81_FR_7901 81 FR 7871 - Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Proposed Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and the National Stock Exchange, Inc.

81 FR 7871 - Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Order Approving and Declaring Effective a Proposed Plan for the Allocation of Regulatory Responsibilities Between the Financial Industry Regulatory Authority, Inc. and the National Stock Exchange, Inc.

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 30 (February 16, 2016)

Page Range7871-7873
FR Document2016-02982

Federal Register, Volume 81 Issue 30 (Tuesday, February 16, 2016)
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)]
[Notices]
[Pages 7871-7873]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02982]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77089; File No. 4-694]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Order Approving and Declaring Effective a Proposed Plan for 
the Allocation of Regulatory Responsibilities Between the Financial 
Industry Regulatory Authority, Inc. and the National Stock Exchange, 
Inc.

February 9, 2016.
    On December 23, 2015, the National Stock Exchange, Inc. (``NSX'') 
and the Financial Industry Regulatory Authority, Inc. (``FINRA'') 
(together with NSX, the ``Parties'') filed with the Securities and 
Exchange Commission (``Commission'' or ``SEC'') a plan for the 
allocation of regulatory responsibilities, dated December 22, 2015 
(``17d-2 Plan'' or the ``Plan''). The Plan was published for comment on 
January 14, 2016.\1\ The Commission received no comments on the Plan. 
This order approves and declares effective the Plan.
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    \1\ See Securities Exchange Act Release No. 76856 (January 8, 
2016), 81 FR 1971.
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I. Introduction

    Section 19(g)(1) of the Securities Exchange Act of 1934 
(``Act''),\2\ 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) or Section 19(g)(2) of the Act.\3\ 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.
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78s(g)(1).
    \3\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2), respectively.
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    Section 17(d)(1) of the Act \4\ was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q(d)(1).
    \5\ 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).
---------------------------------------------------------------------------

    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 and Rule 17d-2 under the Act.\6\ 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.\7\ 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

[[Page 7872]]

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.
---------------------------------------------------------------------------

    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2, respectively.
    \7\ 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.\8\ 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 appropriate notice and comment, it determines that 
the plan is necessary or appropriate in the public interest and for the 
protection of investors; to foster cooperation and coordination among 
the SROs; to remove impediments to, and foster the development of, a 
national market system and a national clearance and settlement system; 
and is in conformity with the factors set forth in Section 17(d) of the 
Act. Commission approval of a plan filed pursuant to Rule 17d-2 
relieves an SRO of those regulatory responsibilities allocated by the 
plan to another SRO.
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    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49091 (November 8, 1976).
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II. Proposed Plan

    The proposed 17d-2 Plan is intended to reduce regulatory 
duplication for firms that are common members of both NSX and FINRA.\9\ 
Pursuant to the proposed 17d-2 Plan, FINRA would assume certain 
examination and enforcement responsibilities for common members with 
respect to certain applicable laws, rules, and regulations.
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    \9\ The proposed 17d-2 Plan refers to these common members as 
``Dual Members.'' See Paragraph 1(c) of the proposed 17d-2 Plan. On 
December 14, 2015, the Commission approved a proposal from NSX to 
resume its status as a fully operational securities exchange and to 
re-commence trading operations. See Securities Exchange Act Release 
No. 76640 (December 14, 2015), 80 FR 79122 (December 18, 2015) (SR-
NSX-2015-05) (approval order).
---------------------------------------------------------------------------

