understood that the term ``Regulatory
Responsibilities'' does not include, and PHLX shall retain full
responsibility for (unless otherwise addressed by separate agreement or
rule) the following (collectively, the ``Retained Responsibilities''):
3.(a) [S]surveillance, examination, investigation and enforcement
with respect to trading activities or practices involving PHLX's own
marketplaces;
(b) registration pursuant to its applicable rules of associated
persons (i.e., registration rules that are not Common Rules);
(c) discharge of its duties and obligations as a Designated
Examining Authority pursuant to Rule 17d-1 under the Exchange Act; and
(d) any PHLX Rules that are not Common Rules, except for PHLX Rules
for any PHLX member that operates as a facility (as defined in Section
3(a)(2) of the Exchange Act), acts as an outbound router for PHLX and
is a member of FINRA (``Router Member'') as provided in paragraph 5. As
of the date of this Agreement, Nasdaq Execution Services, LLC is the
only Router Member.
4. No Charge. There shall be no charge to PHLX by FINRA for
performing the Regulatory Responsibilities under this Agreement except
as hereinafter provided. FINRA shall provide PHLX with ninety (90) days
advance written notice in the event FINRA decides to impose any charges
to PHLX for performing the Regulatory Responsibilities under this
Agreement. If FINRA determines to impose a charge, PHLX shall have the
right at the time of the imposition of such charge to terminate this
Agreement; provided, however, that FINRA's Regulatory Responsibilities
under this Agreement shall continue until the Commission approves the
termination of this Agreement.
5. [Reassignment of Regulatory Responsibilities] Applicability of
Certain Laws, Rules, Regulations or Orders. Notwithstanding any
provision hereof, this Agreement shall be subject to any statute, or
any rule or order of the Commission. To the extent such [action]
statute, rule or order is inconsistent with this Agreement, [such
action] the statute, rule or order shall supersede the provision(s)
hereof to the extent necessary for them to be properly effectuated and
the provision(s) hereof in that respect shall be null and void.
6. Notification of Violations.
(a) In the event that FINRA becomes aware of apparent violations of
any PHLX Rules, which are not listed as Common Rules, discovered
pursuant to the performance of the Regulatory Responsibilities assumed
hereunder, FINRA shall notify PHLX of those apparent violations for
such response as PHLX deems appropriate. With respect to apparent
violations of any PHLX Rules by any Router Member, FINRA shall not make
referrals to PHLX pursuant to this paragraph 5. Such apparent
violations shall be processed by, and enforcement proceedings in
respect thereto will be conducted by, FINRA as provided in this
Agreement.
(b) In the event that PHLX becomes aware of apparent violations of
any Common Rules, discovered pursuant to the performance of the
Retained Responsibilities, PHLX shall notify FINRA of those apparent
violations and such matters shall be handled by FINRA [as provided]
consistent with the provisions in this Agreement. [Each party agrees to
make available promptly all files, records and witnesses necessary to
assist the other in its investigation or proceedings.]
(c) Apparent violations of Common Rules shall be processed by, and
enforcement proceedings in respect thereto shall be conducted by FINRA
as provided herein before; provided, however, that in the event a Dual
Member is the subject of an investigation relating to a transaction on
PHLX, PHLX may in its discretion assume concurrent jurisdiction and
responsibility.
(d) Each party agrees to make available promptly all files, records
and witnesses necessary to assist the other in its investigation or
proceedings.
7. Continued Assistance.
(a) FINRA shall make available to PHLX all information obtained by
FINRA in the performance by it of the Regulatory Responsibilities
hereunder with respect to the Dual Members subject to this Agreement.
In particular, and not in limitation of the foregoing, FINRA shall
furnish PHLX any information it obtains about Dual Members which
reflects adversely on their financial condition. PHLX shall make
available to FINRA any information coming to its attention that
reflects adversely on the financial condition of Dual Members or
indicates possible violations of applicable laws, rules or regulations
by such firms.
(b) The parties agree that documents or information shared shall be
held in confidence, and used only for the purposes of carrying out
their respective regulatory obligations. Neither party shall assert
regulatory or other privileges as against the other with respect to
documents or information that is required to be shared pursuant to this
Agreement.
(c) The sharing of documents or information between the parties
pursuant to this Agreement shall not be deemed a waiver as against
third parties of regulatory or other privileges relating to the
discovery of documents or information.
