[Federal Register: July 1, 2003 (Volume 68, Number 126)]
[Notices]
[Page 39168-39169]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy03-101]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48064; File No. S7-966]
Program for Allocation of Regulatory Responsibilities Pursuant to
Rule 17d-2; Order Granting Approval of Plan and Amendment No. 1 Thereto
for Allocation of Regulatory Responsibilities Between the National
Association of Securities Dealers, Inc. and the International
Securities Exchange, Inc.
June 19, 2003.
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'') \1\ and Rule 17d-2
thereunder,\2\ for allocation of regulatory responsibilities relating
to options-related sales practices.\3\ On May 1, 2003, NASD and ISE
filed Amendment No. 1 to the plan.\4\ 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.\5\
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\1\ 15 U.S.C. 78q(d).
\2\ 17 CFR 240.17d-2.
\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.
\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.
\5\ See Securities Exchange Act Release No. 46800 (November 8,
2002), 67 FR 69774 (November 19, 2002).
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The plan, including Amendment No. 1, was published for comment on
May 21, 2003.\6\ 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.
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\6\ See Securities Exchange Act Release No. 47871 (May 14,
2003), 68 FR 27869 (May 21, 2003).
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I. Introduction
Section 19(g)(1) of the Act,\7\ 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.\8\ 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.
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\7\ 15 U.S.C. 78s(g)(1).
\8\ 15 U.S.C. 78q(d) and 15 U.S.C. 78s(g)(2).
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Section 17(d)(1) of the Act was intended, in part, to eliminate
[[Page 39169]]
unnecessary multiple examinations and regulatory duplication.\9\ 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.
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\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).
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To implement Section 17(d)(1), the Commission adopted two rules:
Rule 17d-1 and Rule 17d-2 under the Act.\10\ Rule 17d-1, adopted on
April 20, 1976,\11\ 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.
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\10\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2.
\11\ See Securities Exchange Act Release No. 12352, 41 FR 18809
(May 3, 1976).
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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.\12\ 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.
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\12\ See Securities Exchange Act Release No. 12935, 41 FR 49093
(November 8, 1976).
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II. 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)\14\ 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.
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\13\ 15 U.S.C. 78q(d).
\14\ 17 CFR 240.17d-2(c).
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III. Conclusion
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, pursuant to Sections 17(d) \15\ and
11A(a)(3)(B) \16\ of the Act, that the plan of the ISE and NASD, as
amended, filed pursuant to Rule 17d-2,\17\ is approved.
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\15\ 15 U.S.C. 78q(d).
\16\ 15 U.S.C. 78k-1(a)(3)(B).
\17\ 17 CFR 240.17d-2.
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It Is Therefore ordered that the ISE is relieved of those
responsibilities allocated to NASD under the plan, as amended.
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\18\ 17 CFR 200.30-3(a)(34).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-16522 Filed 6-30-03; 8:45 am]
BILLING CODE 8010-01-P