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SEC Issues New Final Rule and Interpretive Guidance to Improve Rule-Making Process for Exchanges and SROs
Commission Guidance and Amendment to the Rules Relating to Organization and Program Management Concerning Proposed Rule Changes
Release No. 34-5809217, CFR Parts 200 and 241, 07/03/2008
Basic Information
The Securities and Exchange Commission (“SEC”) announced on July 3, 2008 that it has published on the same day a final rule and new interpretative guidance to improve the rulemaking process for exchanges and other self-regulatory organizations (SROs) that operate under SEC oversight.
The SEC also declared that this new issuance is intended to help increase the competitiveness of U.S. markets, the speed with which new products and services can be made available to investors, and the effectiveness of measures designed to protect investors.
The SEC anticipated that the guidance will result in exchanges filing a broader range of proposed changes to trading rules for immediate effectiveness under Rule 19b-4(f)(6) of the Exchange Act. Additionally, the SEC provided guidance on proposed rule changes relating to an SRO’s minor rule violation plan (“MRVP”) and “copycat” filings relating to SRO rules other than trading rules. The guidance provided as it related to proposed changes to trading rules is directed at SROs that operate trading systems (i.e., the national securities exchanges). The additional guidance is applicable to all SROs, including exchanges, national securities associations, clearing agencies, and the MSRB.
The new issuance included the adoption of an amendment to Rule 200.30-3(a)(12) of the Exchange Act relating to the delegation of authority to the Director of the Division of Trading and Markets regarding the publication of proposed rule changes. Specifically, the amended rule specifies that the Division shall issue notices of all proposed rule changes within 15 business days of filing thereof by the self-regulatory organization unless the Director of the Division personally directs otherwise, and, if the Director has so directed, he shall promptly notify the Commission and either the Commission or the Director may order publication of the notice thereafter.
In making such issuance, the SEC had observed that over the past decade, major securities markets have transformed themselves from member-owned quasi-utilities into shareholder-owned, for-profit, multi-national businesses, and technology has revolutionized securities trading. Trades are now measured in milliseconds, and competitive decision making in the marketplace is urgent and immediate. This era of high-tech, global, and competitive exchanges has put an even greater premium on the SEC reviewing the rule proposals of SROs in a timely manner.
“Exchanges are competing with one another to provide more products to more investors more efficiently than ever before,” said SEC Chairman Christopher Cox. “But exchanges today also need to be able to change their rules quickly to respond to investors’ needs in this competitive environment. These changes in the SEC’s internal procedures should help strengthen the protection of investors who reap the benefits of healthier and more competitive markets.”
Under the Securities Exchange Act of 1934, when a proposed rule change is submitted by an SRO for Commission review, the Commission is required to approve it or institute proceedings to disapprove it within 35 days of its publication. This 35-day deadline can be extended for up to 90 days in certain cases.
To address concerns from market participants and others about rule-processing delays, the SEC has proposed to amend its internal rules of procedure to require that any proposed rule change filed by an SRO for review be published within 15 business days. In the rare instance when a rule change is unusually complex or raised novel issues, the Director of the Division of Trading and Markets would be able to make exceptions to this 15-day requirement.
The new interpretive guidance seeks to elaborate on the SEC’s views regarding proposed rule changes that may properly be filed for immediate effectiveness, and specifically, those proposed rule changes filed pursuant to Exchange Act Rule 19b-4(f)(6), under which “non-controversial” rule changes may be filed.
The guidance would address the proposed changes to rules governing exchange trading systems that could be filed for immediate effectiveness. If these changes implicated any policy issues, they would have to be addressed consistently with how the Commission has dealt with them in the past. The guidance provides many helpful examples in this regard.
The guidance and rules will be effective upon their publication in the Federal Register.
View a PDF of the rule.Service
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