    The text of the Plan delineates the proposed regulatory 
responsibilities with respect to the Parties. Included in the proposed 
Plan is an exhibit (the ``National Stock Exchange (``NSX'') Rules 
Certification for 17d-2 Agreement with FINRA,'' referred to herein as 
the ``Certification'') that lists every NSX rule, and select federal 
securities laws, rules, and regulations, for which FINRA would bear 
responsibility under the Plan for overseeing and enforcing with respect 
to NSX members that are also members of FINRA and the associated 
persons therewith (``Dual Members'').
    Specifically, under the 17d-2 Plan, FINRA would assume examination 
and enforcement responsibility relating to compliance by Dual Members 
with the rules of NSX that are substantially similar to the applicable 
rules of FINRA,\10\ as well as any provisions of the federal securities 
laws and the rules and regulations thereunder delineated in the 
Certification (``Common Rules''). In the event that a Dual Member is 
the subject of an investigation relating to a transaction on NSX, the 
plan acknowledges that NSX may, in its discretion, exercise concurrent 
jurisdiction and responsibility for such matter.\11\
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    \10\ See paragraph 1(b) of the proposed 17d-2 Plan (defining 
Common Rules). See also paragraph 1(f) of the proposed 17d-2 Plan 
(defining Regulatory Responsibilities). Paragraph 2 of the Plan 
provides that annually, or more frequently as required by changes in 
either NSX rules or FINRA rules, the parties shall review and 
update, if necessary, the list of Common Rules. Further, paragraph 3 
of the Plan provides that NSX shall furnish FINRA with a list of 
Dual Members, and shall update the list no less frequently than once 
each calendar quarter.
    \11\ See paragraph 6 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

    Under the Plan, NSX would retain full responsibility for 
surveillance and enforcement with respect to trading activities or 
practices involving NSX's own marketplace, including, without 
limitation, registration pursuant to its applicable rules of associated 
persons (i.e., registration rules that are not Common Rules); its 
duties as a DEA pursuant to Rule 17d-1 under the Act; and any NSX rules 
that are not Common Rules.\12\
---------------------------------------------------------------------------

    \12\ See paragraph 2 of the proposed 17d-2 Plan.
---------------------------------------------------------------------------

III. Discussion

    The Commission finds that the proposed Plan is consistent with the 
factors set forth in Section 17(d) of the Act \13\ and Rule 17d-2(c) 
thereunder \14\ in that the proposed 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 Plan should reduce 
unnecessary regulatory duplication by allocating to FINRA certain 
examination and enforcement responsibilities for common members that 
would otherwise be performed by NSX and FINRA. Accordingly, the 
proposed Plan promotes efficiency by reducing costs to common members. 
Furthermore, because NSX and FINRA will coordinate their regulatory 
functions in accordance with the Plan, the Plan should promote investor 
protection.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78q(d).
    \14\ 17 CFR 240.17d-2(c).
---------------------------------------------------------------------------

    The Commission notes that, under the Plan, NSX and FINRA have 
allocated regulatory responsibility for those NSX 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 Plan, 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 
Plan are specifically listed in the Certification, as may be amended by 
the Parties from time to time.
    According to the Plan, NSX will review the Certification, at least 
annually, or more frequently if required by changes in either the rules 
of NSX or FINRA, and, if necessary, submit to FINRA an updated list of 
Common Rules to add NSX rules not included on the then-current list of 
Common Rules that are substantially similar to FINRA rules; delete NSX 
rules included in the then-current list of Common Rules that are no 
longer substantially similar to FINRA rules; and confirm that the 
remaining rules on the list of Common Rules continue to be NSX rules 
that are substantially similar to FINRA rules.\15\ FINRA will then 
confirm in writing whether the rules listed in any updated list are 
Common Rules as defined in the Plan. Under the Plan, NSX will also 
provide FINRA with a current list of common members and shall update 
the list no less frequently than once each quarter.\16\ 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.
---------------------------------------------------------------------------

    \15\ See paragraph 2 of the Plan.
    \16\ See paragraph 3 of the Plan.
---------------------------------------------------------------------------

    The Commission is hereby declaring effective a Plan that, among 
other things, allocates regulatory responsibility to FINRA for the 
oversight and enforcement of all NSX rules that are substantially 
similar to the rules of FINRA for common members of NSX and FINRA. 
Therefore, modifications to the Certification need not be filed with 
the Commission as an

