The Securities and Exchange Commission has adopted new rules of practice detailing how it determines whether to approve proposed rule changes submitted by self-regulatory organizations or by the Public Company Accounting Oversight Board.

The rules, required under Section 916 of the Dodd-Frank Act, outline the process the SEC will use when it decides to hold hearings to consider whether to disapprove rules proposed by the PCAOB or by SROs such as the national securities exchanges, the Financial Industry Regulatory Authority and registered clearing agencies. 

The rules, which take effect upon publication in the Federal Register, are intended to enhance transparency around the process used to determine whether to disapprove proposed rules, according to the adopting release. They explain the process for providing notice to the proposing entity and the public of the institution of SEC proceedings to determine whether to disapprove an SRO rule change, the process the proceedings would follow,  and the circumstances in which the Commission may disapprove a proposed rule change. 

The authority to approve a proposed rule change or institute proceedings to determine whether a proposed rule change should be disapproved isn't new; however, Dodd-Frank amended the Exchange Act to give the SEC the ability to disapprove a proposed rule change without first instituting proceedings. It also removed the concept of “abrogation,” which suspended the effectiveness of an SRO filing designated immediately effective upon filing and obligated the SRO to refile the proposal. Under Dodd-Frank, abrogation has been replaced a process in which the SEC may “temporarily suspend” a proposed SRO rule change and then must institute proceedings to determine whether to approve or disapprove it.