(The article featured below is a selection from Federal Securities Law Reporter, which is available to subscribers of that publication.)

SROs Propose Consolidation of Insider Trading Surveillance Duties

The SEC has published for comment an agreement among the self-regulatory organizations for the allocations of regulatory responsibilities with respect to insider trading. Each equity exchange is currently responsible for the surveillance of its own market and for any investigations and enforcement actions against its members. Under the plan, NYSE Regulation, Inc. and the Financial Industry Regulatory Authority, Inc. will assume those responsibilities. The plan will eliminate duplication in the surveillance for insider trading in the equity markets.

The SEC advised that the plan was worked out during discussions among the exchanges, NYSE Regulation and FINRA over the past year. Under the plan, NYSE Regulation will be responsible for the surveillance, investigation and enforcement of insider trading in the securities listed on the NYSE and NYSE Arca. FINRA will have the same responsibility with respect to Nasdaq-listed and Amex-listed securities and securities listed solely on the Chicago Stock Exchange.

The SEC has the authority to relieve an SRO of the responsibility to receive regulatory reports and examine for and enforce compliance with the applicable statutes, rules and regulations. The SEC may name a single SRO as the designated examining authority to examine common members for compliance with the financial responsibility requirements of the Exchange Act and SEC and SRO rules. SEC rules allow the SROs to propose joint plans for the allocation of regulatory responsibilities among their common members.

The proposed plan contemplates that an exchange committee, composed of a representative from each of the participating organizations, will meet up to four times a year to discuss regulatory responsibilities, issues of concern and to review reports. The costs of surveillance will be shared among the participating organizations based on their trading volume, subject to certain minimum amounts.

Participating organizations may cancel their participation in the plan by giving 180 days notice and receiving SEC approval. The SEC must approve any reallocation of regulatory responsibilities under the plan.

In the event of the change of control of a listing market, the listing market may transfer the regulatory responsibility for its listed stock from NYSE Regulation to FINRA or vice versa as long as the SRO that is assuming the responsibility consents to the transfer. Any disputes arising under the agreement will be subject to binding arbitration.

The SEC noted that the insider trading initiative is similar to the consolidation of responsibilities over insider trading with respect to securities options. The SEC approved that plan in June 2006. The additional parties to the agreement are the Boston Stock Exchange, the CBOE, the International Stock Exchange, the National Stock Exchange and the Philadelphia Stock Exchange. The comment period is open for 21 days from the publication of the proposal in the Federal Register.