[[Page 7873]]

amendment to the Plan, provided that the Parties are only adding to, 
deleting from, or confirming changes to NSX rules in the Certification 
in conformance with the definition of Common Rules provided in the 
Plan. However, should the Parties decide to add a NSX rule to the 
Certification that is not substantially similar to a FINRA rule; delete 
a NSX rule from the Certification that is substantially similar to a 
FINRA rule; or leave on the Certification a NSX rule that is no longer 
substantially similar to a FINRA rule, then such a change would 
constitute an amendment to the Plan, which must be filed with the 
Commission pursuant to Rule 17d-2 under the Act.\17\
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    \17\ The Commission also notes that the addition to or deletion 
from the Certification of any federal securities laws, rules, and 
regulations for which FINRA would bear responsibility under the Plan 
for examining, and enforcing compliance by, common members, also 
would constitute an amendment to the Plan.
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IV. Conclusion

    This Order gives effect to the Plan filed with the Commission in 
File No. 4-694. The Parties shall notify all members affected by the 
Plan of their rights and obligations under the Plan.
    It is therefore ordered, pursuant to Section 17(d) of the Act, that 
the Plan in File No. 4-694, between FINRA and NSX, filed pursuant to 
Rule 17d-2 under the Act, is approved and declared effective.
    It is further ordered that NSX is relieved of those 
responsibilities allocated to FINRA under the Plan in File No. 4-694.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Brent J. Fields,
Secretary.
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    \18\ 17 CFR 200.30-3(a)(34).
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[FR Doc. 2016-02982 Filed 2-12-16; 8:45 am]
 BILLING CODE 8011-01-P



                                                                                 Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices                                                7871

