81 FR 46140 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation's Membership Approval Process
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 136 (July 15, 2016)
Federal Register Volume 81, Issue 136 (July 15, 2016)
| Page Range | 46140-46143 | |
| FR Document | 2016-16718 |
[Federal Register Volume 81, Number 136 (Friday, July 15, 2016)] [Notices] [Pages 46140-46143] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-16718] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78277; File No. SR-OCC-2016-007] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to The Options Clearing Corporation's Membership Approval Process July 11, 2016. On May 16, 2016, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change SR-OCC-2016-007 pursuant to Section 19(b)(1) of the Securities and Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The Commission did not receive any comments on the proposed rule change. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Description OCC is changing its rules to: (i) Vest the authority to approve or disapprove [[Page 46141]] new membership applications with OCC's Risk Committee,\3\ and (ii) delegate authority to the Executive Chairman or President of OCC to approve new membership applications provided that: (a) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (b) the Risk Committee is given not less than five business days to determine that the application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. --------------------------------------------------------------------------- \3\ OCC's Risk Committee is a committee of OCC's Board of Directors. See OCC's By-Laws Article III, Section 9. --------------------------------------------------------------------------- This proposed rule change will streamline OCC's membership approval process by: (i) Allowing OCC's Executive Chairman or President to approve pro forma applications for clearing membership, and (ii) vesting ultimate authority with OCC's Risk Committee, not its Board, to approve or disapprove applications for clearing membership that are not approved by either OCC's Executive Chairman or President. The practical effect of the proposed rule change is that either OCC's Executive Chairman or President will approve most applications for clearing membership at OCC since most applicants for clearing membership choose to have their application presented for approval only when such approval is pro forma in nature (i.e., the applicant meets all of the clearing membership requirements at OCC and there is no need to impose additional membership requirements). OCC believes that the proposed rule change will better allocate the time and resources of the Board and Risk Committee and ensure applications for clearing membership are considered in a timely manner. Background OCC believes that its membership criteria are objective standards that are designed not to unfairly discriminate in the admission of participants to OCC,\4\ as well as to provide for fair and open access to OCC.\5\ Currently, the authority to approve or disapprove new applications for clearing membership resides with the Board.\6\ Under Article V, Section 2 of OCC's By-Laws, OCC's Risk Committee, including its designated delegates or agents, is responsible for reviewing applications for clearing membership, and the Risk Committee is responsible for making a recommendation of approval or disapproval to the Board (in part, relying on OCC's Management's review and recommendation).\7\ OCC's management (``Management'') performs the substantive review of applications for clearing membership on behalf of the Risk Committee. Management reviews a given application against OCC's membership criteria, which are set forth in Article V of OCC's By-Laws as well as Chapters 2 and 3 of OCC's Rules. Based on its review, Management, as the subject matter expert on OCC's membership criteria, either recommends an application for approval without conditions, recommends an application for approval with conditions (in accordance with OCC's By-Laws, Article V, Section 1, Interpretation and Policy .06), or does not recommend an application for approval. The Risk Committee, based on Management's review of the application, recommends a course of action to OCC's Board. OCC's Board then approves or disapproves applications for clearing membership based on the Risk Committee's recommendation. --------------------------------------------------------------------------- \4\ See 15 U.S.C. 78q-1(b)(3)(F). \5\ See 7 U.S.C. 7a-1(c)(2)(C)(iii)(III). \6\ See OCC's By-Laws Article V, Section 2. \7\ See OCC's By-Laws Article V, Section 2. The Risk Committee, from a practical perspective, has designated OCC's management as its agent to review applications for clearing membership. OCC's management reviews applications for clearing membership and makes a recommendation to the Risk Committee concerning the applicant's satisfaction of OCC's membership criteria. --------------------------------------------------------------------------- Moreover, since the rules of the Commission and the Commodity Futures Trading Commission require OCC to have rules that do not unfairly discriminate in the admission of participants and provide fair and open access,\8\ OCC believes that, under its rules, it is required to admit applicants for clearing membership that clearly meet OCC's membership criteria, and therefore, that the Board's ultimate approval of an application for clearing membership for which Management does not recommend approval