[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9904-9916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02553]
[[Page 9904]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79948; File No. SR-CHX-2017-03]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Implement the Compliance
Rule Regarding the National Market System Plan Governing the
Consolidated Audit Trail
February 2, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that on February 1, 2017, the Chicago Stock Exchange, Inc.
(``CHX'' or ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the self-
regulatory organization.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange originally filed this proposed rule change on
January 18, 2017 under File No. SR-CHX-2017-02, and the Exchange
subsequently withdrew that filing on January 30, 2017 and filed this
proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
CHX proposes to amend the Rules of the Exchange (``CHX Rules'') to
adopt Article 23 of the Rules of the Exchange (``CHX Rules'') to
implement the compliance rule (``Compliance Rule'') regarding the
National Market System Plan Governing the Consolidated Audit Trail (the
``CAT NMS Plan'' or ``Plan'').\4\ The text of this proposed rule change
is available on the Exchange's Web site at http://www.chx.com/regulatory-operations/rule-filings/, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
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\4\ Unless otherwise specified, capitalized terms used in this
rule filing are defined as set forth herein or in the CAT NMS Plan.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA
Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2
Options Exchange, Incorporated, Chicago Board Options Exchange,
Incorporated, the Exchange, Financial Industry Regulatory Authority,
Inc., International Securities Exchange, LLC, Investors' Exchange LLC,
ISE Gemini, LLC, ISE Mercury, LLC, Miami International Securities
Exchange LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The
NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock
Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, the
``Plan Participants'' \5\) filed with the Commission, pursuant to
Section 11A of the Exchange Act \6\ and Rule 608 of Regulation NMS
thereunder,\7\ the CAT NMS Plan.\8\ The Plan Participants filed the
Plan to comply with Rule 613 of Regulation NMS under the Exchange Act.
The Plan was published for comment in the Federal Register on May 17,
2016,\9\ and approved by the Commission, as modified, on November 15,
2016.\10\
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\5\ A ``Participant'' is a ``member'' of the Exchange for
purposes of the Act. See CHX Article 1, Rule 1(s). For the avoidance
of confusion, the term ``Plan Participant'' will be used when
referring to Participants of the Plan.
\6\ 15 U.S.C. 78k-1.
\7\ 17 CFR 242.608.
\8\ See Letter from the Plan Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Plan Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Plan Participants
submitted an amendment to the CAT NMS Plan. See Letter from Plan
Participants to Brent J. Fields, Secretary, Commission, dated
December 23, 2015.
\9\ See Securities Exchange Act Release No. 77724 (Apr. 27,
2016), 81 FR 30614 (May 17, 2016).
\10\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81
FR 84696 (Nov. 23, 2016) (``Approval Order'').
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The Plan is designed to create, implement and maintain a
consolidated audit trail (``CAT'') that would capture customer and
order event information for orders in NMS Securities and OTC Equity
Securities, across all markets, from the time of order inception
through routing, cancellation, modification, or execution in a single
consolidated data source. Each Plan Participant is required to enforce
compliance by its Industry Members, as applicable, with the provisions
of the Plan, by adopting a Compliance Rule applicable to their Industry
Members.\11\ As is described more fully below, the proposed Article 23
sets forth the Compliance Rule to require Industry Members to comply
with the provisions of the CAT NMS Plan. Proposed Article 23 includes
twelve proposed Rules covering the following areas: (1) Definitions;
(2) clock synchronization; (3) Industry Member Data reporting; (4)
Customer information reporting; (5) Industry Member information
reporting; (6) time stamps; (7) clock synchronization rule violations;
(8) connectivity and data transmission; (9) development and testing;
(10) recordkeeping; (11) timely, accurate and complete data; and (12)
compliance dates. Each of these proposed Rules are discussed in detail
below.
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\11\ See SEC Rule 613(g)(1).
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(i) Definitions
Proposed Rule 1 (Consolidated Audit Trail--Definitions) sets forth
the definitions for the terms used in proposed Article 23. Each of the
defined terms in proposed Rule 1 is discussed in detail in this
section.
(A) Account Effective Date
(I) Customer Information Approach
SEC Rule 613 requires that numerous data elements be reported to
the CAT to ensure there is sufficient information to create the
lifecycle of an order, and provide regulators with sufficient detail
about an order to perform their regulatory duties. Certain required
elements are intended to ensure that the regulators can identify the
Customer's [sic] associated with orders. For example, SEC Rule
613(c)(7)(i)(A) requires an Industry Member to report the ``Customer-
IDs'' for each Customer for the original receipt or origination of an
order. ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with
respect to a customer, a code that uniquely and consistently identifies
such customer for purposes of providing data to the Central
Repository.'' SEC Rule 613(c)(8) requires Industry Members to use the
same Customer-ID for each Customer. The SEC granted the Plan
Participants exemptive relief to permit the use of an alternative
approach to the requirement that an Industry Member report a Customer-
ID for every Customer upon original receipt or origination.\12\ The
alternative
[[Page 9905]]
approach is called the Customer Information Approach.
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\12\ See Securities Exchange Act Release No. 77265 (March 1,
2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also
Letter from Participants to Brent J. Fields, Secretary, Commission,
dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT
NMS Plan at Appendix C, Section A.1(a)(iii).
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Under the Customer Information Approach, the CAT NMS Plan would
require each Industry Member to assign a unique Firm Designated ID to
each Customer. As the Firm Designated ID, Industry Members would be
permitted to use an account number or any other identifier defined by
the firm, provided each identifier is unique across the firm for each
business date (i.e., a single firm may not have multiple separate
customers with the same identifier on any given date). Prior to their
commencement of reporting to the CAT, Industry Members would submit an
initial set of Customer information to the Central Repository,
including the Firm Designated ID, Customer Identifying Information and
Customer Account Information (which may include, as applicable, the
Customer's name, address, date of birth, individual tax payer
identifier number (``ITIN'')/social security number (``SSN''),
individual's role in the account (e.g., primary holder, joint holder,
guardian, trustee, person with power of attorney) and LEI and/or Larger
[sic] Trader ID (``LTID'')). This process is referred to as the
customer definition process.
In accordance with the Customer Information Approach, Industry
Members would be required to report only the Firm Designated ID for
each new order submitted to the Central Repository, rather than the
``Customer-ID'' with individual order events. Within the Central
Repository, each Customer would be uniquely identified by identifiers
or a combination of identifiers such as ITIN/SSN, date of birth, and as
applicable, LEI and LTID. The Plan Processor would be required to use
these unique identifiers to map orders to specific Customers across all
Industry Members and Plan Participants. To ensure information
identifying a Customer is up to date, Industry Members would be
required to submit to the Central Repository daily and periodic updates
for reactivated accounts, newly established accounts, and revised Firm
Designated IDs or associated reportable Customer information.
(II) Definition of Account Effective Date
In connection with the Customer Information Approach, Industry
Members would be required to report Customer Account Information to the
Central Repository. ``Customer Account Information'' is defined in SEC
Rule 613(j)(4) to ``include, but not be limited to, account number,
account type, customer type, date account opened, and large trader
identifier (if applicable).'' Therefore, when reporting Customer
Account Information, an Industry Member is required to report the date
an account was opened. The Plan Participants requested and received an
exemption to allow an ``Account Effective Date'' to be reported in lieu
of an account open date in certain limited circumstances. The
definition of ``Account Effective Date'' as set forth in Paragraph (a)
of proposed Rule 1 describes those limited circumstances in which an
Industry Member may report an ``Account Effective Date'' rather than
the account open date. The proposed definition is the same as the
definition of ``Account Effective Date'' set forth in Section 1.1 of
the CAT NMS Plan, provided, however, that specific dates have replaced
the descriptions of those dates set forth in Section 1.1 of the Plan.
