Wednesday, June 25, 2008
The SEC has been subject to much deserved criticism over its slow review process of SRO rule-making. Today at its open meeting the SEC took up a proposal from its Division of Markets and Trading to streamline the process. According to Chairman Cox, in his opening statement,
the staff has recommended that the Commission take aggressive action in this regard. The staff has recommended that the Commission amend its internal rules of procedure to require that any proposed rule change submitted for review under Section 19(b)(2) be published within 15 business days of having been filed by an SRO. In the rare instance where a rules change raises unusually complex or novel issues, the Director of the Division of Trading and Markets would be able to personally make exceptions to this 15-day requirement. This authority could not be sub-delegated, and the Commission, which would be notified of such exceptions, could direct the publication if appropriate.
To further address concerns about delay, the staff also has recommended that the Commission issue new interpretive guidance. This guidance would elaborate on the Commission'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.
First, 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. Additional changes that also could be filed for immediate effectiveness would include, first, those relating to an SRO's minor rule violation plan and, second, so-called "copycat" rule filings relating to proposed rule changes other than trading rules.
This guidance should encourage SROs to file greater numbers of rule changes for immediate effectiveness where appropriate. Importantly, however, SROs should understand that, as the volume of such rule changes increases, so may the possibility that certain rule changes could be abrogated. Undoubtedly, many market participants affected by such rule changes might try to persuade the Commission that a rule change filed for immediate effectiveness should be abrogated and re-filed for full Commission review. In my view, this would be a healthy outcome and one fully contemplated by the framework established under the Exchange Act.
In anticipation of this change in the Commission's processes, the staff also has recommended that the Commission now consider any such abrogations directly. Accordingly, the staff has recommended removing the provision delegating this authority to the Division of Trading and Markets. This change would enhance the Commission's involvement in this area, where industry and Commission practice likely will undergo a period of rapid transition over the coming months and years. Once the Commission and industry have had a chance to adjust to the new process and it has become more routinized, the Commission could once again call on the staff to administer abrogations by delegation.