                                                  C. Self-Regulatory Organization’s                       communications relating to the                        I. Introduction
                                                  Statement on Comments on the                            proposed rule change between the                         Section 19(g)(1) of the Securities
                                                  Proposed Rule Change Received From                      Commission and any person, other than                 Exchange Act of 1934 (‘‘Act’’),2 among
                                                  Members, Participants, or Others                        those that may be withheld from the                   other things, requires every self-
                                                    The Exchange neither solicited nor                    public in accordance with the                         regulatory organization (‘‘SRO’’)
                                                  received comments on the proposed                       provisions of 5 U.S.C. 552, will be                   registered as either a national securities
                                                  rule change.                                            available for Web site viewing and                    exchange or national securities
                                                                                                          printing in the Commission’s Public                   association to examine for, and enforce
                                                  III. Date of Effectiveness of the
                                                                                                          Reference Room, 100 F Street NE.,                     compliance by, its members and persons
                                                  Proposed Rule Change and Timing for
                                                                                                          Washington, DC 20549, on official                     associated with its members with the
                                                  Commission Action
                                                                                                          business days between the hours of                    Act, the rules and regulations
                                                     The foregoing rule change has become                 10:00 a.m. and 3:00 p.m. Copies of the                thereunder, and the SRO’s own rules,
                                                  effective pursuant to Section 19(b)(3)(A)               filing also will be available for                     unless the SRO is relieved of this
                                                  of the Act 10 and paragraph (f) of Rule                 inspection and copying at the principal               responsibility pursuant to Section 17(d)
                                                  19b–4 11 thereunder. At any time within                 office of the Exchange. All comments                  or Section 19(g)(2) of the Act.3 Without
                                                  60 days of the filing of the proposed rule              received will be posted without change;               this relief, the statutory obligation of
                                                  change, the Commission summarily may                                                                          each individual SRO could result in a
                                                                                                          the Commission does not edit personal
                                                  temporarily suspend such rule change if                                                                       pattern of multiple examinations of
                                                                                                          identifying information from
                                                  it appears to the Commission that such                                                                        broker-dealers that maintain
                                                  action is necessary or appropriate in the               submissions. You should submit only
                                                                                                          information that you wish to make                     memberships in more than one SRO
                                                  public interest, for the protection of                                                                        (‘‘common members’’). Such regulatory
                                                  investors, or otherwise in furtherance of               available publicly. All submissions
                                                                                                                                                                duplication would add unnecessary
                                                  the purposes of the Act. If the                         should refer to File Number SR–CBOE–
                                                                                                                                                                expenses for common members and
                                                  Commission takes such action, the                       2016–008 and should be submitted on
                                                                                                                                                                their SROs.
                                                  Commission will institute proceedings                   or before March 8, 2016.                                 Section 17(d)(1) of the Act 4 was
                                                  to determine whether the proposed rule                    For the Commission, by the Division of              intended, in part, to eliminate
                                                  change should be approved or                            Trading and Markets, pursuant to delegated            unnecessary multiple examinations and
                                                  disapproved.                                            authority.12                                          regulatory duplication.5 With respect to
                                                  IV. Solicitation of Comments                            Brent J. Fields,                                      a common member, Section 17(d)(1)
                                                                                                          Secretary.                                            authorizes the Commission, by rule or
                                                    Interested persons are invited to                                                                           order, to relieve an SRO of the
                                                  submit written data, views and                          [FR Doc. 2016–02986 Filed 2–12–16; 8:45 am]
                                                                                                                                                                responsibility to receive regulatory
                                                  arguments concerning the foregoing,                     BILLING CODE 8011–01–P
                                                                                                                                                                reports, to examine for and enforce
                                                  including whether the proposed rule                                                                           compliance with applicable statutes,
                                                  change is consistent with the Act.                                                                            rules, and regulations, or to perform
                                                  Comments may be submitted by any of                     SECURITIES AND EXCHANGE                               other specified regulatory functions.
                                                  the following methods:                                  COMMISSION                                               To implement Section 17(d)(1), the
                                                  Electronic Comments                                                                                           Commission adopted two rules: Rule
                                                                                                          [Release No. 34–77089; File No. 4–694]                17d–1 and Rule 17d–2 under the Act.6
                                                    • Use the Commission’s Internet                                                                             Rule 17d–1 authorizes the Commission
                                                  comment form (http://www.sec.gov/                       Program for Allocation of Regulatory                  to name a single SRO as the designated
                                                  rules/sro.shtml); or                                    Responsibilities Pursuant to Rule 17d–                examining authority (‘‘DEA’’) to
                                                    • Send an email to rule-comments@                     2; Order Approving and Declaring                      examine common members for
                                                  sec.gov. Please include File Number SR–                 Effective a Proposed Plan for the                     compliance with the financial
                                                  CBOE–2016–008 on the subject line.                      Allocation of Regulatory                              responsibility requirements imposed by
                                                  Paper Comments                                          Responsibilities Between the Financial                the Act, or by Commission or SRO
                                                    • Send paper comments in triplicate                   Industry Regulatory Authority, Inc. and               rules.7 When an SRO has been named as
                                                  to Secretary, Securities and Exchange                   the National Stock Exchange, Inc.                     a common member’s DEA, all other
                                                  Commission, 100 F Street NE.,                                                                                 SROs to which the common member
                                                                                                          February 9, 2016.                                     belongs are relieved of the responsibility
                                                  Washington, DC 20549–1090.
                                                  All submissions should refer to File                       On December 23, 2015, the National                 to examine the firm for compliance with
                                                  Number SR–CBOE–2016–008. This file                      Stock Exchange, Inc. (‘‘NSX’’) and the                the applicable financial responsibility
                                                  number should be included on the                        Financial Industry Regulatory                         rules. On its face, Rule 17d–1 deals only
                                                  subject line if email is used. To help the              Authority, Inc. (‘‘FINRA’’) (together                 with an SRO’s obligations to enforce
                                                  Commission process and review your                      with NSX, the ‘‘Parties’’) filed with the             member compliance with financial
                                                  comments more efficiently, please use                   Securities and Exchange Commission                    responsibility requirements. Rule 17d–1
                                                  only one method. The Commission will                    (‘‘Commission’’ or ‘‘SEC’’) a plan for the            does not relieve an SRO from its
                                                  post all comments on the Commission’s                   allocation of regulatory responsibilities,
                                                                                                                                                                  2 15 U.S.C. 78s(g)(1).
                                                  Internet Web site (http://www.sec.gov/                  dated December 22, 2015 (‘‘17d–2 Plan’’                 3 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2),
                                                  rules/sro.shtml). Copies of the                         or the ‘‘Plan’’). The Plan was published              respectively.
mstockstill on DSK4VPTVN1PROD with NOTICES




                                                  submission, all subsequent                              for comment on January 14, 2016.1 The                   4 15 U.S.C. 78q(d)(1).