Specifically, paragraph (a)(1) defines ``Account Effective Date
[sic] to mean, with regard to those circumstances in which an Industry
Member has established a trading relationship with an institution but
has not established an account with that institution: (1) When the
trading relationship was established prior to November 15, 2018 for
Industry Members other than Small Industry Members, or prior to
November 15, 2019 for Small Industry Members, either (a) the date the
relationship identifier was established within the Industry Member; (b)
the date when trading began (i.e., the date the first order was
received) using the relevant relationship identifier; or (c) if both
dates are available, the earlier date will be used to the extent that
the dates differ; or (2) when the trading relationship was established
on or after November 15, 2018 for Industry Members other than Small
Industry Members, or on or after November 15, 2019 for Small Industry
Members, the date the Industry Member established the relationship
identifier, which would be no later than the date the first order was
received.
Paragraph (a)(2) of proposed Rule 1 states that an ``Account
Effective Date'' means, where an Industry Member changes back office
providers or clearing firms prior to November 15, 2018 for Industry
Members other than Small Industry Members, or prior to November 15,
2019 for Small Industry Members, the date an account was established at
the relevant Industry Member, either directly or via transfer.
Paragraph (a)(3) states that an ``Account Effective Date'' means,
where an Industry Member acquires another Industry Member prior to
November 15, 2018 for Industry Members other than Small Industry
Members, or prior to November 15, 2019 for Small Industry Members, the
date an account was established at the relevant Industry Member, either
directly or via transfer.
Paragraph (a)(4) states that ``Account Effective Date'' means,
where there are multiple dates associated with an account established
prior to November 15, 2018 for Industry Members other than Small
Industry Members, or prior to November 15, 2019 for Small Industry
Members, the earliest available date.
Paragraph (a)(5) states that an ``Account Effective Date'' means,
with regard to Industry Member proprietary accounts established prior
to November 15, 2018 for Industry Members other than Small Industry
Members, or prior to November 15, 2019 for Small Industry Members: (1)
The date established for the account in the Industry Member or in a
system of the Industry Member or (2) the date when proprietary trading
began in the account (i.e., the date on which the first orders were
submitted from the account). With regard to paragraphs (a)(2)-(5), the
Account Effective Date will be no later than the date trading occurs at
the Industry Member or in the Industry Member's system.
(B) Active Account
Under the Customer Information Approach, Industry Members are
required to report Customer Identifying Information and Customer
Account Information for only those accounts that are active. This will
alleviate the need for Industry Members to update such information for
non-active accounts, but still ensure that the Central Repository will
collect audit trail data for Customer accounts that have any Reportable
Events. Accordingly, paragraph (b) of proposed Rule 1 defines an
``Active Account'' as an account that has had activity in Eligible
Securities within the last six months. This is the same definition as
set forth in Section 1.1 of the CAT NMS Plan.
(C) Allocation Report
(I) Allocation Report Approach
SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record
and report to the Central Repository ``the account number for any
subaccounts to which the execution is allocated (in whole or in
part).'' The SROs requested and received from the SEC exemptive relief
from SEC Rule 613 for an alternative to this approach (``Allocation
Report Approach''). The Allocation
[[Page 9906]]
Report Approach would permit Industry Members to record and report to
the Central Repository an Allocation Report that includes, among other
things, the Firm Designated ID for any account(s) to which executed
shares are allocated when an execution is allocated in whole or part in
lieu of requiring the reporting of the account number for any
subaccount to which an execution is allocated, as is required by SEC
Rule 613.\13\ Under SEC Rule 613, regulators would be able to link the
subaccount to which an allocation was made to a specific order. In
contrast, under the Allocation Report Approach, regulators would only
be able to link an allocation to the account to which it was made, and
not to a specific order.
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\13\ See Exemptive Request Letter at 26-27; and Exemption Order.
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(II) Definition of Allocation Report
To assist in implementing the Allocation Report Approach, paragraph
(c) of proposed Rule 1 defines an ``Allocation Report.'' Specifically,
an ``Allocation Report'' means a report made to the Central Repository
by an Industry Member that identifies the Firm Designated ID for any
account(s), including subaccount(s), to which executed shares are
allocated and provides the security that has been allocated, the
identifier of the firm reporting the allocation, the price per share of
shares allocated, the side of shares allocated, the number of shares
allocated to each account, and the time of the allocation; provided,
for the avoidance of doubt, any such Allocation Report shall not be
required to be linked to particular orders or executions. This is the
same definition as set forth in Section 1.1 of the CAT NMS Plan.
(D) Business Clock
To create the required audit trail, Industry Members are required
to record the date and time of various Reportable Events to the Central
Repository. Industry Members will use ``Business Clocks'' to record
such dates and times. Accordingly, paragraph (d) of proposed Rule 1
defines the term ``Business Clock'' as a clock used to record the date
and time of any Reportable Event required to be reported under this
Article 23. This is the same definition as set forth in Section 1.1 of
the CAT NMS Plan, except the Exchange proposes to replace the phrase
``under SEC Rule 613'' at the end of the definition in Section 1.1 of
the Plan with the phrase ``under this Article 23.'' This change is
intended to recognize that the Industry Members' obligations with
regard to the CAT are set forth in this Article 23.
(E) CAT
Paragraph (e) of proposed Rule 1 defines the term ``CAT'' to mean
the consolidated audit trail contemplated by SEC Rule 613. This is the
same definition as set forth in Section 1.1 of the CAT NMS Plan.
(F) CAT NMS Plan
Paragraph (f) of proposed Rule 1 defines the term ``CAT NMS Plan''
to mean the National Market System Plan Governing the Consolidated
Audit Trail, as amended from time to time.
(G) CAT-Order-ID
(I) Daisy Chain Approach
Under the CAT NMS Plan, the Daisy Chain Approach is used to link
and reconstruct the complete lifecycle of each Reportable Event in CAT.
According to this Approach, Industry Members assign their own
identifiers to each order event. Within the Central Repository, the
Plan Processor later replaces the identifier provided by the Industry
Member for each Reportable Event with a single identifier, called the
CAT Order-ID, for all order events pertaining to the same order. This
CAT Order-ID is used to links the Reportable Events related to the same
order.
(II) Definition of CAT-Order-ID
To implement the Daisy Chain Approach, Paragraph (g) of proposed
Rule 1 defines the term ``CAT-Order-ID.'' The term ``CAT-Order-ID'' is
defined to mean a unique order identifier or series of unique order
identifiers that allows the Central Repository to efficiently and
accurately link all Reportable Events for an order, and all orders that
result from the aggregation or disaggregation of such order. This is
the same definition as set forth in SEC Rule 613(j)(1), and Section 1.1
of the CAT NMS Plan defines ``CAT-Order-ID'' by reference to SEC Rule
613(j)(1).
(H) CAT Reporting Agent
The CAT NMS Plan permits an Industry Member to use a third party,
such as a vendor, to report the required data to the Central Repository
on behalf of the Industry Member.\14\ Such a third party, referred to
in this proposed Article 23 as a ``CAT Reporting Agent,'' would be one
type of a Data Submitter, that is, a party that submits data to the
Central Repository. Paragraph (h) of proposed Rule 1 defines the term
``CAT Reporting Agent'' to mean a Data Submitter that is a third party
that enters into an agreement with an Industry Member pursuant to which
the CAT Reporting Agent agrees to fulfill such Industry Member's
reporting obligations under this Article 23.
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\14\ Appendix C, Section A.1(a) of the CAT NMS Plan.
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This definition is based on FINRA's definition of a ``Reporting
Agent'' as set forth in FINRA's rule related to its Order Audit Trail
System (``OATS''). Specifically, FINRA Rule 7410(n) defines a
``Reporting Agent'' as a third party that enters into any agreement
with a member pursuant to which the Reporting Agent agrees to fulfill
such member's obligations under Rule 7450. The Reporting Agent for OATS
fulfills a similar role to the CAT Reporting Agent.
(I) Central Repository
Paragraph (i) of proposed Rule 1 defines the term ``Central
Repository'' to mean the repository responsible for the receipt,
consolidation, and retention of all information reported to the CAT
pursuant to SEC Rule 613 and the CAT NMS Plan. This is the same
definition as set forth in Section 1.1 of the CAT NMS Plan, except the
Exchange uses the phrase ``CAT NMS Plan'' in place of the phrase ``this
Agreement.''
