Notice2025-02617
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order Approving Proposed Rule Change To Assume Operational Responsibility for Litigating Contested Disciplinary Proceedings Arising Out of Nasdaq-Led Investigations and Enforcement Activities and Amend Rules 9131 and 9810 (the Nasdaq Discipline Rules) To Grant Nasdaq Regulation the Same Authority as FINRA in Contested Disciplinary Proceedings To Serve Complaints and Memoranda of Authority
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
February 14, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 30 (Friday, February 14, 2025)</title>
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[Federal Register Volume 90, Number 30 (Friday, February 14, 2025)]
[Notices]
[Pages 9647-9648]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-02617]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-102385; File No. SR-NASDAQ-2024-083]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Order
Approving Proposed Rule Change To Assume Operational Responsibility for
Litigating Contested Disciplinary Proceedings Arising Out of Nasdaq-Led
Investigations and Enforcement Activities and Amend Rules 9131 and 9810
(the Nasdaq Discipline Rules) To Grant Nasdaq Regulation the Same
Authority as FINRA in Contested Disciplinary Proceedings To Serve
Complaints and Memoranda of Authority
February 10, 2025.
I. Introduction
On December 11, 2024, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to assume operational responsibility for litigating certain
contested disciplinary proceedings that are currently litigated by the
Financial Industry Regulatory Authority (``FINRA'') and to amend
Exchange rules to grant Nasdaq Regulation the same authority as FINRA
in contested disciplinary proceedings to serve complaints and memoranda
of authority. The proposed rule change was published for comment in the
Federal Register on December 30, 2024.\3\ The Commission received no
comments on the proposed rule change. This order grants approval of the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102029 (December 23,
2024), 89 FR 106689 (``Notice'').
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II. Description of the Proposed Rule Change
Nasdaq states that, since it became a national securities exchange,
it has contracted with FINRA through regulatory service agreements
(``RSAs'') to perform certain regulatory functions on its behalf.\4\ In
April 2019, the Exchange reallocated operational responsibility from
FINRA to Nasdaq Regulation for certain investigative and enforcement
activity, including the investigation and enforcement responsibilities
for conduct occurring on The Nasdaq Options Market,\5\ and
investigation and enforcement responsibilities for conduct occurring
solely on Nasdaq's equity market (i.e., conduct not also on non-Nasdaq
affiliated equities markets).\6\ In March 2020, the Commission approved
Nasdaq's proposal to reallocate operational responsibility from FINRA
to Nasdaq Regulation for litigating a subset of contested disciplinary
proceedings.\7\ Specifically, the approved change enabled Nasdaq
Regulation to litigate contested disciplinary proceedings arising out
of Nasdaq-led investigations and enforcement activities that FINRA was
either unwilling or unable to handle due to ``strained resources or
other similar limitations.'' \8\ FINRA continued to litigate the
remaining contested disciplinary proceedings under Nasdaq's
supervision.\9\
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\4\ See Notice, supra note 3, at 106690. Nasdaq, as a national
securities exchange, is required pursuant to Section 6 of the Act to
enforce its members' compliance with federal securities laws and
rules and Exchange rules. As stated in the Notice, Nasdaq is
required to have a regulatory program that includes the
investigation and prosecution of rule violations. Id.
\5\ The Exchange states that, as appropriate, Nasdaq Regulation
coordinates with other SROs to avoid regulatory duplication in
cross-market investigations. Id.
\6\ See Notice, supra note 3, at 106690 n.6 (citing Securities
Exchange Act Release No. 85505 (April 3, 2019), 84 FR 14170, 14171
(April 9, 2019)).
\7\ Id. at 106690 n.9 and accompanying text. See also Securities
Exchange Act Release No. 88516 (March 30, 2020), 85 FR 19042 (April
3, 2020).
\8\ Id. at 106690.
\9\ Id.
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Nasdaq proposes to further expand its enforcement authority by
enabling Nasdaq Regulation to litigate contested disciplinary
proceedings arising out of Nasdaq-led investigations and enforcement
activities in the first instance, regardless of FINRA's willingness or
ability to handle the proceedings.\10\ The Exchange proposes to retain
the option to refer cases to FINRA ``if Nasdaq's resources are
constrained or if another circumstance warrants FINRA litigating a
contested disciplinary proceeding.'' \11\ The Exchange represents that
the disciplinary process and procedural protections currently afforded
to Nasdaq members in contested disciplinary proceedings would remain
the same.\12\ The Exchange would continue to use FINRA's Office of
Hearing Officers to administer the hearing process for all contested
disciplinary proceedings, and the disciplinary process rules would
remain the same.\13\ Nasdaq represents that FINRA will continue to
perform certain functions pursuant to an RSA, including the handling of
FINRA-led investigation and enforcement activities.\14\
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\10\ Id.