                                                  amendments, all written statements                      Commission received no comments on                      5 See Securities Act Amendments of 1975, Report

                                                  with respect to the proposed rule                       the Plan. This order approves and                     of the Senate Committee on Banking, Housing, and
                                                                                                                                                                Urban Affairs to Accompany S. 249, S. Rep. No. 94–
                                                  change that are filed with the                          declares effective the Plan.                          75, 94th Cong., 1st Session 32 (1975).
                                                  Commission, and all written                                                                                     6 17 CFR 240.17d–1 and 17 CFR 240.17d–2,
                                                                                                            12 17CFR 200.30–3(a)(12).                           respectively.
                                                    10 15 U.S.C. 78s(b)(3)(A).                              1 SeeSecurities Exchange Act Release No. 76856        7 See Securities Exchange Act Release No. 12352
                                                    11 17 CFR 240.19b–4(f).                               (January 8, 2016), 81 FR 1971.                        (April 20, 1976), 41 FR 18808 (May 7, 1976).



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                                                  7872                        Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices

                                                  obligation to examine a common                          members of FINRA and the associated                    coordinate their regulatory functions in
                                                  member for compliance with its own                      persons therewith (‘‘Dual Members’’).                  accordance with the Plan, the Plan
                                                  rules and provisions of the federal                        Specifically, under the 17d–2 Plan,                 should promote investor protection.
                                                  securities laws governing matters other                 FINRA would assume examination and                        The Commission notes that, under the
                                                  than financial responsibility, including                enforcement responsibility relating to                 Plan, NSX and FINRA have allocated
                                                  sales practices and trading activities and              compliance by Dual Members with the                    regulatory responsibility for those NSX
                                                  practices.                                              rules of NSX that are substantially                    rules, set forth in the Certification, that
                                                    To address regulatory duplication in                  similar to the applicable rules of                     are substantially similar to the
                                                  these and other areas, the Commission                   FINRA,10 as well as any provisions of                  applicable FINRA rules in that
                                                  adopted Rule 17d–2 under the Act.8                      the federal securities laws and the rules              examination for compliance with such
                                                  Rule 17d–2 permits SROs to propose                      and regulations thereunder delineated                  provisions and rules would not require
                                                  joint plans for the allocation of                       in the Certification (‘‘Common Rules’’).               FINRA to develop one or more new
                                                  regulatory responsibilities with respect                In the event that a Dual Member is the                 examination standards, modules,
                                                  to their common members. Under                          subject of an investigation relating to a              procedures, or criteria in order to
                                                  paragraph (c) of Rule 17d–2, the                        transaction on NSX, the plan                           analyze the application of the rule, or a
                                                  Commission may declare such a plan                      acknowledges that NSX may, in its                      common member’s activity, conduct, or
                                                  effective if, after providing for                       discretion, exercise concurrent                        output in relation to such rule. In
                                                  appropriate notice and comment, it                      jurisdiction and responsibility for such               addition, under the Plan, FINRA would
                                                  determines that the plan is necessary or                matter.11                                              assume regulatory responsibility for
                                                  appropriate in the public interest and                     Under the Plan, NSX would retain full               certain provisions of the federal
                                                  for the protection of investors; to foster              responsibility for surveillance and                    securities laws and the rules and
                                                  cooperation and coordination among the                  enforcement with respect to trading                    regulations thereunder that are set forth
                                                  SROs; to remove impediments to, and                     activities or practices involving NSX’s                in the Certification. The Common Rules
                                                  foster the development of, a national                   own marketplace, including, without                    covered by the Plan are specifically
                                                  market system and a national clearance                  limitation, registration pursuant to its               listed in the Certification, as may be
                                                  and settlement system; and is in                        applicable rules of associated persons                 amended by the Parties from time to
                                                  conformity with the factors set forth in                (i.e., registration rules that are not                 time.
                                                  Section 17(d) of the Act. Commission                    Common Rules); its duties as a DEA                        According to the Plan, NSX will