(J) Compliance Threshold
Paragraph (j) of proposed Rule 1 defines the term ``Compliance
Threshold'' as having the meaning set forth in proposed Rule 11(d).
This definition has the same substantive meaning as the definition set
forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below
with regard to proposed Rule 11(d), each Industry Member is required to
meet a separate compliance threshold which will be an Industry Member-
specific rate that may be used as the basis for further review or
investigation into the Industry Member's performance with regard to the
CAT. This Industry Member-specific rate is the ``Compliance
Threshold.''
(K) Customer
Industry Members are required to submit to the Central Repository
certain information related to their Customers, including Customer
Identifying Information and Customer Account Information, as well as
data related to their Customer's Reportable Events. Accordingly,
Paragraph (k) of proposed Rule 1 proposes to define the term
``Customer.'' Specifically, the term ``Customer'' would be defined to
mean: (1) The account holder(s) of the account at an Industry Member
originating the order; and (2) any person from whom the Industry Member
is authorized to accept trading instructions for such
[[Page 9907]]
account, if different from the account holder(s). This is the same
definition as set forth in SEC Rule 613(j)(3), except the Exchange
proposes to replace the references to a registered broker-dealer or
broker-dealer with a reference to an Industry Member for consistency of
terms used in proposed Article 23. The Exchange also notes that Section
1.1 of the CAT NMS Plan defines ``Customer'' by reference to SEC Rule
613(j)(3).
(L) Customer Account Information
As discussed above, under the Customer Information Approach,
Industry Members are required to report Customer Account Information to
the Central Repository as part of the customer definition process.
Accordingly, the Exchange proposes to define the term ``Customer
Account Information'' to clarify what customer information would need
to be reported to the Central Repository.
Paragraph (l) of proposed Rule 1 defines the term ``Customer
Account Information'' to include, in part, account number, account
type, customer type, date account opened, and large trader identifier
(if applicable). Proposed Rule 1(l), however, provides an alternative
definition of ``Customer Account Information'' in two limited
circumstances. First, in those circumstances in which an Industry
Member has established a trading relationship with an institution but
has not established an account with that institution, the Industry
Member will: (1) Provide the Account Effective Date in lieu of the
``date account opened''; (2) provide the relationship identifier in
lieu of the ``account number''; and (3) identify the ``account type''
as a ``relationship.'' Second, in those circumstances in which the
relevant account was established prior to November 15, 2018 for
Industry Members other than Small Industry Members, or prior to
November 15, 2019 for Small Industry Members, and no ``date account
opened'' is available for the account, the Industry Member will provide
the Account Effective Date in the following circumstances: (1) Where an
Industry Member changes back office providers or clearing firms and the
date account opened is changed to the date the account was opened on
the new back office/clearing firm system; (2) where an Industry Member
acquires another Industry Member and the date account opened is changed
to the date the account was opened on the post-merger back office/
clearing firm system; (3) where there are multiple dates associated
with an account in an Industry Member's system, and the parameters of
each date are determined by the individual Industry Member; and (4)
where the relevant account is an Industry Member proprietary account.
The proposed definition is the same as the definition of ``Customer
Account Information'' set forth in Section 1.1 of the CAT NMS Plan,
provided, however, that specific dates have replaced the descriptions
of those dates set forth in Section 1.1 of the Plan.
(M) Customer Identifying Information
As discussed above, under the Customer Information Approach,
Industry Members are required to report Customer Identifying
Information to the Central Repository as part of the customer
definition process. Accordingly, the Exchange proposes to define the
term ``Customer Account Information'' to clarify what Customer
information would need to be reported to the Central Repository.
Paragraph (m) of proposed Rule 1 defines the term ``Customer
Identifying Information'' to mean information of sufficient detail to
identify a Customer. With respect to individuals, ``Customer
Identifying Information'' includes, but is not limited to: Name,
address, date of birth, individual tax payer identification number
(``ITIN'')/social security number (``SSN''), individual's role in the
account (e.g., primary holder, joint holder, guardian, trustee, person
with the power of attorney). With respect to legal entities, ``Customer
Identifying Information'' includes, but is not limited to, name,
address, Employer Identification Number (``EIN'')/Legal Entity
Identifier (``LEI'') or other comparable common entity identifier, if
applicable. The definition further notes that an Industry Member that
has an LEI for a Customer must submit the Customer's LEI in addition to
other information of sufficient detail to identify the Customer. This
is the same definition as set forth in Section 1.1 of the CAT NMS Plan.
(N) Data Submitter
The CAT NMS Plan uses the term ``Data Submitter'' to refer to any
person that reports data to the Central Repository.\15\ Such Data
Submitters may include those entities that are required to submit data
to the Central Repository (e.g., national securities exchanges,
national securities associations and Industry Members), third-parties
that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT
Reporting Agents), and outside parties that are not required to submit
data to the CAT but from which the CAT may receive data (e.g.,
securities information processors (``SIPs'')). To include this term in
proposed Article 23, the Exchange proposes to define ``Data Submitter''
in paragraph (n) of proposed Rule 1. Specifically, paragraph (n) of
proposed Rule 1 defines a ``Data Submitter'' to mean any person that
reports data to the Central Repository, including national securities
exchanges, national securities associations, broker-dealers, the SIPs
for the CQS, CTA, UTP and Plan for Reporting of Consolidated Options
Last Sale Reports and Quotation Information (``OPRA'') Plans, and
certain other vendors or third parties that may submit data to the
Central Repository on behalf of Industry Members.
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\15\ Appendix C, Section A.1(a) of the CAT NMS Plan.
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(O) Eligible Security
The reporting requirements of proposed Article 23 only apply to
Reportable Events in Eligible Securities. Currently, an Eligible
Security includes NMS Securities and OTC Equity Securities.
Accordingly, paragraph (o) of proposed Rule 1 defines the term
``Eligible Security'' to include: (1) All NMS Securities; and (2) all
OTC Equity Securities. The terms ``NMS Securities'' and ``OTC Equity
Securities'' are defined, in turn, below. This is the same definition
as set forth in Section 1.1 of the CAT NMS Plan.
(P) Error Rate
(I) Maximum Error Rate
Under the CAT NMS Plan, the Operating Committee sets the maximum
Error Rate that the Central Repository would tolerate from an Industry
Member reporting data to the Central Repository.\16\ The Operating
Committee reviews and resets the maximum Error Rate, at least
annually.\17\ If an Industry Member reports CAT data to the Central
Repository with errors such that their error percentage exceeds the
maximum Error Rate, then such Industry Member would not be in
compliance with the CAT NMS Plan or Rule 613.\18\ As such, the Exchange
or the SEC ``[sic] may take appropriate action against an Industry
Member for failing to comply with its CAT reporting obligations.\19\
The CAT NMS Plan sets the initial Error Rate at 5%.\20\ It is
anticipated that the maximum Error Rate will be reviewed and lowered by
the Operating Committee once Industry Members
[[Page 9908]]
begin to report to the Central Repository.\21\
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\16\ Section 6.5(d)(i) of the CAT NMS Plan.
\17\ Appendix C, Section A.3(b) of the CAT NMS Plan.
\18\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule
613(g)-(h).
\19\ Appendix C, Section A.3(b) of the CAT NMS Plan.
\20\ Section 6.5(d)(i) of the CAT NMS Plan.
\21\ Appendix C, Section A.3(b) of the CAT NMS Plan.
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The CAT NMS Plan requires the Plan Processor to: (1) Measure and
report errors every business day; (2) provide Industry Members daily
statistics and error reports as they become available, including a
description of such errors; (3) provide monthly reports to Industry
Members that detail an Industry Member's performance and comparison
statistics; (4) define educational and support programs for Industry
Members to minimize Error Rates; and (5) identify, daily, all Industry
Members exceeding the maximum allowable Error Rate. To timely correct
data-submitted errors to the Central Repository, the CAT NMS Plan
requires that the Central Repository receive and process error
corrections at all times. Further, the CAT NMS Plan requires that
Industry Members be able to submit error corrections to the Central
Repository through a web-interface or via bulk uploads or file
submissions, and that the Plan Processor, subject to the Operating
Committee's approval, support the bulk replacement of records and the
reprocessing of such records. The Plan Participants, furthermore,
require that the Plan Processor identify Industry Member data
submission errors based on the Plan Processor's validation
processes.\22\
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\22\ Approval Order at 84718.