7. Dual Member Applications.
(a) Dual Members subject to this Agreement shall be required to
submit, and FINRA shall be responsible for processing and acting upon
all applications submitted on behalf of partners, officers, registered
personnel and any other person required to be approved by the PHLX
Rules and FINRA Rules or associated with Dual Members thereof. Upon
request, FINRA shall advise PHLX of any changes of allied members,
partners, officers, registered personnel and other persons required to
be approved by the PHLX Rules and FINRA Rules.
(b) Dual Members shall be required to send to FINRA all letters,
termination notices or other material respecting the individuals listed
in paragraph 7(a).
(c) When as a result of processing such submissions FINRA becomes
aware of a statutory disqualification as defined in the Exchange Act
with respect to a Dual Member, FINRA shall determine pursuant to
Sections 15A(g) and/or Section 6(c) of the Exchange Act the
acceptability or continued
[[Page 58813]]
applicability of the person to whom such disqualification applies and
keep PHLX advised of its actions in this regard for such subsequent
proceedings as PHLX may initiate.
(d) Notwithstanding the foregoing, FINRA shall not review the
membership application, reports, filings, fingerprint cards, notices,
or other writings filed to determine if such documentation submitted by
a broker or dealer, or an associated person therewith or other persons
required to register or qualify by examination meets the PHLX
requirements for general membership or for specified categories of
membership or participation in PHLX, such as PSX Market Maker, Equities
ECN, Order Entry Firm, or any similar type of PHLX membership or
participation that is created after this Agreement is executed. FINRA
shall not review applications or other documentation filed to request a
change in the rights or status described in this paragraph 7(d),
including termination or limitation on activities, of a member or a
participant of PHLX, or a person associated with, or requesting
association with, a member or participant of PHLX.
8. Branch Office Information. FINRA shall also be responsible for
processing and, if required, acting upon all requests for the opening,
address changes, and terminations of branch offices by Dual Members and
any other applications required of Dual Members with respect to the
Common Rules as they may be amended from time to time. Upon request,
FINRA shall advise PHLX of the opening, address change and termination
of branch and main offices of Dual Members and the names of such branch
office managers.
9. Customer Complaints. PHLX shall forward to FINRA copies of all
customer complaints involving Dual Members received by PHLX relating to
FINRA's Regulatory Responsibilities under this Agreement. It shall be
FINRA's responsibility to review and take appropriate action in respect
to such complaints.
10. Advertising. FINRA shall assume responsibility to review the
advertising of Dual Members subject to the Agreement, provided that
such material is filed with FINRA in accordance with FINRA's filing
procedures and is accompanied with any applicable filing fees set forth
in FINRA Rules.
11. No Restrictions on Regulatory Action. Notwithstanding anything
else herein and to the contrary, except for paragraph 5(a), [N]nothing
contained in this Agreement shall restrict or in any way encumber the
right of either FINRA or PHLX [party] to conduct its own independent or
concurrent investigation, examination or enforcement proceeding of or
against Dual Members of the Common Rules, as either [party] FINRA or
PHLX, in its sole discretion, shall deem appropriate or necessary.
12. Termination. This Agreement may be terminated by PHLX or FINRA
at any time upon the approval of the Commission after one (1) year's
written notice to the other party, except as provided in paragraph 3.
[13. Effective Date. This Agreement shall be effective upon
approval of the Commission.]
13[4]. Arbitration. In the event of a dispute between the parties
as to the operation of this Agreement, PHLX and FINRA hereby agree that
any such dispute shall be settled by arbitration in Washington, DC in
accordance with the rules of the American Arbitration Association then
in effect, or such other procedures as the parties may mutually agree
upon. Judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Each party acknowledges that
the timely and complete performance of its obligations pursuant to this
Agreement is critical to the business and operations of the other
party. In the event of a dispute between the parties, the parties shall
continue to perform their respective obligations under this Agreement
in good faith during the resolution of such dispute unless and until
this Agreement is terminated in accordance with its provisions. Nothing
in this paragraph 13[4] shall interfere with a party's right to
terminate this Agreement as set forth herein.
14[5]. Amendment. This Agreement may be amended in writing duly
approved by each party. All such amendments must be filed with and
approved by the Commission before they become effective.