                                                  approval of a plan filed pursuant to Rule               pursuant to Rule 17d–1 under the Act;                  review the Certification, at least
                                                  17d–2 relieves an SRO of those                          and any NSX rules that are not Common                  annually, or more frequently if required
                                                  regulatory responsibilities allocated by                Rules.12                                               by changes in either the rules of NSX or
                                                  the plan to another SRO.                                                                                       FINRA, and, if necessary, submit to
                                                                                                          III. Discussion                                        FINRA an updated list of Common
                                                  II. Proposed Plan                                          The Commission finds that the                       Rules to add NSX rules not included on
                                                     The proposed 17d–2 Plan is intended                  proposed Plan is consistent with the                   the then-current list of Common Rules
                                                  to reduce regulatory duplication for                    factors set forth in Section 17(d) of the              that are substantially similar to FINRA
                                                  firms that are common members of both                   Act 13 and Rule 17d–2(c) thereunder 14                 rules; delete NSX rules included in the
                                                  NSX and FINRA.9 Pursuant to the                         in that the proposed Plan is necessary                 then-current list of Common Rules that
                                                  proposed 17d–2 Plan, FINRA would                        or appropriate in the public interest and              are no longer substantially similar to
                                                  assume certain examination and                          for the protection of investors, fosters               FINRA rules; and confirm that the
                                                  enforcement responsibilities for                        cooperation and coordination among                     remaining rules on the list of Common
                                                  common members with respect to                          SROs, and removes impediments to and                   Rules continue to be NSX rules that are
                                                  certain applicable laws, rules, and                     fosters the development of the national                substantially similar to FINRA rules.15
                                                  regulations.                                            market system. In particular, the                      FINRA will then confirm in writing
                                                     The text of the Plan delineates the                  Commission believes that the proposed                  whether the rules listed in any updated
                                                  proposed regulatory responsibilities                    Plan should reduce unnecessary                         list are Common Rules as defined in the
                                                  with respect to the Parties. Included in                regulatory duplication by allocating to                Plan. Under the Plan, NSX will also
                                                  the proposed Plan is an exhibit (the                    FINRA certain examination and                          provide FINRA with a current list of
                                                  ‘‘National Stock Exchange (‘‘NSX’’)                     enforcement responsibilities for                       common members and shall update the
                                                  Rules Certification for 17d–2 Agreement                 common members that would otherwise                    list no less frequently than once each
                                                  with FINRA,’’ referred to herein as the                 be performed by NSX and FINRA.                         quarter.16 The Commission believes that
                                                  ‘‘Certification’’) that lists every NSX                 Accordingly, the proposed Plan                         these provisions are designed to provide
                                                  rule, and select federal securities laws,               promotes efficiency by reducing costs to               for continuing communication between
                                                  rules, and regulations, for which FINRA                 common members. Furthermore,                           the Parties to ensure the continued
                                                  would bear responsibility under the                     because NSX and FINRA will                             accuracy of the scope of the proposed
                                                  Plan for overseeing and enforcing with                                                                         allocation of regulatory responsibility.
                                                  respect to NSX members that are also                       10 See paragraph 1(b) of the proposed 17d–2 Plan       The Commission is hereby declaring
                                                                                                          (defining Common Rules). See also paragraph 1(f)       effective a Plan that, among other
                                                    8 See Securities Exchange Act Release No. 12935       of the proposed 17d–2 Plan (defining Regulatory        things, allocates regulatory
                                                                                                          Responsibilities). Paragraph 2 of the Plan provides
                                                  (October 28, 1976), 41 FR 49091 (November 8,
                                                                                                          that annually, or more frequently as required by
                                                                                                                                                                 responsibility to FINRA for the
                                                  1976).                                                                                                         oversight and enforcement of all NSX
                                                    9 The proposed 17d–2 Plan refers to these             changes in either NSX rules or FINRA rules, the
mstockstill on DSK4VPTVN1PROD with NOTICES