with conditions or disapproval is pro forma. From a timing perspective, applications for clearing membership often do not track the Risk Committee or Board's regular meeting schedule and, on occasion, the Board has had to convene a special meeting for the sole purpose of considering an application for clearing membership or otherwise has had to seek approval via unanimous written consent, which OCC believes is an inefficient use of the Board's time and resources. In an effort to better allocate the time and resources of OCC's Board and Risk Committee as well as streamline its clearing membership approval process, OCC proposed the amendments to Articles V and VIII of its By-Laws as well as the Board and Risk Committee Charters described below. The effect of such amendments is that either OCC's Executive Chairman or President will approve most applications for clearing membership, thereby allowing the Board and the Risk Committee to better allocate their time and resources. --------------------------------------------------------------------------- \8\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C). --------------------------------------------------------------------------- Changes to Vest Authority of New Applicant Approvals With the Risk Committee OCC proposed amending Article V, Section 2 of its By-Laws to vest the authority to approve or disapprove new applicants for clearing membership with the Risk Committee. OCC believes that the members of the Board comprising the Risk Committee are capable of appropriately acting on membership applications. The Risk Committee is currently delegated the authority to (1) review applications for clearing membership and recommend approval or disapproval thereof to the Board, (2) conduct hearings if requested by applicants whose applications are proposed to be disapproved, and (3) review and approve or disapprove requests by clearing members to expand clearing activities.\9\ Therefore, OCC believes that requiring the Board to approve or disapprove an application for clearing membership that has already been reviewed by, and received a recommendation for approval or disapproval from, the Risk Committee is redundant and represents an inefficient use of the Board's time. Accordingly, OCC believes that the Risk Committee is the appropriate governing body in which to vest ultimate authority to approve or disapprove applications for clearing membership.\10\ Should the Risk Committee propose to disapprove an application for clearing membership, the Risk Committee must first provide the applicant an opportunity to be heard and present evidence on its own behalf (as is currently the case today with respect to the Board's decision to [[Page 46142]] disapprove an application for clearing membership).\11\ --------------------------------------------------------------------------- \9\ See Section IV of the Risk Committee Charter provided as Exhibit 5B to the proposed rule change. \10\ The Board will continue to oversee OCC's membership criteria and ongoing membership standards through its authority to approve changes to OCC's By-Laws and Rules (and specifically those By-Laws and Rules that concern membership). The Risk Committee will inform the Board, at the Board's next regularly scheduled meeting, of applications for clearing membership pursuant to proposed Article V, Section 2(c) of the By-Laws. \11\ See OCC's By-Laws Article V, Section 2. Typically, however, if OCC's due diligence review reveals issues that would prevent the Board or the Risk Committee from approving an application for clearing membership, the applicant voluntarily remediates such issues prior to the presentation of the application for clearing membership to the Risk Committee. --------------------------------------------------------------------------- In order to effect the foregoing, and in addition to proposed changes to Article V, Section 2 of the By-Laws, OCC proposed conforming changes to Article V, Sections 1 and 3 of the By-Laws as well as the Board and Risk Committee Charters.\12\ Such conforming changes identify that the Risk Committee, and not the Board, will approve applications for clearing membership. Additionally, OCC proposed changes to Article VIII, Section 2 of the By-Laws (as well as the Board and Risk Committee Charters) to identify that the Risk Committee, and not the Board, will set initial clearing fund requirements in connection with the approval of an application for clearing membership. --------------------------------------------------------------------------- \12\ Marked versions of the Board and Risk Committee Charters were provided as Exhibits 5A and 5B to the proposed change. --------------------------------------------------------------------------- Delegation of Authority To Approve Applications for Membership to the Executive Chairman or President of OCC OCC has stated that, in order to better streamline OCC's membership application approval process, and allow the Board and the Risk Committee to more efficiently allocate their time, it proposed additional amendments to Article V, Section 2 of its By-Laws to allow OCC's Executive Chairman or its President to approve certain applications for clearing membership. As described above: (i) OCC believes that, based on the applicable rules of the Commission and the Commodity Futures Trading Commission, applications for clearing membership that clearly meet OCC's membership criteria must be approved,\13\ and (ii) applications for clearing members do not necessarily