15[6]. Limitation of Liability. Neither FINRA nor PHLX nor any of
their respective directors, governors, officers or employees shall be
liable to the other party to this Agreement for any liability, loss or
damage resulting from or claimed to have resulted from any delays,
inaccuracies, errors or omissions with respect to the provision of
Regulatory Responsibilities as provided hereby or for the failure to
provide any such responsibility, except with respect to such liability,
loss or damages as shall have been suffered by one or the other of
FINRA or PHLX and caused by the willful misconduct of the other party
or their respective directors, governors, officers or employees. No
warranties, express or implied, are made by FINRA or PHLX with respect
to any of the responsibilities to be performed by each of them
hereunder.
16[7]. Relief from Responsibility. Pursuant to Sections 17(d)(1)(A)
and 19(g) of the Exchange Act and Rule 17d-2 thereunder, FINRA and PHLX
join in requesting the Commission, upon its approval of this Agreement
or any part thereof, to relieve PHLX of any and all responsibilities
with respect to matters allocated to FINRA pursuant to this Agreement;
provided, however, that this Agreement shall not be effective until the
Effective Date.
17[8]. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the
validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
18[9]. Separate Agreement. This Agreement is wholly separate from
any other 17d-2 agreement where FINRA and PHLX are parties, including
but not limited to, (1) the multiparty Agreement made pursuant to Rule
17d-2 of the Exchange Act among Cboe BZX Exchange, Inc., BOX Exchange,
LLC, Cboe Exchange, Inc., Cboe C2 Exchange, Inc., Nasdaq ISE, LLC,
Financial Industry Regulatory Authority, Inc., Miami International
Securities Exchange, LLC, NYSE American LLC, NYSE Arca, Inc., The
Nasdaq Stock Market, LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, Nasdaq
GEMX, LLC, Cboe EDGX Exchange, Inc., Nasdaq MRX, LLC, MIAX PEARL, LLC,
MIAX Emerald, LLC, and MEMX LL[C]C approved by the Commission on
October 18, 2022 concerning options related sales-practice matters
[involving the allocation of regulatory responsibilities with respect
to common members for compliance with common rules relating to the
conduct by broker-dealers of accounts for listed options, index
warrants, currency index warrants and currency warrants or] and (2) the
multiparty Agreement made pursuant to Rule 17d-2 of the Exchange Act
among NYSE American LLC, Cboe BZX Exchange, Inc., the Cboe EDGX
Exchange, Inc., Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Nasdaq
ISE, LLC, Financial Industry Regulatory Authority, Inc., NYSE Arca,
Inc., The Nasdaq Stock Market LLC, BOX Exchange LLC, Nasdaq BX, Inc.,
Nasdaq PHLX LLC, Miami International Securities Exchange, LLC, Nasdaq
GEMX, LLC, Nasdaq MRX, LLC, MIAX PEARL, LLC, MIAX Emerald, LLC, and
[[Page 58814]]
MEMX LLC approved by the Commission on November 23, 2022 involving
options-related market surveillance matters and such agreements as may
be amended from time to time.
19[20]. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and such
counterparts together shall constitute one and the same instrument.
Exhibit 1
PHLX Certification of Common Rules
PHLX hereby certifies that the requirements contained in the rules
listed below for PHLX are identical to, or substantially similar to,
the comparable FINRA Rules, Exchange Act provisions or SEA[C] Rules
identified (``Common Rules'').
# Common Rules shall not include provisions regarding (i) notice,
reporting or any other filings made directly to or from PHLX, (ii)
incorporations by reference to other PHLX Rules that are not Common
Rules, (iii) exercise of discretion in a manner that differs from
FINRA's exercise of discretion including, but not limited to exercise
of exemptive authority, by PHLX, (iv) prior written approval of PHLX,
and (v) payment of fees or fines to PHLX.
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FINRA Rule(s), Exchange Act
PHLX Rule Provision(s), or SEA[C]
Rule(s)[ULE]
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General 2, Section 11 Contact 4517. Member Filing and Contact
Information Requirements . Information Requirements.
General 3, Rule 1002(b) Qualifications FINRA By-Laws Article III, Sec.
of Exchange Members and Associated 1; FINRA By-Laws Article III,
Persons; Registration of Branch Sec. 3(a) and (b).
Offices and Designation of Office of
Supervisory Jurisdiction .
General 3, Rule 1002(d). Qualifications 3110(a)(3) Supervision and SM
of Exchange Members and Associated .01 and .02. Supervision * and
Persons; Registration of Branch FINRA By-Laws Article IV, Sec.
