SEC Release No. 34-67967: NASDAQ Rule Change Allows Payment of Regulatory Fines Through Installment Plans
In Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Offer Members the Ability to Pay a Regulatory Fine Pursuant to an Installment Plan, Exchange Act Release No. 34-67967, 2012 WL 4580144 (Oct. 2, 2012), the Securities and Exchange Commission (the “Commission”) provided public notice of NASDAQ OMX BX, Inc.’s (the “Exchange”) proposed rule change to allow Exchange members to pay regulatory fines through an installment plan. The notice contained instructions for interested parties to submit comments regarding the proposed rule change, including whether the change is consistent with the purposes of the Securities Exchange Act of 1934 (the “Act”).
The Exchange’s proposed rule amends NASDAQ Stock Market Rule 8320 and alters procedures in several ways. Regulatory fines eligible for payment through an installment plan must be $50,000 or greater. To select the installment plan option, a member must submit a signed letter of acceptance, waiver, and consent and must include a down payment covering 25 percent or more of the total amount owed. At the time of the first installment payment, the member is also required to execute a promissory note for the remaining balance. Payments may be made in monthly or quarterly increments and the total term of the plan cannot exceed four years.
The Commission’s notice also included the Exchange’s reasons why the proposed rule change is consistent with the Act. The Exchange believes that, in accord with Section 6(b)(5) of the Act, “the proposal is designed to . . . facilitat[e] transactions in securities,  remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.” In addition, the rule change is consistent with other sections requiring fair disciplinary procedures and will promote settlement, which in turn will eliminate the costs of extended disciplinary procedures. Finally, the Exchange believes it will be able to charge higher fines and still receive full payment.
A proposed rule change usually does not go into effect until 30 days after the date it is filed, but pursuant to the Exchange’s request, the Commission waived this waiting period, making the rule operative on its filing date of September 24, 2012. The Commission found that immediate enactment of the rule was consistent with the goals of the Act and that the rule change does not impose any unnecessary burdens on competition. In arriving at this decision, the Commission noted that it “considered the proposed rule’s impact on efficiency, competition and capital formation” as required under 15 U.S.C. § 78(c)(f).
The Commission concluded by opening a comment period to the public for submission of comments regarding the rule change. All comments were due by October 30, 2012.
The primary materials for this case may be found on the DU Corporate Governance website.