track the Risk Committee or Board's regular meeting schedule and, on occasion, the Board has had to convene in a special meeting for the sole purpose of considering a clearing member application or otherwise seek approval via unanimous written consent, which is not a good use of either the Board or the Risk Committee's time and resources. Therefore, OCC proposed amending Article V, Section 2 of its By-Laws to delegate the authority to approve applications for clearing membership to the Executive Chairman or President of OCC provided that: (i) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (ii) the Risk Committee is given not less than five business days from the date it is notified by its designated delegates or agents that the Executive Chairman or President intends to approve a given application to determine that such application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. If five business days pass and no member of the Risk Committee notifies Management that a given application for clearing membership should be reviewed at a meeting of the Risk Committee, then the Executive Chairman and President shall have the authority to approve the application for clearing membership. This proposed change will allow either OCC's Executive Chairman or the President to approve most applications for clearing membership received by OCC. Neither the Executive Chairman nor the President will be allowed to disapprove an application for clearing membership. Instead, if either the Executive Chairman or President determined he cannot approve an application for clearing membership, the application will be considered by the Risk Committee for approval or disapproval at its next regularly scheduled meeting. OCC believes that allowing the Executive Chairman or President to approve applications for clearing membership that clearly meet OCC's membership criteria will allow the Board and the Risk Committee to allocate their time to more efficiently and effectively. --------------------------------------------------------------------------- \13\ See 15 U.S.C. 78q-1(b)(3)(F) and 7 U.S.C. 7a-1(c)(2)(C). --------------------------------------------------------------------------- II. Discussion Section 19(b)(2)(C) of the Act \14\ directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the rule change, as proposed, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. --------------------------------------------------------------------------- \14\ 15 U.S.C. 78s(b)(2)(C). --------------------------------------------------------------------------- The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) \15\ of the Act. This section requires, among other things, that the rules of a clearing agency be designed to protect investors and the public interest while not being designed to permit unfair discrimination in the admission of participants. The proposed rule change will preserve Board-level oversight for the membership approval process by vesting the authority to approve or disapprove applications for clearing membership with the Risk Committee, a Board-level committee. A considerable portion of the Risk Committee's functions and responsibilities, as listed in its charter, pertains to the oversight of membership and membership standards generally. Therefore it is reasonable to expect that the Risk Committee should have the requisite expertise and authority to carry out the membership application approval or disapproval process previously tasked to the entire Board. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- The proposed rules also delegate to the Executive Chairman or the President the authority to approve new applications provided that: (i) It is not recommended that the Risk Committee impose additional membership criteria upon the applicant pursuant to Section 1, Interpretation and Policy .06 of Article V of OCC's By-Laws, and (ii) the Risk Committee is given not less than five business days to determine that the application should be reviewed at a meeting of the Risk Committee and the Risk Committee has not requested that the application be reviewed at a meeting of the Risk Committee within such five day period. The authority to disapprove applications is not delegated to the Executive Chairman or the President. The rules, as revised, continue to provide Board-level oversight of the membership approval process by ensuring involvement of the Risk Committee. For the above reasons, although the revised rules will streamline the membership approval process, the Commission believes that they are designed to protect investors and the public interest. Additionally, the revised rules are not designed to permit unfair discrimination because they do not alter the criteria considered for the approval of new membership. Additionally, the Commission finds that the revised rules are consistent with Rule 17Ad-22(d)(8) under the Act.\16\ Rule 17Ad- 22(d)(8) requires that a clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to, as applicable, have governance arrangements that are clear and transparent to fulfill the public interest requirements in Section 17A of the Act \17\ applicable to clearing agencies and support the objectives of owners and participants. OCC's revised rules [[Page 46143]] provide clarity and transparency in its governance processes by identifying, in OCC's public rulebook, the parties authorized to approve or disapprove membership applications, and fulfill the public interest requirements of Section 17A of the Act as described above. --------------------------------------------------------------------------- \16\ 17 CFR 240.17Ad-22(d)(8). \17\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of Act, and in particular, with the requirements of Section 17A of the Act \18\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \18\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act,\19\ that the proposed rule change (SR-OCC-2016-007) be, and it hereby is, approved. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\20\ --------------------------------------------------------------------------- \20\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-16718 Filed 7-14-16; 8:45 am] BILLING CODE 8011-01-P