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(II) Definition of Error Rate
To implement the requirements of the CAT NMS Plan related to the
Error Rate, the Exchange proposes to define the term ``Error Rate'' in
proposed Rule 1. Paragraph (p) of proposed Rule 1 defines the term
``Error Rate'' to mean the percentage of Reportable Events collected by
the Central Repository in which the data reported does not fully and
accurately reflect the order event that occurred in the market. This is
the same definition as set forth in SEC Rule 613(j)(6), and Section 1.1
of the CAT NMS Plan defines ``Error Rate'' by reference to SEC Rule
613(j)(6).
(Q) Firm Designated ID
As discussed above, under the Customer Information Approach, the
CAT NMS Plan would require each Industry Member to assign a unique Firm
Designated ID to each Customer. Industry Members would be permitted to
use as the Firm Designated ID an account number or any other identifier
defined by the firm, provided each identifier is unique across the firm
for each business date (i.e., a single firm may not have multiple
separate customers with the same identifier on any given date).
Industry Members would be required to report only the Firm Designated
ID for each new order submitted to the Central Repository, rather than
the ``Customer-ID'' with individual order events. Accordingly, the
Exchange proposes to define the term ``Firm Designated ID'' in proposed
Rule 1. Specifically, paragraph (q) of proposed Rule 1 defines the term
``Firm Designated ID'' to mean a unique identifier for each trading
account designated by Industry Members for purposes of providing data
to the Central Repository, where each such identifier is unique among
all identifiers from any given Industry Member for each business date.
This is the same definition as set forth in Section 1.1 of the CAT NMS
Plan. Industry Members would be permitted to use an account number or
any other identifier defined by the firm, provided each identifier is
unique across the firm for each business date (i.e., a single firm may
not have multiple separate customers with the same identifier on any
given date).
(R) Industry Member
Paragraph (r) of proposed Rule 1 defines the term ``Industry
Member'' to mean a member of a national securities exchange or a member
of a national securities association.'' This is the same definition as
set forth in Section 1.1 of the CAT NMS Plan.
(S) Industry Member Data
Paragraph (s) of proposed Rule 1 states that the term ``Industry
Member Data'' has the meaning set forth in Rule 3(a)(2). This
definition has the same substantive meaning as the definition set forth
in Section 1.1 of the CAT NMS Plan. The definition of ``Industry Member
Data'' is discussed more fully in the discussion below regarding
proposed Rule 3(a)(2).
(T) Initial Plan Processor
Paragraph (t) of proposed Rule 1 defines the term ``Initial Plan
Processor'' to mean the first Plan Processor selected by the Operating
Committee in accordance with SEC Rule 613, Section 6.1 of the CAT NMS
Plan and the National Market System Plan Governing the Process for
Selecting a Plan Processor and Developing a Plan for the Consolidated
Audit Trail. This is the same definition as set forth in Section 1.1 of
the CAT NMS Plan, although the proposed definition uses the full name
of the ``Selection Plan.''
(U) Listed Option or Option
The CAT NMS Plan and this proposed Article 23 applies to Eligible
Securities, which includes NMS Securities, which, in turn, includes
Listed Options. Certain requirements of proposed Article 23 apply
specifically to Listed Options. Accordingly, paragraph (u) of proposed
Rule 1 defines the term ``Listed Option'' or ``Option.'' Specifically,
paragraph (u) of proposed Rule 1 states that the term ``Listed Option''
or ``Option'' has the meaning set forth in SEC Rule 600(b)(35) of
Regulation NMS. SEC Rule 600(b)(35), in turn, defines a listed option
as ``any option traded on a registered national securities exchange or
automated facility of a national securities association.'' The Exchange
notes that the proposed definition of ``Listed Option'' is the same
definition as the definition set forth in Section 1.1 of the CAT NMS
Plan.
(V) Manual Order Event
(I) Manual Order Event Approach
The CAT NMS Plan sets forth clock synchronization and timestamp
requirements for Industry Members which reflect exemptions for Manual
Order Events granted by the Commission.\23\ Specifically, the Plan
requires Industry Members to record and report the time of each
Reportable Event using timestamps reflecting current industry standards
(which must be at least to the millisecond) or, if an Industry Member's
order handling or execution systems uses timestamps in increments finer
than milliseconds, such finer increments, when reporting to the Central
Repository. For Manual Order Events, however, the Plan provides that
such events must be recorded in increments up to and including one
second, provided that Industry Members record and report the time the
event is captured electronically in an order handling and execution
system (``Electronic Capture Time'') in milliseconds. In addition,
Industry Members are required to synchronize their respective Business
Clocks (other than such Business Clocks used solely for Manual Order
Events) at a minimum to within 50 milliseconds of the time maintained
by the National Institute of Standards and Technology (``NIST''), and
maintain such a synchronization. Each Industry Members [sic] is
required to synchronize their Business Clocks used solely for Manual
Order Events, however, at a minimum to within one second of the time
maintained by the NIST.
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\23\ Exemption Order.
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[[Page 9909]]
(II) Definition of Manual Order Event
In order to clarify what a Manual Order Event is for clock
synchronization and time stamp purposes, the Exchange proposes to
define the term ``Manual Order Event'' in proposed Rule 1.
Specifically, paragraph (v) of proposed Rule 1 defines the term
``Manual Order Event'' to mean a non-electronic communication of order-
related information for which Industry Members must record and report
the time of the event. This is the same definition as set forth in
Section 1.1 of the CAT NMS Plan.
(W) Material Terms of the Order
Proposed Rule 3 requires Industry Members to record and report to
the Central Repository Material Terms of the Order with certain
Reportable Events (e.g., for the original receipt or origination of an
order, for the routing of an order). Accordingly, the Exchange proposes
to define the term ``Material Terms of the Order'' in proposed Rule 1.
Specifically, paragraph (w) of proposed Rule 1 defines the term
``Material Terms of the Order'' to include: The NMS Security or OTC
Equity Security symbol; security type; price (if applicable); size
(displayed and non-displayed); side (buy/sell); order type; if a sell
order, whether the order is long, short, short exempt; open/close
indicator (except on transactions in equities); time in force (if
applicable); if the order is for a Listed Option, option type (put/
call), option symbol or root symbol, underlying symbol, strike price,
expiration date, and open/close (except on market maker quotations);
and any special handling instructions. This is the same definition as
set forth in Section 1.1 of the CAT NMS Plan.
(X) NMS Security
NMS Securities are one of the types of Eligible Securities for the
CAT. Therefore, the Exchange proposes to define the term ``NMS
Security'' in proposed Rule 1. Specifically, paragraph (x) of proposed
Rule 1 defines the term ``NMS Security'' to mean any security or class
of securities for which transaction reports are collected, processed,
and made available pursuant to an effective transaction reporting plan,
or an effective national market system plan for reporting transactions
in Listed Options. This is the same definition as set forth in Section
1.1 of the CAT NMS Plan.
(Y) NMS Stock
Under the CAT NMS Plan, the Operating Committee may establish
different Trading Days for NMS Stocks (as defined in SEC Rule
600(b)(47)), Listed Options, OTC Equity Securities, and any other
securities that are included as Eligible Securities from time to time.
Accordingly, the Exchange proposes to define the term ``NMS Stock'' in
Paragraph (y) of proposed Rule 1 to mean any NMS Security other than an
option. This is the same definition as set forth in SEC Rule 600(b)(47)
of Regulation NMS.