Offices and Designation of Office of 8.
Supervisory Jurisdiction .
General 3, Rule 1012(c)(1). Duty to 1122. Filing of Misleading
Ensure the Accuracy, Completeness, and Information as to Membership
Current Nature of Membership or Registration; FINRA By-Laws
Information Filed with the Exchange . Article IV, Sec. 1(c).
General 4, Section 1, 1210. 1210. Registration
Registration Requirements . Requirements; FINRA By-Laws,
Article V, Sec. 1; FINRA By-
Laws, Article V, Sec. 2; FINRA
By-Laws, Article V, Sec. 3.
General 4, Section 1, 1220. 1220. Registration Categories.
Registration Categories \1\.
General 4, Section 1, Rule 1230(1)- 1230. Associated Persons Exempt
(2)(D) and Supplementary Material .01. from Registration.
Associated Persons Exempt from
Registration .
General 4, Section 1, 1240. Continuing 1240. Continuing Education.
Education Requirements \2\.
General 4, Section 1, 1250. Electronic 1010. Electronic Filing
Filing Requirements for Uniform Forms Requirements for Uniform
. Forms.
General 9, Section 1(b). Manipulative 2020. Use of Manipulative,
Operations and General 9, Section Deceptive or Other Fraudulent
2(b)(i) Customers' Securities and Devices *; 6140 Other Trading
Excessive Trading of Members. Practices; 5350 Stop Orders;
6130 Transactions Related to
Initial Public Offerings.
General 9, Section 1(c)(1). Standards 2010. Standards of Commercial
of Commercial Honor and Principles of Honor and Principles of
Trade. Trade.*
General 9, Section 1(a). Prohibition 5320. Prohibition Against
Against Trading Ahead of Customer Trading Ahead of Customer
Orders. Orders.
General 9, Section 1(c)(2). Anti- 5240. Anti-Intimidation/
Intimidation/Coordination. Coordination.
General 9, Section 1(c)(3). Conduct 5290. Order Entry and Execution
Inconsistent with Just and Equitable Practices.
Principles of Trade.
General 9, Section 2(a). Customers' 2150(a). Improper Use of
Securities and Excessive Trading of Customers' Securities or
Members. Funds; Prohibition Against
Guarantees and Sharing in
Accounts.
General 9, Section 11. Best Execution 5310. Best Execution and
and Interpositioning. Interpositioning.
General 9, Section 19. Discretionary 3260. Discretionary Accounts.
Accounts.
General 9, Section 20. Supervision..... 3110. Supervision.
General 9, Section 30. Books and 4511. General Requirements.
Records.
General 9, Section 35. Nonregistered Rule 2040(c). Payments to
Foreign Finders. Unregistered Persons.
General 9, Section 39. Fidelity Bonds.. 4360. Fidelity Bonds.
General 9, Section 58. Advertisements, 2210. Communications with the
Market Letters, Research Reports and Public.
Sales Literature.
Options 6E, Section 1(a). Maintenance, 4511(a). General Requirements.
Retention and Furnishing of Books,
Records and Other Information .
Options 10, Section 7(g) and (h). 3120. Supervisory Control
Supervision of Accounts. System
3130. Annual Certification of
Compliance and Supervisory
Processes.
Options 10, Section 10. Confirmations 2232. Customer Confirmations.
to Customers.
Options 10, Section 17. Profit Sharing. 2150(c). Improper Use of
Customers' Securities or
Funds; Prohibition Against
Guarantees and Sharing in
Accounts.
General 9, Section 11. Best Execution 5310. Best Execution and
and Interpositioning. Interpositioning.**
General 9, Section 1(a) Prohibition 5320. Prohibition Against
Against Trading Ahead of Customer Trading Ahead of Customer
Orders. Orders.**
Equity 2, Section 5(d) Locked and 6240. Prohibition from Locking
Crossed Markets. or Crossing Quotations in NMS
Stocks.**
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\1\ FINRA shall only have Regulatory Responsibilities regarding General
4, Section 1, 1200 to the extent that PHLX recognizes the same
categories of limited principal and representative registration.