![46140 Federal Register / Vol. 81, No. 136 / Friday, July 15, 2016 / Notices
public arbitrators during the panel Forum users are likely to incur costs with respect to the proposed rule
selection process, and minimize the in vetting the five additional public change that are filed with the
burden of vetting additional public arbitrators on the list FINRA would Commission, and all written
arbitrators later in the process. send them. However, forum communications relating to the
FINRA is also proposing to amend practitioners have indicated that they proposed rule change between the
Rule 12403(c)(2) to increase the number would willingly incur the additional Commission and any person, other than
of strikes to the public arbitrator list expense in order to have greater choice those that may be withheld from the
from four to six, so that the proportion in selecting arbitrators. public in accordance with the
of strikes is the same under the provisions of 5 U.S.C. 552, will be
amended rule as it is under the current C. Self-Regulatory Organization’s available for Web site viewing and
rule. Task Force members felt strongly Statement on Comments on the printing in the Commission’s Public
that parties wanted additional public Proposed Rule Change Received From Reference Room, 100 F Street NE.,
arbitrators to choose from because they Members, Participants, or Others Washington, DC 20549–1090, on official
did not want FINRA to appoint lower Written comments were neither business days between the hours of 10
ranked arbitrators to the panel. We are solicited nor received. a.m. and 3 p.m. Copies of such filing
proposing to increase the number of also will be available for inspection and
strikes the parties can make to the III. Date of Effectiveness of the
copying at the principal office of
newly increased public list to improve Proposed Rule Change and Timing for
FINRA. All comments received will be
the likelihood that FINRA will appoint Commission Action
posted without change; the Commission
the parties’ preferred arbitrators to the Within 45 days of the date of does not edit personal identifying
panel. publication of this notice in the Federal information from submissions. You
Register or within such longer period (i) should submit only information that
2. Statutory Basis
as the Commission may designate up to you wish to make available publicly. All
FINRA believes that the proposed rule 90 days of such date if it finds such submissions should refer to File
change is consistent with the provisions longer period to be appropriate and Number SR–FINRA–2016–022 and
of Section 15A(b)(6) of the Act,6 which publishes its reasons for so finding or should be submitted on or before
requires, among other things, that (ii) as to which the self-regulatory August 5, 2016.
FINRA rules must be designed to organization consents, the Commission For the Commission, by the Division of
prevent fraudulent and manipulative will: Trading and Markets, pursuant to delegated
acts and practices, to promote just and (A) By order approve or disapprove authority.7
equitable principles of trade, and, in such proposed rule change, or Robert W. Errett,
general, to protect investors and the (B) institute proceedings to determine Deputy Secretary.
public interest. FINRA believes the whether the proposed rule change
[FR Doc. 2016–16720 Filed 7–14–16; 8:45 am]
proposed rule change would protect should be disapproved.
BILLING CODE 8011–01–P
investors and the public interest by
IV. Solicitation of Comments
providing greater choice during the
panel selection process for the parties in Interested persons are invited to
submit written data, views and SECURITIES AND EXCHANGE
all customer cases with three arbitrators. COMMISSION
arguments concerning the foregoing,
B. Self-Regulatory Organization’s including whether the proposed rule [Release No. 34–78277; File No. SR–OCC–
Statement on Burden on Competition change is consistent with the Act. 2016–007]
FINRA does not believe that the Comments may be submitted by any of
proposed rule change will result in any the following methods: Self-Regulatory Organizations; The
burden on competition that is not Options Clearing Corporation; Order
necessary or appropriate in furtherance Electronic Comments Approving Proposed Rule Change
of the purposes of the Act. Current rules • Use the Commission’s Internet Related to The Options Clearing
permit parties to an arbitration to strike comment form (http://www.sec.gov/ Corporation’s Membership Approval
a specified number of arbitrators from rules/sro.shtml); or Process
each list of arbitrators that FINRA sends • Send an email to rule-comments@ July 11, 2016.
them and require them to rank order the sec.gov. Please include File Number SR–
On May 16, 2016, The Options
remaining arbitrators. The propensity to FINRA–2016–022 on the subject line.