(Z) Operating Committee
Paragraph (z) of proposed Rule 1 defines the term ``Operating
Committee'' to mean the governing body of the CAT NMS, LLC designated
as such and described in Article IV of the CAT NMS Plan. This is the
same definition as set forth in Section 1.1 of the CAT NMS Plan, except
the Exchange proposes to use the phrase ``CAT NMS LLC'' in place of the
phrase ``the Company'' for clarity.
(AA) Options Market Maker
(I) Options Market Maker Quote Exemption
SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each
Industry Member to record and electronically report to the Central
Repository details for each order and each reportable event, including
the routing and modification or cancellation of an order. SEC Rule
613(j)(8) defines ``order'' to include ``any bid or offer.'' Therefore,
under SEC Rule 613, the details for each Options Market Maker quotation
must be reported to the Central Repository by both the Options Market
Maker and the options exchange to which it routes its quote.
The SROs, however, requested and received exemptive relief from SEC
Rule 613 so that the CAT NMS Plan may permit Options Market Maker
quotes to be reported to the Central Repository by the relevant options
exchange in lieu of requiring that such reporting be done by both the
options exchange and the Options Market Maker, as is required by SEC
Rule 613.\24\ In accordance with the exemptive relief, Options Market
Makers would be required to report to the options exchange the time at
which a quote in a Listed Option is sent to the options exchange. Such
time information also will be reported to the Central Repository by the
options exchange in lieu of reporting by the Options Market Maker.
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\24\ See Exemptive Request Letter at 2, and Exemption Order.
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(II) Definition of Options Market Maker
To implement the requirements related to Option Market Maker
quotes, the Exchange proposes to define the term ``Options Market
Maker'' in proposed Rule 1. Specifically, paragraph (aa) of proposed
Rule 1 defines the term ``Options Market Maker'' to mean a broker-
dealer registered with an exchange for the purpose of making markets in
options contracts traded on the exchange. This is the same definition
as set forth in Section 1.1 of the CAT NMS Plan.
(BB) Order
The proposed Article 23 requires each Industry Member to record and
electronically report to the Central Repository certain details for
each order. Accordingly, the Exchange proposes to define the term
``Order'' in proposed Rule 1. Specifically, paragraph (bb) of proposed
Rule 1 defines the term ``Order'', with respect to Eligible Securities,
to include: (1) Any order received by an Industry Member from any
person; (2) any order originated by an Industry Member; or (3) any bid
or offer. This is the same definition as set forth in SEC Rule
613(j)(8), except the Exchange proposes to replace the phrase ``member
of a national securities exchange or national securities association''
with the term ``Industry Member.'' The Exchange notes that Section 1.1
of the CAT NMS Plan defines ``Order'' by reference to SEC Rule
613(j)(8).
(CC) OTC Equity Security
OTC Equity Securities are one of the types of Eligible Securities
for the CAT. Therefore, the Exchange proposes to define the term ``OTC
Equity Security'' in proposed Rule 1. Specifically, paragraph (cc) of
proposed Rule 1 defines the term ``OTC Equity Security'' to mean any
equity security, other than an NMS Security, subject to prompt last
sale reporting rules of a registered national securities association
and reported to one of such association's equity trade reporting
facilities. This is the same definition as set forth in Section 1.1 of
the CAT NMS Plan.
(DD) Plan Participant \25\
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\25\ See supra note 5.
---------------------------------------------------------------------------
Paragraph (dd) of proposed Rule 1 defines the term ``Plan
Participant'' to mean each Person identified as such in Exhibit A of
the CAT NMS Plan, as amended, in such Person's capacity as a
Participant in CAT NMS, LLC. This is the same definition in substance
as set forth in Section 1.1 of the CAT NMS Plan.
(EE) Person
Paragraph (ee) of proposed Rule 1 defines the term ``Person'' to
mean any
[[Page 9910]]
individual, partnership, limited liability company, corporation, joint
venture, trust, business trust, cooperative or association and any
heirs, executors, administrators, legal representatives, successors and
assigns of such Person where the context so permits. This is the same
definition as set forth in Section 1.1 of the CAT NMS Plan.
(FF) Plan Processor
Paragraph (ff) of proposed Rule 1 defines the term ``Plan
Processor'' to mean the Initial Plan Processor or any other Person
selected by the Operating Committee pursuant to SEC Rule 613 and
Sections 4.3(b)(i) and 6.1 of the CAT NMS Plan, and with regard to the
Initial Plan Processor, the National Market System Plan Governing the
Process for Selecting a Plan Processor and Developing a Plan for the
Consolidated Audit Trail, to perform the CAT processing functions
required by SEC Rule 613 and set forth in the CAT NMS Plan.
(GG) Received Industry Member Data
Paragraph (gg) of proposed Rule 1 states that the term ``Received
Industry Member Data'' has the meaning set forth in Rule 3(a)(2). This
definition has the same substantive meaning as the definition set forth
in Section 1.1 of the CAT NMS Plan. The definition of ``Received
Industry Member Data'' is discussed more fully in the discussion below
regarding proposed Rule 3(a)(2).
(HH) Recorded Industry Member Data
Paragraph (hh) of proposed Rule 1 states that the term ``Recorded
Industry Member Data'' has the meaning set forth in Rule 3(a)(1). This
definition has the same substantive meaning as the definition set forth
in in Section 1.1 of the CAT NMS Plan. The definition of ``Recorded
Industry Member Data'' is discussed more fully in the discussion below
regarding proposed Rule 3(a)(1).
(II) Reportable Event
The proposed Article 23 requires each Industry Member to record and
electronically report to the Central Repository certain details for
each Reportable Event. To clarify these requirements, the Exchange
proposes to define the term ``Reportable Event'' in proposed Rule 1.
Specifically, paragraph (ii) of proposed Rule 1 states that the term
``Reportable Event'' includes, but is not limited to, the original
receipt or origination, modification, cancellation, routing, execution
(in whole or in part) and allocation of an order, and receipt of a
routed order. This is the same definition as set forth in Section 1.1
of the CAT NMS Plan.
(JJ) SRO
Paragraph (jj) of proposed Rule 1 defines the term ``SRO'' to mean
any self-regulatory organization within the meaning of Section 3(a)(26)
of the Exchange Act. This is the same definition as set forth in
Section 1.1 of the CAT NMS Plan.
(KK) SRO-Assigned Market Participant Identifier
(I) Existing Identifier Approach
The SROs requested and received exemptive relief from SEC Rule 613
so that the CAT NMS Plan may permit the Existing Identifier Approach,
which would allow an Industry Member to report an existing SRO-Assigned
Market Participant Identifier in lieu of requiring the reporting of a
universal CAT-Reporter-ID (that is, a code that uniquely and
consistently identifies an Industry Member for purposes of providing
data to the Central Repository).\26\ The CAT NMS Plan reflects the
``Existing Identifier Approach'' for purposes of identifying each
Industry Member associated with an order or Reportable Event. Under the
Existing Identifier Approach, Industry Members are required to record
and report to the Central Repository an SRO-Assigned Market Participant
Identifier for orders and certain Reportable Events to be used by the
Central Repository to assign a unique CAT-Reporter-ID to identify
Industry Members.
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\26\ See Exemptive Request Letter at 19, and Exemption Order.
---------------------------------------------------------------------------
For the Central Repository to link the SRO-Assigned Market
Participant Identifier to the CAT-Reporter-ID, each SRO will submit to
the Central Repository, on a daily basis, all SRO-Assigned Market
Participant Identifiers used by its Industry Members, as well as
information to identify each such Industry Member, including CRD number
and LEI, if the SRO has collected such LEI of the Industry Member.
Additionally, each Industry Member is required to submit to the Central
Repository the CRD of the Industry Member, as well as the LEI of the
Industry Member (if the Industry Member has an LEI). The Plan Processor
will use this information to assign a CAT-Reporter-ID to each Industry
Member for internal use within the Central Repository.
