Notice is hereby given that the Securities and Exchange Commission (“SEC or Commission”) has issued an Order, pursuant to Sections 17(d)  and 11A(a)(3)(B)  of the Securities Exchange Act of 1934 (“Act”), granting approval of the plan, as amended, for allocating regulatory responsibility filed pursuant Start Printed Page 34763to Rule 17d-2 of the Act, by the International Securities Exchange LLC (“ISE”) and the National Association of Securities Dealer, Inc. (“NASD”).
Accordingly, the NASD shall assume, in addition to the regulatory responsibilities it already has under the Act, the regulatory responsibilities allocated to it under the plan, as amended. At the same time, the ISE is relieved of those regulatory responsibilities allocated to the NASD.
Section 19(g)(1) of the Act, among other things, requires every national securities exchange and registered securities association (“SRO”) 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 19(g)(2)  of the Act. Without this relief, the statutory obligation of each individual SRO could result in a pattern of multiple examinations of broker-dealers that maintain memberships in more than one SRO (“common members”). This regulatory duplication would add unnecessary expenses for common members and their SROs.
Section 17(d)(1) of the Act was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication. 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.
To implement Section 17(d)(1), the Commission adopted two rules: Rule 17d-1  and Rule 17d-2 under the Act. Rule 17d-1, adopted on April 20, 1976, 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. 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 applicable financial responsibility rules.
On its face, Rule 17d-1 deals only with an SRO's obligations to enforce broker-dealers' compliance with the financial responsibility requirements. Rule 17d-1 does not relieve an SRO from its obligation to examine a common member for compliance with its own rules and provisions of the federal securities laws governing matters other than financial responsibility, including sales practices, and trading activities and practices.
To address regulatory duplication in these other areas, on October 28, 1976, the Commission adopted rule 17d-2 under the Act. This rule permits SROs to propose joint plans allocating regulatory responsibilities with respect to common members. Under paragraph (c) of rule 17d-2, the Commission may declare such a plan effective if, after providing for 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 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.
On April 19, 2000, the Commission published notice of the filing by the ISE and the NASD of a joint plan allocating regulatory responsibility for common members. No comments were received. On May 1, the parties filed a technical amendment to the plan. The amended plan is intended to reduce regulatory duplication for firms that are common members of the ISE and the NASD. Included in the plan is an attachment (“ISE Certification”) that clearly delineates regulatory responsibilities with respect to ISE rules. The ISE Certification lists every ISE rule that, under the plan, the NASD would bear responsibility for overseeing and enforcing with respect to common members.
The Commission finds that the proposed plan is consistent with the factors set forth in Section 17(d) of the Act and Rule 17d-2(c), in that the proposed plan is necessary or appropriate in the public interest and for the protection of investors, fosters cooperation and coordination among self-regulatory organizations, and removes impediments to and fosters the development of the national market system. In particular, the Commission believes that the proposed plan is an achievement in cooperation between the ISE and the NASD, which will reduce unnecessary regulatory duplication by allocating to the NASD certain responsibilities for common members that would otherwise be performed by both SROs. The proposed plan promotes efficiency by reducing costs to common members. Furthermore, because the ISE and the NASD will coordinate their regulatory functions in accordance with the plan, the plan will promote investor protection.
This order gives effect to the amended plan filed with the Commission that is contained in File No. 4-431. The parties to the plan shall notify all members affected by the amended plan of their rights and obligations under the amended plan.
It is therefore ordered, pursuant to Sections 17(d) and 11A(a)(3)(B) of the Act, that the plan of the ISE and the NASD, as amended, filed pursuant to Rule 17d-2 is approved.
It is therefore ordered that the ISE is relieved of those responsibilities allocated to the NASD under the plan, as amended.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
6. Securities Acts 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).Back to Citation
8. Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18809 (May 3, 1976).Back to Citation
9. Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49093 (November 8, 1976).Back to Citation
10. Securities Exchange Act Release No. 42668 (April 11, 2000), 65 FR 21048 (April 19, 2000).Back to Citation
11. See Letter from Sharon Zackula, Assistant General Counsel, NASD Regulation, to Belinda Blaine, Associate Director, Division of Market Regulation, Commission, dated May 1, 2000 (“Amendment No. 1”). Amendment No. 1 makes non-substantive changes to the provisions of the plan regarding Advertising Materials and Regulatory Responsibility.Back to Citation
12. The ISE has further reduced regulatory duplication by becoming a participant in the plan allocating regulatory responsibility concerning options-related sales practice matters, filed by the American Stock Exchange LLC, the Chicago Board Options Exchange, Inc., the Chicago Stock Exchange, Inc., the National Association of Securities Dealers, Inc., the New York Stock Exchange, the Pacific Exchange, Inc., and the Philadelphia Stock Exchange, Inc. in 1983 (the “Options 17d-2 Plan”) See Securities Exchange Act Release No. 20158 (September 8, 1983), 48 FR 41256 (September 14, 1983). On May 23, 2000, the Commission approved an amendment to the Options 17d-2 plan, which allows ISE to become a participant in the plan. See Securities Exchange Act Release No. 42816. The plan that is the subject of this approval order specifically excludes any obligation or responsibility by the NASD to examine common members for compliance with ISE rules for which the regulatory responsibility is allocated to an SRO under the Options Rule 17d-2 plan.Back to Citation
[FR Doc. 00-13531 Filed 5-30-00; 8:45 am]
BILLING CODE 8010-01-M