\2\ FINRA Rule 1240.01 allows for other persons to make their election
to participate in the continuing education program under Rule 1240(c)
either (1) between January 31, 2022, and March 15, 2022; or (2)
between March 15, 2023, and December 31, 2023. In contrast,
Supplementary Material .02 of Nasdaq PHLX General 4, Section 1, 1240
allows for other persons to make their election to participate in the
continuing education program under PHLX General 4, Section 1, 1240(c)
either (1) by March 15, 2022, or (2) between July 6, 2023, and
December 31, 2023. Therefore, FINRA shall not have Regulatory
Responsibilities regarding election, made by other persons under
General 4, Section 1, 1240(c) between March 15, 2023, and July 5,
2023.
[In addition, the following provisions shall be part of this 17d-2
Agreement:]
The following provisions are covered by the Agreement between the
Parties:
[[Page 58815]]
<bullet> SEC '34 Act Section 28(e)--on Existing Law
<bullet> [SEC '34 Act] SEA Rule 10b-10--Confirmation of Transactions
<bullet> SEA Rule 200 of Regulation SHO--Definition of Short Sales and
Marking Requirements **
<bullet> SEA Rule 201 of Regulation SHO--Circuit Breaker **
<bullet> [SEC '34 Act] SEA Rule 203 of Regulation SHO--Borrowing and
Delivery Requirements
<bullet> SEA Rule 204 of Regulation SHO--Close-Out Requirements **
<bullet> SEA Rule 101 of Regulation M--Activities by Distribution
Participants **
<bullet> SEA Rule 102 of Regulation M--Activities by Issuers and Selling
Security Holders During a Distribution **
<bullet> SEA Rule 103 of Regulation M--Nasdaq Passive Market Making **
<bullet> SEA Rule 104 of Regulation M--Stabilizing and Other Activities
in Connection with an Offering **
<bullet> SEA Rule 105 of Regulation M--Short Selling in Connection With
a Public Offering **
<bullet> SEA Rule 604 of Regulation NMS--Display of Customer Limit
Orders **
<bullet> [SEC '34 Act] SEA Rule 606 of Regulation NMS--Disclosure of
Order Routing Information
<bullet> [SEC '34 Act Rule 607 of Regulation NMS Customer Account
Statements]
<bullet> SEA Rule 610(d) of Regulation NMS--Locking or Crossing
Quotations **
<bullet> SEA Rule 611 of Regulation NMS--Order Protection Rule
<bullet> SEA Rule 10b-5--Employment of Manipulative and Deceptive
Devices *
<bullet> SEA Rule 17a-3/17a-4--Records to Be Made by Certain Exchange
Members, Brokers and Dealers/Records to Be Preserved by Certain
Exchange Members, Brokers and Dealers *
<bullet> SEA Rule 14e-4--Prohibited Transactions in Connection with
Partial Tender Offers[[supcaret]]
<bullet> SEA Rule 14e-4(a)(1)(ii)(D)--Prohibited Transactions in
Connection with Partial Tender Offers (with a focus on the
standardized call option provision) **
[[supcaret] FINRA shall perform surveillance, investigation, and
Enforcement Responsibilities for SEA Rule 14e-4(a)(1)(ii)(D).]
** In addition to performing examinations and Enforcement
Responsibilities as provided in this Agreement for the double star
rules, FINRA shall also perform the surveillance and investigation
responsibilities for the double star rules. These rules may be cited
by FINRA in both the context of this Agreement and the Regulatory
Services Agreement between FINRA and PHLX.
* FINRA shall not have any Regulatory Responsibilities for these rules
as they pertain to violations of insider trading activities, which is
covered by a separate 17d-2 Agreement by and among Cboe BZX Exchange,
Inc., Cboe BYX Exchange, Inc., NYSE Chicago, Inc., Cboe EDGA Exchange
Inc., Cboe EDGX Exchange Inc., Financial Industry Regulatory
Authority, Inc., MEMX, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq
PHLX LLC, The Nasdaq Stock Market LLC, NYSE National, Inc., New York
Stock Exchange, LLC, NYSE American LLC, NYSE Arca Inc., Investors'
Exchange LLC, and the Long-Term Stock Exchange, Inc. as approved by
the SEC on September 23, 2020, as may be amended from time to time.