(II) Definition of SRO-Assigned Market Participant Identifier
To implement the Existing Identifier Approach, the Exchange
proposes to define the term ``SRO-Assigned Market Participant'' in
proposed Rule 1. Specifically, paragraph (kk) of proposed Rule 1
defines the term ``SRO-Assigned Market Participant Identifier'' to mean
an identifier assigned to an Industry Member by an SRO or an identifier
used by a Plan Participant. This is the same definition as set forth in
Section 1.1 of the CAT NMS Plan. For example, an Industry Member would
be permitted to use any existing SRO-Assigned Market Participant
Identifier (e.g., FINRA MPID, NASDAQ MPID, NYSE Mnemonic, CBOE User
Acronym and CHX Acronym) when reporting order information to the
Central Repository.
(LL) Small Industry Member
The requirements of proposed Article 23 differ to some extent for
Small Industry Members versus Industry Members other than Small
Industry Members. For example, the compliance dates for reporting data
to the CAT are different for Small Industry Members versus other
Industry Members. Accordingly, to clarify the requirements that apply
to which Industry Members, the Exchange proposes to define the term
``Small Industry Member'' in proposed Rule 1. Specifically, paragraph
(ll) of proposed Rule 1 defines the term ``Small Industry Member'' to
mean an Industry Member that qualifies as a small broker-dealer as
defined in Rule 0-10(c) under the Securities Exchange Act of 1934, as
amended. This is the same in substance as the definition of ``Small
Industry Member'' as set forth in Section 1.1 of the CAT NMS Plan.
Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small
Industry Member'' as ``an Industry Member that qualifies as a small
broker-dealer as defined in SEC Rule 613.'' The definition of a small
broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as
defined in SEC Rule 0-10(c).
(MM) Trading Day
Proposed Rule 3(b) establishes the deadlines for reporting certain
data to the Central Repository using the term ``Trading Day.''
Accordingly, the Exchange proposes to define the term ``Trading Day''
in proposed Rule 1. Specifically, Paragraph (mm) of proposed Rule 1
states that the term ``Trading Day'' shall have the meaning as is
determined by the Operating Committee. For the avoidance of doubt, the
Operating Committee may establish different Trading Days for NMS Stocks
(as defined in SEC Rule 600(b)(47), Listed Options, OTC Equity
Securities, and any other securities that are included as Eligible
Securities from time to time.
[[Page 9911]]
(ii) Clock Synchronization
SEC Rule 613(d)(1) under Regulation NMS requires Industry Members
to synchronize their Business Clocks to the time maintained by NIST,
consistent with industry standards. To comply with this provision,
Section 6.8 of the Plan sets forth the clock synchronization
requirements for Industry Members.\27\ To implement these provisions
with regard to its Industry Members, the Exchange proposes Rule 2
(Consolidated Audit Trail--Clock Synchronization) to require its
Industry Members to comply with the clock synchronization requirements
of the Plan.
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\27\ In addition, Section 6.7(a)(ii) of the Plan sets forth the
timeline for CAT Reporters to comply with the clock synchronization
requirements.
---------------------------------------------------------------------------
Paragraph (a) of proposed Rule 2 sets forth the manner in which
Industry Members must synchronize their Business Clocks. Paragraph
(a)(1) of proposed Rule 2 requires each Industry Member to synchronize
its Business Clocks, other than such Business Clocks used solely for
Manual Order Events or used solely for the time of allocation on
Allocation Reports, at a minimum to within a fifty (50) millisecond
tolerance of the time maintained by the NIST atomic clock, and maintain
such synchronization. This is the same requirement as set forth in
Section 6.8(a)(ii)(A) of the CAT NMS Plan.
Paragraph (a)(2) of proposed Rule 2 requires each Industry Member
to synchronize (1) its Business Clocks used solely for Manual Order
Events and (2) its Business Clocks used solely for the time of
allocation on Allocation Reports at a minimum to within a one second
tolerance of the time maintained by the NIST atomic clock, and maintain
such synchronization. This is the same requirement as set forth in
Section 6.8(a)(iii) and (iv) of the CAT NMS Plan.
Paragraph (a)(3) of proposed Rule 2 clarifies that the tolerance
described in paragraphs (a)(1) and (2) of the proposed Rule 2 includes
all of the following: (1) The time difference between the NIST atomic
clock and the Industry Member's Business Clock; (2) the transmission
delay from the source; and (3) the amount of drift of the Industry
Member's Business Clock. This description of the clock synchronization
tolerance is the same as set forth in paragraph (b) of FINRA Rule 4590
(Synchronization of Member Business Clocks).
Paragraph (a)(4) of proposed Rule 2 requires Industry Members to
synchronize their Business Clocks every business day before market open
to ensure that timestamps for Reportable Events are accurate. In
addition, to maintain clock synchronization, Business Clocks must be
checked against the NIST atomic clock and re-synchronized, as
necessary, throughout the day. This description of the required
frequency of clock synchronization is the same as set forth in
paragraph (c) of FINRA Rule 4590 (Synchronization of Member Business
Clocks).
Paragraph (b) of proposed Rule 2 sets forth documentation
requirements with regard to clock synchronization. Specifically,
paragraph (b) requires Industry Members to document and maintain their
synchronization procedures for their Business Clocks. The proposed Rule
requires Industry Members to keep a log of the times when they
synchronize their Business Clocks and the results of the
synchronization process. This log is required to include notice of any
time a Business Clock drifts more than the applicable tolerance
specified in paragraph (a) of the proposed Rule. Such logs must include
results for a period of not less than five years ending on the then
current date, or for the entire period for which the Industry Member
has been required to comply with this Rule if less than five years.
These documentation requirements are the same as those set forth in the
``Sequencing Orders and Clock Synchronization'' section of Appendix C
of the CAT NMS Plan. Moreover, these documentation requirements
regarding clock synchronization are comparable to those set forth in
Supplementary Material .01 of FINRA Rule 4590 (Synchronization of
Member Business Clocks).
Paragraph (c) of proposed Rule 2 sets forth certification
requirements with regard to clock synchronization. Specifically,
paragraph (c) of proposed Rule 2 requires each Industry Member to
certify to the Exchange that its Business Clocks satisfy the
synchronization requirements set forth in paragraph (a) of proposed
Rule 2 periodically in accordance with the certification schedule
established by the Operating Committee pursuant to the CAT NMS Plan.
This requirement is the same requirement as set forth in Section
6.8(a)(ii)(B), (iii) and (iv) of the CAT NMS Plan. The Exchange intends
to announce to its Industry Members the certification schedule
established by the Operating Committee via Information Memorandum.
Paragraph (d) of proposed Rule 2 establishes reporting requirements
with regard to clock synchronization. Paragraph (d) of proposed Rule 2
requires Industry Members to report to the Plan Processor and SRO
violations of paragraph (a) of this Rule pursuant to the thresholds set
by the Operating Committee pursuant to the CAT NMS Plan. This
requirement is the same requirement as set forth in Section
6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The Exchange intends
to announce to its Industry Members the relevant thresholds established
by the Operating Committee via Information Memorandum.
(iii) Industry Member Data Reporting
SEC Rule 613(c) under Regulation NMS requires the CAT NMS Plan to
set forth certain provisions requiring Industry Members to record and
report data to the CAT. To comply with this provision, Section 6.4 of
the CAT NMS Plan sets forth the data reporting requirements for
Industry Members. To implement these provisions with regard to its
Industry Members, the Exchange proposes Rule 3 (Consolidated Audit
Trail--Industry Member Data Reporting) to require its Industry Members
to comply with the Industry Member Data reporting requirements of the
Plan. Proposed Rule 3 has six [sic] sections covering: (1) Recording
and reporting Industry Member Data, (2) timing of the recording and
reporting, (3) the applicable securities cover by the recording and
reporting requirements, (4) format, [sic] (5) the security symbology to
be used in the recording and reporting, and (6) error correction
requirements, each of which is described below.
(A) Recording and Reporting Industry Member Data
Paragraph (a) of proposed Rule 3 describes the recording and
reporting of Industry Member Data to the Central Repository. Paragraph
(a) consists of paragraphs (a)(1)-(a)(3), which cover Recorded Industry
Member Data, Received Industry Member Data and Options Market Maker
data, respectively. Paragraphs (a)(1)-(a)(3) of proposed Rule 3 set
forth the recording and reporting requirements required in Section
6.4(d)(i)-(iii) of the CAT NMS Plan, respectively.