Clearing Corporation (‘‘OCC’’) filed with
strike all non-public arbitrators Paper Comments the Securities and Exchange
combined with the current rules for Commission (‘‘Commission’’) the
selecting the panel has led to concerns • Send paper comments in triplicate
to Secretary, Securities and Exchange proposed rule change SR–OCC–2016–
that panels may include a party’s least 007 pursuant to Section 19(b)(1) of the
preferred arbitrator, thereby diminishing Commission, 100 F Street NE.,
Washington, DC 20549–1090. Securities and Exchange Act of 1934
a party’s overall satisfaction with the (‘‘Act’’) 1 and Rule 19b–4 thereunder.2
arbitration process at the forum. All submissions should refer to File
The Commission did not receive any
To remedy this concern, FINRA Number SR–FINRA–2016–022. This file
comments on the proposed rule change.
proposes to expand the number of number should be included on the
This order approves the proposed rule
arbitrators on the public arbitrator list. subject line if email is used. To help the
change.
Commission process and review your
sradovich on DSK3GMQ082PROD with NOTICES
The longer list will increase the parties’
choice of arbitrators during the panel comments more efficiently, please use I. Description
selection process, and will improve the only one method. The Commission will OCC is changing its rules to: (i) Vest
likelihood that FINRA will appoint the post all comments on the Commission’s the authority to approve or disapprove
parties’ preferred arbitrators to the Internet Web site (http://www.sec.gov/
panel. rules/sro.shtml). Copies of the 7 17 CFR 200.30–3(a)(12).
submission, all subsequent 1 15 U.S.C. 78s(b)(1).
6 15 U.S.C. 78o–3(b)(6). amendments, all written statements 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 81, No. 136 / Friday, July 15, 2016 / Notices 46143
provide clarity and transparency in its Rules were published for comment in require that the Board will inspect at
governance processes by identifying, in the Federal Register on April 13, 2016.4 least five percent of the ‘‘substantial role
OCC’s public rulebook, the parties At the time the notice was issued, the only’’ firms on an annual basis.
authorized to approve or disapprove Commission extended to July 12, 2016 Additionally, Rule 4003(d) is amended
membership applications, and fulfill the the date by which the Commission to remove the references to ‘‘substantial
public interest requirements of Section should take action on the Proposed role only’’ firms.
17A of the Act as described above. Rules.5 The Commission received two
comment letters in response to the B. Amendments Related to the
III. Conclusion notice.6 This order approves the Inspections of Firms That Have Not
On the basis of the foregoing, the Proposed Rules. Issued Audit Reports in Two
Commission finds that the proposal is Consecutive Years
II. Description of the Proposed Rules
consistent with the requirements of Act, Under the Proposed Rules, Rule
and in particular, with the requirements On February 26, 2016, the Board 4003(b) will continue to retain the
of Section 17A of the Act 18 and the adopted amendments to Rule 4003 to (i) requirement to inspect any registered
rules and regulations thereunder. require that at least five percent of public accounting firm that issues an
IT IS THEREFORE ORDERED, registered public accounting firms that audit report with respect to an issuer.
pursuant to Section 19(b)(2) of the play a substantial role in the preparation However, Proposed Rule 4003(e) is
Act,19 that the proposed rule change or furnishing of an audit report be added to provide the Board with the
(SR–OCC–2016–007) be, and it hereby inspected on an annual basis, (ii) discretion to forego the inspection of a
is, approved. maintain the requirement to inspect all registered public accounting firm that
firms that issue an audit report for an has not issued any audit reports in two
For the Commission, by the Division of
issuer but provide the Board the consecutive years.
Trading and Markets, pursuant to delegated
authority.20 discretion to forego an inspection, on a
case-by-case basis, for a firm that does C. Amendments Related to the Term
Robert W. Errett, ‘‘Audit Report’’ and Consents to the Use
not subsequently issue an audit report
Deputy Secretary. of Previously Issued Audit Reports
for two consecutive years, (iii) qualify
[FR Doc. 2016–16718 Filed 7–14–16; 8:45 am] the term ‘‘audit report’’ to keep relevant Under the Proposed Rules, Rule
BILLING CODE 8011–01–P portions of the rule consistent with the 4003(d) is amended to add the phrase
original meaning, and (iv) specify that ‘‘with respect to an issuer’’ to qualify
no inspection requirement arises solely the term ‘‘audit report’’ within the rule.
