On January 7, 2003, the National Association of Securities Dealers, Inc. (“NASD'or “Association”) and the International Securities Exchange, Inc. (“ISE”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) a plan, pursuant to Section 17(d) of the Securities Exchange of 1934 (“Act”)  and Rule 17d-2 thereunder, for allocation of regulatory responsibilities relating to options-related sales practices. On May 1, 2003, NASD and ISE filed Amendment No. 1 to the plan. The regulatory responsibilities transferred to the NASD under this plan, as amended, for common members of the ISE and NASD are all the regulatory responsibilities initially allocated to the ISE under a 17d-2 plan for allocating regulatory responsibilities with respect to options-related sale practices executed by several SROs that was approved by the Commission.
The plan, including Amendment No. 1, was published for comment on May 21, 2003. The Commission received no comments on the plan. This order approves the plan, as amended. 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 Start Printed Page 39169unnecessary 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 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.
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, to foster cooperation and coordination among self-regulatory organizations, or to remove impediments to and foster the development of the national market system. In particular, the Commission believes that the proposed plan is an achievement of cooperation between the ISE and NASD which will reduce unnecessary regulatory duplication by allocating to NASD certain responsibilities related to options-related sale practice regulation for members that belong to both the ISE and NASD. Furthermore, because the ISE and NASD will coordinate their regulatory functions in accordance with the plan, the plan will promote investor protection.
This order gives effect to the plan, as amended, filed with the Commission that is contained in File S7-966. The parties shall notify all members affected by the plan, as amended, of their rights and obligations under the amended plan.
It Is Therefore ordered that the ISE is relieved of those responsibilities allocated to NASD under the plan, as amended.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.18
Margaret H. McFarland,
3. See letter from Michael Simon, Senior Vice President and General Counsel, ISE, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), SEC, dated January 6, 2003.Back to Citation
4. See letter from Michael Simon, Senior Vice President and General Counsel, ISE, to Nancy Sanow, Assistant Director, Division, SEC, dated April 30, 2003. Amendment No. 1 deleted paragraphs 5.1 and 5.2 of the plan filed on January 7, 2003.Back to Citation
5. See Securities Exchange Act Release No. 46800 (November 8, 2002), 67 FR 69774 (November 19, 2002).Back to Citation
6. See Securities Exchange Act Release No. 47871 (May 14, 2003), 68 FR 27869 (May 21, 2003).Back to Citation
9. 15 U.S.C. 78q(d). See also 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
11. See Securities Exchange Act Release No. 12352, 41 FR 18809 (May 3, 1976).Back to Citation
12. See Securities Exchange Act Release No. 12935, 41 FR 49093 (November 8, 1976).Back to Citation
[FR Doc. 03-16522 Filed 6-30-03; 8:45 am]
BILLING CODE 8010-01-P