Paragraph (a)(1) requires, subject to paragraph (a)(3) regarding
Options Market Makers, each Industry Member to record and
electronically report to the Central Repository the following details
for each order and each Reportable Event, as applicable (``Recorded
Industry Member Data'') in the manner prescribed by the Operating
Committee pursuant to the CAT NMS Plan:
For original receipt or origination of an order: (1) Firm
Designated ID(s) for each Customer; (2) CAT-Order-ID; (3) SRO-Assigned
Market Participant
[[Page 9912]]
Identifier of the Industry Member receiving or originating the order;
(4) date of order receipt or origination; (5) time of order receipt or
origination (using timestamps pursuant to proposed Rule 6); and (6)
Material Terms of the Order;
for the routing of an order: (1) CAT-Order-ID; (2) date on
which the order is routed; (3) time at which the order is routed (using
timestamps pursuant to proposed Rule 6); (4) SRO-Assigned Market
Participant Identifier of the Industry Member routing the order; (5)
SRO-Assigned Market Participant Identifier of the Industry Member or
Plan Participant to which the order is being routed; (6) if routed
internally at the Industry Member, the identity and nature of the
department or desk to which the order is routed; and (7) Material Terms
of the Order;
for the receipt of an order that has been routed, the
following information: (1) CAT-Order-ID; (2) date on which the order is
received; (3) time at which the order is received (using timestamps
pursuant to proposed Rule 6); (4) SRO-Assigned Market Participant
Identifier of the Industry Member receiving the order; (5) SRO-Assigned
Market Participant Identifier of the Industry Member or Plan
Participant routing the order; and (6) Material Terms of the Order;
if the order is modified or cancelled: (1) CAT-Order-ID;
(2) date the modification or cancellation is received or originated;
(3) time at which the modification or cancellation is received or
originated (using timestamps pursuant to proposed Rule 6); (4) price
and remaining size of the order, if modified; (5) other changes in the
Material Terms of the Order, if modified; and (6) whether the
modification or cancellation instruction was given by the Customer or
was initiated by the Industry Member;
if the order is executed, in whole or in part: (1) CAT-
Order-ID; (2) date of execution; (3) time of execution (using
timestamps pursuant to proposed Rule 6; (4) execution capacity
(principal, agency or riskless principal); (5) execution price and
size; (6) SRO-Assigned Market Participant Identifier of the Industry
Member executing the order; (7) whether the execution was reported
pursuant to an effective transaction reporting plan or the Plan for
Reporting of Consolidated Options Last Sale Reports and Quotation
Information; and
other information or additional events as may be
prescribed pursuant to the CAT NMS Plan.
Paragraph (a)(2) of proposed Rule 3 requires, subject to paragraph
(a)(3) regarding Options Market Makers, each Industry Member to record
and report to the Central Repository the following, as applicable
(``Received Industry Member Data'' and collectively with the
information referred to in Rule 3(a)(1) ``Industry Member Data'')) in
the manner prescribed by the Operating Committee pursuant to the CAT
NMS Plan:
If the order is executed, in whole or in part: (1) An
Allocation Report; (2) SRO-Assigned Market Participant Identifier of
the clearing broker or prime broker, if applicable; and (3) CAT-Order-
ID of any contra-side order(s);
if the trade is cancelled, a cancelled trade indicator;
and
for original receipt or origination of an order, the Firm
Designated ID for the relevant Customer, and in accordance with
proposed Rule 4, Customer Account Information and Customer Identifying
Information for the relevant Customer.
Paragraph (a)(3) of proposed Rule 3 states that each Industry
Member that is an Options Market Maker is not required to report to the
Central Repository the Industry Member Data regarding the routing,
modification or cancellation of its quotes in Listed Options. Each
Industry Member that is an Options Market Maker, however, is required
to report to the Exchange the time at which its quote in a Listed
Option is sent to the Exchange (and, if applicable, any subsequent
quote modification time and/or cancellation time when such modification
or cancellation is originated by the Options Market Maker). This
paragraph implements the Options Market Maker Quote Exemption, as
discussed above.
(B) Timing of Recording and Reporting
Paragraph (b) of proposed Rule 3 describes the requirements related
to the timing of recording and reporting of Industry Member Data.
Paragraphs (b)(1)-(b)(3) of proposed Rule 3 set forth the requirements
related to the timing of the recording and reporting requirements
required in Section 6.4(b)(i)-(ii) of the CAT NMS Plan.
Paragraph (b)(1) of proposed Rule 3 requires each Industry Member
to record Recorded Industry Member Data contemporaneously with the
applicable Reportable Event. Paragraph (b)(2) of proposed Rule 3
requires each Industry Member to report: (1) Recorded Industry Member
Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading
Day following the day the Industry Member records such Recorded
Industry Member Data; and (2) Received Industry Member Data to the
Central Repository by 8:00 a.m. Eastern Time on the Trading Day
following the day the Industry Member receives such Received Industry
Member Data. Paragraph (b)(3) states that Industry Members may, but are
not required to, voluntarily report Industry Member Data prior to the
applicable 8:00 a.m. Eastern Time deadline.
(C) Applicable Securities
Paragraph (c) of proposed Rule 3 describes the securities to which
the recording and reporting requirements of proposed Rule 3 apply.
Paragraphs (c)(1) and (c)(2) of proposed Rule 3 set forth the
description of applicable securities as set forth in Section 6.4(c)(i)
and (ii) of the CAT NMS Plan, respectively. Paragraph (c)(1) of
proposed Rule 3 requires each Industry Member to record and report to
the Central Repository the Industry Member Data as set forth in
paragraph (a) of proposed Rule 3 for each NMS Security registered or
listed for trading on such exchange or admitted to unlisted trading
privileges on such exchange. Paragraph (c)(2) of proposed Rule 3
requires each Industry Member to record and report to the Central
Repository the Industry Member Data as set forth in paragraph (a) of
this proposed Rule 3 for each Eligible Security for which transaction
reports are required to be submitted to FINRA.
(D) Security Symbology
Paragraph (d) of proposed Rule 3 describes the security symbology
that Industry Members are required to use when reporting Industry
Member Data to the Central Repository. Paragraph (d)(1) of proposed
Rule 3 requires, for each exchange-listed Eligible Security, each
Industry Member to report Industry Member Data to the Central
Repository using the symbology format of the exchange listing the
security. This requirement implements the requirement set forth in
Section 2 of Appendix D of the CAT NMS Plan to use the listing exchange
symbology when reporting data to the Central Repository for exchange-
listed Eligible Securities.
For each Eligible Security that is not exchange-listed, however,
there is no listing exchange to provide the symbology format. Moreover,
to date, the requisite symbology format has not been determined.
Therefore, paragraph (d)(2) of proposed Rule 3 requires, for each
Eligible Security that is not exchange-listed, each Industry Member to
report Industry Member Data to the Central Repository using such
symbology format as approved by the Operating Committee pursuant to the
CAT NMS Plan. The Exchange intends to announce to its Industry Members
the
[[Page 9913]]
relevant symbology formats established by the Operating Committee via
Information Memorandum.
(E) Error Correction
To ensure that the CAT contains accurate data, the CAT NMS Plan
requires Industry Members to correct erroneous data submitted to the
Central Repository. Therefore, the Exchange proposes to adopt paragraph
(e) of proposed Rule 3, which addresses the correction of erroneous
data reported to the Central Repository. Paragraph (e) of proposed Rule
3 requires, for each Industry Member for which errors in Industry
Member Data submitted to the Central Repository have been identified by
the Plan Processor or otherwise, that such Industry Member submit
corrected Industry Member Data to the Central Repository by 8:00 a.m.
Eastern Time on T+3. This requirement implements the error correction
requirement set forth in Section 6 of Appendix D of the CAT NMS Plan.