[supcaret] FINRA shall perform the surveillance and investigation
responsibilities for these rules. The examination responsibility for
these rules is covered by a separate 17d-2 Agreement by and among Cboe
BZX Exchange, Inc., Cboe BYX Exchange, Inc., BOX Exchange LLC, Cboe
Exchange, Inc., Cboe C2 Exchange, Inc., NYSE Chicago, Inc., Cboe EDGA
Exchange, Inc., Cboe EDGX Exchange, Inc., Financial Industry
Regulatory Authority, Inc., MEMX LLC, Nasdaq ISE, LLC, Nasdaq GEMX,
LLC, Nasdaq MRX, LLC, Investors Exchange LLC, Miami International
Securities Exchange, LLC, MIAX PEARL, LLC, MIAX Emerald, LLC, The
Nasdaq Stock Market LLC, Nasdaq BX, Inc., Nasdaq PHLX LLC, NYSE
National, Inc., New York Stock Exchange LLC, NYSE American LLC, NYSE
Arca, Inc. and Long-Term Stock Exchange, Inc. as approved by the SEC
on June 10, 2020 concerning covered Regulation NMS and Consolidated
Audit Trail Rules, as may be amended from time to time.
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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dba9aeb7bef6b8b4b6b6beb5afa89ba8beb8f5bcb4ad"><span class="__cf_email__" data-cfemail="f183849d94dc929e9c9c949f8582b1829492df969e87">[email protected]</span></a>. Please include
File Number 4-818 on the subject line.
Paper Comments
<bullet> 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 4-818. 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 (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>).
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 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 plan also will be available for inspection and
copying at the principal offices of FINRA and PHLX. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to File No. 4-818 and should be submitted on or before
August 9, 2024.
V. Discussion
The Commission finds that the proposed Amended Plan is consistent
with the factors set forth in Section 17(d) of the Act \12\ and Rule
17d-2(c) thereunder \13\ 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 both FINRA and PHLX. Accordingly, the proposed Amended Plan promotes
efficiency by reducing costs to Common Members. Furthermore, because
PHLX and FINRA will coordinate their regulatory functions in accordance
with the Amended Plan, the Amended Plan should promote investor
protection.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78q(d).
\13\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------
The Commission notes that, under the Amended Plan, PHLX and FINRA
have allocated regulatory responsibility for those PHLX 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,
[[Page 58816]]
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, PHLX will review the Certification
at least annually, or more frequently if required by changes in either
the rules of PHLX or FINRA, and, if necessary, submit to FINRA an
updated list of Common Rules to add PHLX rules not included on the
then-current list of Common Rules that are substantially similar to
FINRA rules; delete PHLX 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 PHLX
rules that qualify as common rules.\14\ FINRA will then confirm in
writing whether the rules listed in any updated list are Common Rules
as defined in the Amended Plan. 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.
---------------------------------------------------------------------------
\14\ See paragraph 2 of the Amended Plan.
---------------------------------------------------------------------------
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 PHLX rules that are substantially
similar to the rules of FINRA for Common Members of PHLX and FINRA.
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
PHLX rules in the Certification in conformance with the definition of
Common Rules provided in the Amended Plan. However, should the Parties
decide to add a PHLX rule to the Certification that is not
substantially similar to a FINRA rule; delete a PHLX rule from the
Certification that is substantially similar to a FINRA rule; or leave
on the Certification a PHLX 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.\15\
---------------------------------------------------------------------------
\15\ 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.
---------------------------------------------------------------------------
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 update the list
of Common Rules and to add surveillance and investigation coverage for
certain Common Rules specified in Exhibit 1 to the Amended Plan. By
declaring it effective today, the Amended Plan can become effective and
be implemented without undue delay. The Commission notes that the prior
version of this plan immediately prior to this proposed amendment was
published for comment and the Commission did not receive any comments
thereon.\16\ Furthermore, the Commission does not believe that the
amendment to the plan raises any new regulatory issues that the
Commission has not previously considered.
---------------------------------------------------------------------------
\16\ See supra note 11 (citing to Securities Exchange Act
Release No. 99260).
---------------------------------------------------------------------------
VI. Conclusion
This order gives effect to the Amended Plan filed with the
Commission in File No. 4-818. 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. 4-818, between the FINRA and PHLX, filed
pursuant to Rule 17d-2 under the Act, hereby is approved and declared
effective.
It is further ordered that PHLX is relieved of those
responsibilities allocated to FINRA under the Amended Plan in File No.
4-818.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(34).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2024-15909 Filed 7-18-24; 8:45 am]
BILLING CODE 8011-01-P
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