Page 11 - White-Collar Crime
P. 11
NYLJ.COM |
WHITE-COLLAR CRIME | MONDAY, FEBRUARY 8, 2016 | S11
many common members, had evolved into FINRA members.14 The RSA was drafted to complaints. Settlements and the issuance of authorization from the NYSE DAC for certain
active and omnipresent regulatory forces expire on Dec. 31, 2015.15
complaints will require authorization from types of cases. Only time will tell if two’s a
on Wall Street.6
In 2011, the NYSE annexed its last regulato- NYSE’s Disciplinary Action Committee (DAC), crowd, but these differences, combined with
ry function when it transferred responsibility as they did prior to the 2007 merger.24 The the NYSE’s effective management of its come-
Regulatory Consolidation
for investigating insider trading occurring on DAC, which will replace the function now back, has, at least for the time being, allayed
the NYSE to FINRA.16 Since this transfer, FINRA served by FINRA’s Office of Disciplinary securities industry anxiety about having to
The push by both the Clinton and Bush II has essentially been the only self-regulator on Affairs, will be chaired by NYSE’s Chief Reg- serve two regulatory masters.
administrations to deregulate the nation’s the industry beat. However, FINRA learned ulatory Oficer and two senior NYSER staff
financial markets and banking systems in the fall of 2014 that this distinction was appointees whose responsibilities do not • ••
fueled the industry’s desire to lessen its only temporary.
include investigating and prosecuting dis- ••••••••••••••••••••••••••
1. FINRA is actually headquartered in Rockville, Md.,
self-regulatory burdens. The brokerage ciplinary matters.25 One notable departure but maintains a signiicant presence in New York, where
industry began to agitate for some type The NYSE Comeback
from the NYSE’s pre-merger operation is that most of its executive and Enforcement staff is located.
of consolidation so that irms would not now NYSER will litigate formal actions before 2. See Concept Release Concerning Self-Regulation, 69 Fed. Reg. 71,256 (Dec. 8, 2004).
have to answer to multiple overseers and On Oct. 6, 2014, NYSE announced that FINRA’s Ofice of Hearing Oficers,26 as the 3. 15 U.S.C. §78f(a).
be subject to dual rule regimes. In her May NYSER would be taking back market surveil- expected volume of disciplinary actions does 4. 15 U.S.C. §78f(b)(5).
2007 testimony before the Senate banking lance, investigation, and enforcement duties not warrant the creation of a stable of hear- 5. 15 U.S.C. §78o(b).
subcommittee, then NASD CEO Mary Scha- from FINRA upon the expiration of the RSAs.17 ing oficers and support staff. Hearings will 6. Central to the evolution of the securities industry
piro stated, “[p]erhaps the most critical NYSER’s reclaimed authority encompasses take place before panels chaired by a FINRA self-regulation was the regulation of the regulators them-
selves, which Congress granted to the SEC. The Exchange
step we will take to bring more eficiency the enforcement of rules that speciically gov- Hearing Oficer, who will be joined by two Act gave the SEC power to bring a civil enforcement ac- tion against an SRO for not adequately regulating its
to our regulatory efforts as part of this con- ern the markets operated by ICE, the New additional panelists.27 However, the appeals members. Periodically, the SEC has used this authority
solidation is the creation of a single rule- York Stock Exchange, NYSE Arca, and NYSE process is the same. Panel decisions may be when it found that the NYSE or NASD did not adequately
book for the industry.”7 Her testimony took MKT (the NYSE Exchanges).18
appealed to the NYSE Board of Directors or discharge their oversight responsibilities. In 1975, Con-
place in the context of joint planning by the a committee acting on their behalf.28 From gress amended the Exchange Act to allow the SEC to ini-
NYSE and NASD to merge their regulatory there, the appeals route parallels the one tiate as well as approve SRO rule-making and take on a
operations into a single organization (the in place with respect to FINRA disciplinary more expansive role in SRO enforcement and discipline. See Robert S. Karmel, “Securities Regulation; the Future
2007 Allocation). The SEC approved this Going forward, regulatory actions, where the irst level of review is the of Self-Regulatory Organizations,” NYLJ, June 18, 2009.
plan on July 26, 2007, and four days later, inquiries concerning conduct SEC and then the appropriate U.S. Court of 7. Schapiro became CEO of FINRA and then served as
Chairperson of the SEC from 2009 to 2012.
FINRA opened its doors for business, or, primarily occurring on the NYSE Appeals.29
8. Program for Allocation of Regulatory Responsibili-
more accurately, regulation.8
Under the new regime, FINRA will still be ties Pursuant to Rule 17d-2, 72 Fed. Reg. 42,146 (Aug. 1,
Under the 2007 Allocation, FINRA assumed markets will be initiated by responsible for overseeing investigations and 2007).
the examination, enforcement, and surveil- NYSE Regulation (NYSER), who prosecutions whose subject matter fall out- 9. Id.
10. Id. at 42,148.
lance responsibilities for members common side the RSA. These matters include compli- 11. Proposed Rule Change to References in NYSE LLC
to both organizations (Common Members) will investigate and prosecute ance with the Common Rules allocated to it Rules, 75 Fed. Reg. 36,729 (June 28, 2010).
with regard to a set of “Common Rules” set through the 2007 and 2011 SEC Orders, which 12. Id.
forth in the plan.9 NYSE reserved some of matters arising from surveil- means insider trading occurring on the NYSE 13. Jacob Bunge & Suzanne Barlyn, “Finra to Regulate
its oversight authority, including (1) exami- lance to inal disposition.
markets will remain within FINRA’s purview. NYSE Equities, Options Markets,” WALL ST. J. (May 5,
2010), http://www.wsj.com/articles/SB1000142405274870
nations of Common Member conduct cov- In these cases, FINRA staff will be required to 3866704575224020545962244.