                                                  common members as ‘‘Dual Members.’’ See
                                                                                                          parties shall review and update, if necessary, the     rules that are substantially similar to the
                                                                                                          list of Common Rules. Further, paragraph 3 of the      rules of FINRA for common members of
                                                  Paragraph 1(c) of the proposed 17d–2 Plan. On
                                                                                                          Plan provides that NSX shall furnish FINRA with
                                                  December 14, 2015, the Commission approved a
                                                                                                          a list of Dual Members, and shall update the list no
                                                                                                                                                                 NSX and FINRA. Therefore,
                                                  proposal from NSX to resume its status as a fully                                                              modifications to the Certification need
                                                                                                          less frequently than once each calendar quarter.
                                                  operational securities exchange and to re-
                                                  commence trading operations. See Securities
                                                                                                             11 See paragraph 6 of the proposed 17d–2 Plan.      not be filed with the Commission as an
                                                                                                             12 See paragraph 2 of the proposed 17d–2 Plan.
                                                  Exchange Act Release No. 76640 (December 14,
                                                                                                             13 15 U.S.C. 78q(d).                                 15 See   paragraph 2 of the Plan.
                                                  2015), 80 FR 79122 (December 18, 2015) (SR–NSX–
                                                  2015–05) (approval order).                                 14 17 CFR 240.17d–2(c).                              16 See   paragraph 3 of the Plan.



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                                                                                 Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices                                                                           7873

                                                  amendment to the Plan, provided that                                 SECURITIES AND EXCHANGE                                          II. Self-Regulatory Organization’s
                                                  the Parties are only adding to, deleting                             COMMISSION                                                       Statement of the Purpose of, and
                                                  from, or confirming changes to NSX                                                                                                    Statutory Basis for, the Proposed Rule
                                                  rules in the Certification in conformance                            [Release No. 34–77092; File No. SR–BOX–                          Change
                                                  with the definition of Common Rules                                  2016–03]                                                           In its filing with the Commission, the
                                                  provided in the Plan. However, should                                                                                                 self-regulatory organization included
                                                  the Parties decide to add a NSX rule to                              Self-Regulatory Organizations; BOX                               statements concerning the purpose of,
                                                  the Certification that is not substantially                          Options Exchange LLC; Notice of                                  and basis for, the proposed rule change
                                                  similar to a FINRA rule; delete a NSX                                Filing and Immediate Effectiveness of                            and discussed any comments it received
                                                  rule from the Certification that is                                  a Proposed Rule Change To Add Rule                               on the proposed rule change. The text
                                                  substantially similar to a FINRA rule; or                            7310 (Drill-Through Protection) To                               of these statements may be examined at
                                                  leave on the Certification a NSX rule                                Implement a New Price Protection                                 the places specified in Item IV below.
                                                  that is no longer substantially similar to                           Feature                                                          The self-regulatory organization has
                                                  a FINRA rule, then such a change would                                                                                                prepared summaries, set forth in
                                                                                                                       February 9, 2016.                                                Sections A, B, and C below, of the most
                                                  constitute an amendment to the Plan,
                                                  which must be filed with the                                            Pursuant to Section 19(b)(1) of the                           significant aspects of such statements.
                                                  Commission pursuant to Rule 17d–2                                    Securities Exchange Act of 1934                                  A. Self-Regulatory Organization’s
                                                  under the Act.17                                                     (‘‘Act’’),1 and Rule 19b–4 thereunder,2                          Statement of the Purpose of, and
                                                                                                                       notice is hereby given that on January                           Statutory Basis for, the Proposed Rule
                                                  IV. Conclusion
                                                                                                                       27, 2016, BOX Options Exchange LLC                               Change
                                                     This Order gives effect to the Plan                               (the ‘‘Exchange’’) filed with the
                                                                                                                       Securities and Exchange Commission                               1. Purpose
                                                  filed with the Commission in File No.
                                                  4–694. The Parties shall notify all                                  (‘‘Commission’’) the proposed rule                                  The Exchange is proposing to adopt a
                                                  members affected by the Plan of their                                change as described in Items I and II                            mechanism that will prevent BOX from
                                                  rights and obligations under the Plan.                               below, which Items have been prepared                            experiencing dramatic price swings.
                                                                                                                       by the self-regulatory organization. The                         Specifically, the Exchange proposes to
                                                     It is therefore ordered, pursuant to                                                                                               add Rule 7310 (Drill-through Protection)
                                                                                                                       Commission is publishing this notice to
                                                  Section 17(d) of the Act, that the Plan                                                                                               to implement a new price protection
                                                                                                                       solicit comments on the proposed rule
                                                  in File No. 4–694, between FINRA and                                                                                                  feature on BOX. The new price
                                                                                                                       from interested persons.
                                                  NSX, filed pursuant to Rule 17d–2                                                                                                     protection feature is designed to prevent
                                                  under the Act, is approved and declared                              I. Self-Regulatory Organization’s                                orders and quotes from drilling through
                                                  effective.                                                           Statement of the Terms of Substance of                           and executing at multiple price points.
                                                     It is further ordered that NSX is                                 the Proposed Rule Change                                         This circumstance can exist if, for
                                                  relieved of those responsibilities                                                                                                    example, a Market Order,3 or
                                                                                                                          The Exchange proposes to add Rule                             aggressively priced Limit Order 4 or
                                                  allocated to FINRA under the Plan in
                                                                                                                       7310 (Drill-through Protection) to                               quote is entered that is larger than the
                                                  File No. 4–694.
                                                                                                                       implement a new price protection                                 total volume of contracts quoted at the
                                                    For the Commission, by the Division of                             feature. The text of the proposed rule                           top-of-book across all U.S. options
                                                  Trading and Markets, pursuant to delegated                           change is available from the principal                           exchanges.5 Currently, without any
                                                  authority.18                                                         office of the Exchange, at the                                   protections in place, this could result in
                                                  Brent J. Fields,                                                     Commission’s Public Reference Room                               options executing at prices that have
                                                  Secretary.                                                           and also on the Exchange’s Internet Web                          little or no relation to the theoretical
                                                  [FR Doc. 2016–02982 Filed 2–12–16; 8:45 am]                          site at http://boxexchange.com.                                  price of the option.
                                                  BILLING CODE 8011–01–P                                                                                                                   For example, in a thinly traded
                                                                                                                                                                                        option:

                                                                                                                                           AWAY EXCHANGES
                                                                                             Exchange                                                                  Bid size          Bid price        Offer price          Offer size

                                                  Away   Exchange   #1   ..........................................................................................               5              $2.00             $2.05                    5
                                                  Away   Exchange   #2   ..........................................................................................               5               2.00              2.10                    5
                                                  Away   Exchange   #3   ..........................................................................................               5               2.00              2.10                    5
                                                  Away   Exchange   #4   ..........................................................................................               5               2.00              2.15                    5




                                                    17 The Commission also notes that the addition to                     3 Market Orders submitted to BOX are executed                 volume left after part of a Limit Order has traded
                                                  or deletion from the Certification of any federal                    at the best price obtainable for the total quantity              is retained in the BOX Book until it is withdrawn
mstockstill on DSK4VPTVN1PROD with NOTICES




                                                  securities laws, rules, and regulations for which                    available when the order reaches the BOX market.                 or traded (unless a designation described in
                                                  FINRA would bear responsibility under the Plan for                   Any remaining quantity is executed at the next best              Rule7110(d) is added which prevents the untraded
                                                                                                                       price available for the total quantity available. This
                                                  examining, and enforcing compliance by, common                                                                                        part of a limit order from being retained). All Limit
                                                                                                                       process continues until the Market Order is fully
                                                  members, also would constitute an amendment to                       executed. Prior to execution at each price level,                Orders (with the exception of those with a Good ’Til
                                                  the Plan.                                                            Market Orders are filtered pursuant to the                       Cancelled (‘‘GTC’’) designation as described in Rule
                                                    18 17 CFR 200.30–3(a)(34).                                         procedures set forth in Rule 7130(b) to avoid                    7110(d)(1)) are automatically withdrawn by the
                                                    1 15 U.S.C. 78s(b)(1).                                             trading through the NBBO. See Rule 7110(c)(3).                   Trading Host at market close.
                                                                                                                          4 Limit Orders entered into the BOX Book are                     5 There are currently 12 options exchanges.
                                                    2 17 CFR 240.19b–4.
                                                                                                                       executed at the price stated or better. Any residual



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Document Created: 2016-02-13 03:13:44
Document Modified: 2016-02-13 03:13:44
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 7871 

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