\11\ Id. at 106691. FINRA would litigate such cases under
Nasdaq's supervision.
\12\ Id. at 106690-91.
\13\ Id.
\14\ Id. at 106691. In addition to work performed pursuant to an
RSA, FINRA also performs work for matters covered by agreements to
allocate regulatory responsibility under Rule 17d-2 of the Act.
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Nasdaq also proposes amendments to its Code of Procedure set forth
in General 5.\15\ Currently, General 5, Rule 9131(a) permits only FINRA
to serve a complaint.\16\ Similarly, General 5, Rule 9810(b)(2) grants
FINRA the authority to serve a memorandum of authorities in support of
a temporary cease-and-desist request.\17\ The Exchange proposes to
amend both rules to grant Nasdaq Regulation the same authority as FINRA
to serve both complaints and memoranda of authorities.\18\
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\15\ Id.
\16\ Id.
\17\ Id.
\18\ Id.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\19\ In particular, the Commission finds that the proposed
rule change is consistent with Sections 6(b)(5) and 6(b)(7) of the
Act.\20\ As noted above, since it became a national securities
exchange, the Exchange has contracted with FINRA through RSAs to
perform certain regulatory functions on its behalf.\21\ Nasdaq General
2, Section 7 requires that unless Nasdaq obtains prior Commission
approval, the regulatory functions subject to the RSAs in effect at the
time Nasdaq began to operate as a national securities exchange must at
all times continue to be performed by FINRA or an affiliate thereof or
by another independent self-regulatory organization. As noted earlier,
the Commission previously approved a proposal where, although FINRA
would retain responsibility in the first instance for litigating
contested disciplinary proceedings, Nasdaq Regulation was permitted
under certain circumstances (e.g., FINRA's resources are strained) to
litigate contested disciplinary proceedings arising from Nasdaq-led
investigations and
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enforcement activities.\22\ The Exchange proposes to further reallocate
operational responsibility so that Nasdaq Regulation would be
responsible in the first instance for litigating contested disciplinary
proceedings arising from Nasdaq-led investigations and enforcement
actions and would refer cases to FINRA if circumstances warrant (e.g.,
Nasdaq's resources are strained).\23\
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\19\ In approving this proposed rule change the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\20\ 15 U.S.C. 78f(b)(5), (7).
\21\ See supra note 4 and accompanying text.
\22\ See supra note 7-9 and accompanying text.
\23\ See supra note 10 and accompanying text.
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The Commission believes that by directly handling contested
disciplinary proceedings arising from Nasdaq-led investigations and
enforcement actions, Nasdaq could continue to leverage its knowledge of
its markets and members, its experience with investigation and
enforcement work, and its surveillance, investigation, and enforcement
staff, to litigate contested disciplinary proceedings that it has
retained more effectively, efficiently, and with immediacy.\24\
Furthermore, as the Exchange states, by assuming operational
responsibility for contested disciplinary proceedings arising out of
Nasdaq-led investigations and enforcement actions, the Exchange may be
able to deliver increased efficiencies in the regulation of its market
and to provide more prompt and effective regulation by, for example,
avoiding the need for FINRA's enforcement department to familiarize
itself with Nasdaq's investigation, which could enable timely and more
efficient action.\25\ The Commission also notes that, as discussed
above, the proposal would not change or alter in any way the
disciplinary process around how contested matters are handled, or the
procedural protections afforded to Nasdaq members in contested
disciplinary proceedings, and FINRA's Office of Hearing Officers will
continue to administer the hearing process for all contested
disciplinary proceedings.\26\ The Commission believes that granting
Nasdaq Regulation the same authority as FINRA to serve complaints and
memoranda of authorities could also facilitate quicker and more
efficient litigation.\27\ For the foregoing reasons, Commission finds
that the proposals are consistent with the Act.
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\24\ See Notice, supra note 3, at 106690-91.
\25\ Id.
\26\ Id.
\27\ Id. at 106691.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NASDAQ-2024-083) be, and
hereby is approved.
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\28\ See id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-02617 Filed 2-13-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on February 14, 2025.
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