SECURITIES AND EXCHANGE because a firm consented to an issuer’s
COMMISSION The added qualification is needed to
use of a previously issued audit report. clarify that the Proposed Rules apply
[Release No. 34–78289; File No. PCAOB– A. Amendments Related to the only to the audits of issuers because,
2007–04] after the original rule was adopted, the
Inspection of Substantial Role Only
Firms Dodd-Frank Wall Street Reform and
Public Company Accounting Oversight Consumer Protection Act (‘‘Dodd-Frank
Board; Order Granting Approval of Under the Proposed Rules, the Act’’) 8 amended the Sarbanes-Oxley Act
Proposed Amendments to Board Rules triennial inspection requirement for to establish the PCAOB’s oversight of
Relating to Inspections registered public accounting firms that the audits of broker-dealers.9
play a substantial role in audits but do Additionally, Rule 4003(b) is amended
July 11, 2016. not issue audit reports (‘‘substantial role to provide that no inspection
I. Introduction only’’) 7 is eliminated and replaced with requirement arises under the rule solely
a requirement to inspect at least five because a firm consents to an issuer’s
On March 24, 2016, the Public percent of such ‘‘substantial role only’’
Company Accounting Oversight Board use of a previously issued audit report.
firms. As a result, Rule 4003(b) is
(the ‘‘Board’’ or the ‘‘PCAOB’’) filed amended to delete the references to D. Applicability and Effective Date
with the Securities and Exchange ‘‘substantial role only’’ firms and
Commission (the ‘‘Commission’’), The Proposed Rules would become
Proposed Rule 4003(h) is added to effective upon approval by the
pursuant to Section 107(b) 1 of the
Sarbanes-Oxley Act of 2002 (the Commission and apply to the audits of
subject to the 2007 filing. On February 26, 2016, the all issuers, including audits of emerging
‘‘Sarbanes-Oxley Act’’) and Section Board adopted revisions to those proposed
19(b) 2 of the Securities Exchange Act of amendments and, on March 24, 2016 amended the growth companies (‘‘EGCs’’),10 as
1934 (the ‘‘Exchange Act’’), a proposal 2007 filing to reflect those revisions. discussed in Section IV below. The
to adopt amendments to Rule 4003,
4 See Release No. 34–77558 (April 7, 2016), 81 FR Proposed Rules do not impact the
21909 (April 13, 2016). inspection frequency of the audits of
Frequency of Inspections, to revise 5 Ibid.
paragraphs (b) and (d) and add new 6 See letters from Deloitte Touche Tohmatsu
brokers and dealers under Exchange Act
paragraphs (e) and (h) (collectively, the Limited, dated April 29, 2016 (‘‘Deloitte’’), available
Rule 17a–5.11
‘‘Proposed Rules’’).3 The Proposed at https://www.sec.gov/comments/pcaob-2007-04/ III. Comment Letters
pcaob200704-1.pdf, and an anonymous letter, dated
18 In approving this proposed rule change, the May 3, 2016 (‘‘anonymous letter’’), available at As noted above, the Commission
https://www.sec.gov/comments/pcaob-2007-04/ received two comment letters
Commission has considered the proposed rule’s
pcaob200704-2.htm.
impact on efficiency, competition, and capital 7 We are using the phrase ‘‘substantial role only’’
sradovich on DSK3GMQ082PROD with NOTICES
formation. See 15 U.S.C. 78c(f). 8 Public Law 111–203, 124 Stat. 1376 (2010).
19 15 U.S.C. 78s(b)(2). to identify the registered public accounting firms
9 See Section 101 of the Sarbanes-Oxley Act [15
20 17 CFR 200.30–3(a)(12).
that play a substantial role in audits of issuers but
do not issue audit reports with respect to any U.S.C. 7211].
1 15 U.S.C. 7217(b). 10 The term ‘‘emerging growth company’’ is
issuers as distinguished from the category of firms
2 15 U.S.C. 78s(b). defined in Section 3(a)(80) of the Exchange Act [15
that play a substantial role in some audits and
3 On October 22, 2007, the Board filed separately issue audit reports with regards to other U.S.C. 78c(a)(80)].
amendments related to Rule 4003 with the audits. Firms that play a substantial role in an audit 11 If the broker or dealer is also an issuer, the
Commission and requested Commission approval. of an issuer must register with the PCAOB. See Proposed Rules could impact the inspection
The Commission did not act on the amendments PCAOB Rule 2100(b). frequency of the audits of such broker or dealer.
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Document Created: 2016-07-15 02:53:08
Document Modified: 2016-07-15 02:53:08
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