14. Proposed Rule Change to References in Exchange
ered by NYSE Rules not part of the Common NYSER has identiied two primary drivers seek settlement and complaint authorization Rules, 72 Fed. Reg. at 36,729. NYSE Regulation, a subsid-
Rules and/or federal laws or regulations; for its return to regulation: (1) taking direct from the DAC. FINRA will also continue to iary of NYSE, performs and oversees NYSE, NYSE Arca,
(2) surveillance, investigation, and enforce- responsibility for monitoring activity on the perform cross-market surveillance and inves- and NYSE MKT (i.e., NYSE’s U.S. securities exchanges)
ment with respect to (a) conduct relating NYSE Exchanges, and (2) early detection of tigation, as well as the registration, testing, SRO responsibilities and functions, through a combina-
to trading on or through NYSE systems or potentially violative behavior and prompt and examinations of NYSE broker-dealers.30
tion of intercompany delegation agreements and regula-
facilities, (b) conduct otherwise covered by disposition of such instances.19 NYSER CEO tory services agreements. Regulation: NYSE Regulation, INTERCONTINENTAL EXCH., https://www.nyse.com/
NYSE-only Rules, or (c) whether conduct Mary Brienza stated that NYSER’s expertise regulation (last visited Nov. 18, 2015).
Conclusion
15. Press Release, Intercontinental Exch., NYSE Regu-
under (2)(a) or (2)(b) constituted a violation and proximity to the markets being regulated lation to Perform Market Surveillance Investigation and
of federal laws or regulations.10
will enable more effective surveillance and The most pressing question presented by Enforcement Program for NYSE Group Exchanges (Oct.
In June 2010, NYSE ceded its residual mar- rule enforcement.20 In connection with its the NYSE’s return to self-regulation is whether 6, 2014).
ket surveillance and enforcement duties to resumption of regulatory duties, NYSE has it represents a resumption of the pre-FINRA 16. Notice of Filing and Order Approving and Declaring Ef-
FINRA under a “Regulatory Services Agree- created an entirely new Enforcement Depart- state of affairs wherein brokerage irms were fective an Amendment to the Plan for the Allocation of Regu- latory Responsibilities, 76 Fed. Reg. 4,948 (Jan. 27, 2011).
ment” (RSA).11 Consequently, FINRA took on ment, consisting of attorneys, examiners, subject to regulatory overlap and the associ- 17. See Press Release, Intercontinental Exch., supra
the responsibility to monitor NYSE member paralegals, and investigators. Overseeing the ated burdens and costs. As currently consti- note 15.
conduct under NYSE rules, investigate and department as NYSER’s Head of Enforcement tuted, the new dual self-regulatory scheme is 18. Memorandum from NYSE Regulation to NYSE
enforce violations of NYSE rules, and conduct is Adam Wasserman, formerly of Dechert a far cry from the one that preceded FINRA’s Markets (Nov. 4, 2015), available at https://www.nyse.
com/publicdocs/nyse/markets/nyse/rule-interpreta-
disciplinary proceedings arising out of such LLP, where he was a senior member of the creation in 2007. For one, the NYSE regula- tions/2015/NYSE-15-6.pdf (Information Memo #1).
19. Id.
enforcement actions.12 At the time, the SEC irm’s white-collar and securities litigation tory operation is substantially smaller than its 20. See Press Release, Intercontinental Exch., supra
noted that the evolution and increasing frag- group.21 Going forward, regulatory inquiries pre-consolidation predecessor. Second, NYS- note 15.
mentation of the securities markets called for concerning conduct primarily occurring on ER’s regulatory mandate is precisely drawn. 21. Id.
effective cross-market, cross-product over- the NYSE markets will be initiated by NYSER,22 Instead of being an omnibus enforcement 22. See Information Memo #1, supra note 18.
sight. NYSE Euronext’s CFO, Michael Gelt- who will investigate and prosecute matters entity, NYSER has taken on a series of discrete 23. See id.; Memorandum from NYSE Regulation to
zeiler, stated that the move marked a step arising from surveillance to inal disposition.23
missions directly tied to the distinct character NYSE Markets (Nov. 23, 2015), available at https://www.
towards the optimal structure of a single of the individual exchanges that comprise the nyse.com/publicdocs/nyse/markets/nyse/rule-interpre- tations/2015/NYSE%2015-8.pdf (Information Memo #3).
market surveiller.Between the 2007 Allo- NYSE. Third, the new regime incorporates 24. Id.
13 The New Regulatory Landscape
25. Id.
cation and the 2010 RSA, NYSE gave FINRA explicit coordination and interdependence 26. Id.
essentially all member regulatory functions NYSER’s new regulatory program is sub- between NYSER and FINRA, reflected, for 27. Id.
previously performed by NYSE Regulation stantially similar to the old one. As before, example, by NYSER’s utilization of FINRA’s 28. Id.
(NYSER) including all disciplinary proceed- NYSER will pursue disciplinary action through Hearing Oficers and the requirement that 29. Id.
30. See Press Release, Intercontinental Exch., supra
ings relating to NYSE-speciic rules and non-
the dual processes of settlements and formal
FINRA staff seek complaint and settlement
note 15.
Let us show you why MA3000 is the best docketing and
calendaring system in the country.
For law irms of all sizes.
Rules-based Scheduling Case email alerts in over 250 courts Outlook integration Calendars on your SmartPhone
For more information contact: MA3000 120
Broadway, 5th Floor, New York, NY 10271 | 212-457-7835 | [email protected]