(iv) Customer Information Reporting
Section 6.4(d)(iv) of the CAT NMS Plan requires Industry Members to
submit to the Central Repository certain information related to their
Customers in accordance with the Customer Information Approach
discussed above. The Exchange proposes Rule 4 (Consolidated Audit
Trail--Customer Information Reporting) to implement this provision of
the CAT NMS Plan with regard to its Industry Members. Specifically,
paragraph (a) of proposed Rule 4 requires each Industry Member to
submit to the Central Repository the Firm Designated ID, Customer
Account Information and Customer Identifying Information for each of
its Customers with an Active Account prior to such Industry Member's
commencement of reporting to the Central Repository and in accordance
with the deadlines set forth in Rule 9. Paragraph (b) of proposed Rule
4 requires each Industry Member to submit to the Central Repository any
updates, additions or other changes to the Firm Designated ID, Customer
Account Information and Customer Identifying Information for each of
its Customers with an Active Account on a daily basis. Paragraph (c) of
proposed Rule 4 requires each Industry Member, on a periodic basis as
designated by the Plan Processor and approved by the Operating
Committee, to submit to the Central Repository a complete set of Firm
Designated IDs, Customer Account Information and Customer Identifying
Information for each of its Customers with an Active Account. This
periodic refresh is intended to ensure that the Central Repository has
the most current information identifying a Customer. The Exchange
intends to announce to its Industry Members when such a periodic
refresh is required by the Plan Processor and the Operating Committee
via Information Memorandum.
Finally, paragraph (d) of proposed Rule 4 addresses the correction
of erroneous Customer data reported to the Central Repository to ensure
an accurate audit trail. Paragraph (d) requires, for each Industry
Member for which errors in Firm Designated ID, Customer Account
Information and Customer Identifying Information for each of its
Customers with an Active Account submitted to the Central Repository
have been identified by the Plan Processor or otherwise, such Member to
submit corrected data to the Central Repository by 5:00 p.m. Eastern
Time on T+3. This requirement implements the error correction
requirement set forth in Appendix C of the CAT NMS Plan.
(v) Industry Member Information Reporting
Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to
submit to the Central Repository information sufficient to identify
such Industry Member, including CRD number and LEI, if such LEI has
been obtained, in accordance with the Existing Identifier Approach
discussed above. The Exchange proposes Rule 5 (Consolidated Audit
Trail--Industry Member Information Reporting) to implement this
provision of the CAT NMS Plan with regard to its Industry Members.
Specifically, proposed Rule 5 requires each Industry Member to submit
to the Central Repository information sufficient to identify such
Industry Member, including CRD number and LEI, if such LEI has been
obtained, prior to such Industry Member's commencement of reporting to
the Central Repository and in accordance with the deadlines set forth
in Rule 9, and keep such information up to date as necessary.
(vi) Time Stamps
SEC Rule 613(d)(3) under Regulation NMS sets forth requirements for
time stamps used by CAT Reporters in recording and reporting data to
the CAT.\28\ To comply with this provision, Section 6.8(b) of the Plan
sets forth time stamp requirements for Industry Members. To implement
this provision with regard to its Industry Members, the Exchange
proposes new Rule 6 (Consolidated Audit Trail--Time Stamps) to require
its Industry Members to comply with the time stamp requirements of the
Plan.
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\28\ 17 CFR 242.613(d)(3).
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Paragraph (a) of proposed Rule 6 sets forth the time stamp
increments to be used by Industry Members in their CAT reporting.
Paragraph (a)(1) of proposed Rule 6 requires each Industry Member to
record and report Industry Member Data to the Central Repository with
time stamps in milliseconds, subject to paragraphs (a)(2) and (b) of
proposed Rule 6. To the extent that any Industry Member's order
handling or execution systems utilize time stamps in increments finer
than milliseconds, paragraph (a)(2) of proposed Rule 6 requires such
Industry Member to record and report Industry Member Data to the
Central Repository with time stamps in such finer increment, subject to
paragraph (b) of proposed Rule 6 regarding Manual Order Events and
Allocation Reports.
Paragraph (b) of proposed Rule 6 sets forth the permissible time
stamp increments for Manual Order Events and Allocation Reports.
Specifically, paragraph (b)(1) of proposed Rule 6 permits each Industry
Member to record and report Manual Order Events to the Central
Repository in increments up to and including one second, provided that
each Industry Member is required to record and report the time when a
Manual Order Event has been captured electronically in an order
handling and execution system of such Member (``Electronic Capture
Time'') in milliseconds. In addition, paragraph (b)(2) of proposed Rule
6 permits each Industry Member to record and report the time of
Allocation Reports in increments up to and including one second.
(vii) Clock Synchronization Rule Violations
Proposed Rule 7 (Consolidated Audit Trail--Clock Synchronization
Rule Violations [sic]) describes potential violations of the clock
synchronization time period requirements set forth in proposed Article
23. Proposed Rule 7 states that an Industry Member that engages in a
pattern or practice of reporting Reportable Events outside of the
required clock synchronization time period as set forth in this Article
23 without reasonable justification or exceptional circumstances may be
considered in violation of this Rule. This provision implements the
requirements of Section 6.8 of the CAT NMS Plan which requires the
Compliance Rule to provide that a pattern or practice of reporting
events outside of the required clock synchronization time period
without reasonable justification or exceptional
[[Page 9914]]
circumstances may be considered a violation of SEC Rule 613 or the CAT
NMS Plan.
(viii) Connectivity and Data Transmission
Proposed Rule 8 (Consolidated Audit Trail--Connectivity and Data
Transmission) addresses connectivity and data transmission requirements
related to the CAT. Paragraph (a) of proposed Rule 8 describes the
format(s) for reporting Industry Member Data to the Central Repository,
thereby implementing the formatting requirements as set forth in
Section 6.4(a) of the CAT NMS Plan. Specifically, paragraph (a) of
proposed Rule 8 requires each Industry Member to transmit data as
required under the CAT NMS Plan to the Central Repository utilizing
such format(s) as may be provided by the Plan Processor and approved by
the Operating Committee.
Paragraph (b) of proposed Rule 8 addresses connectivity
requirements related to the CAT. Paragraph (b) of proposed Rule 8
requires each Industry Member to connect to the Central Repository
using a secure method(s), including, but not limited to, private
line(s) and virtual private network connection(s). This provision
implements the connectivity requirements set forth in Section 4 of
Appendix D to the CAT NMS Plan.
Paragraph (c) permits Industry Members to use CAT Reporting Agents
to fulfill their data reporting obligations related to the CAT.
Paragraph (c) is based on FINRA Rule 7450(c), which permits OATS
Reporting Members to enter into agreements with Reporting Agents to
fulfill the OATS obligations of the OATS Reporting Member.
Specifically, Paragraph (c)(1) of proposed Rule 8 states that any
Industry Member may enter into an agreement with a CAT Reporting Agent
pursuant to which the CAT Reporting Agent agrees to fulfill the
reporting obligations of such Industry Member under proposed Article
23. Any such agreement must be evidenced in writing, which specifies
the respective functions and responsibilities of each party to the
agreement that are required to effect full compliance with the
requirements of proposed Article 23. The Exchange notes that,
currently, no standardized form agreement for CAT Reporting Agent
arrangements has been adopted. Paragraph (c)(2) of proposed Rule 8
requires that all written documents evidencing an agreement with a CAT
Reporting Agent be maintained by each party to the agreement. Paragraph
(c)(3) states that each Industry Member remains primarily responsible
for compliance with the requirements of proposed Article 23,
notwithstanding the existence of an agreement described in paragraph
(c) of proposed Rule 8.
(ix) Development and Testing
The Exchange proposes Rule 9 (Consolidated Audit Trail--Development
and Testing) to address requirements for Industry Members related to
CAT development and testing. Paragraph (a) of proposed Rule 9 sets
forth the testing requirements and deadlines for Industry Members to
develop and commence reporting to the Central Repository. These
requirements are set forth in Appendix C to the CAT NMS Plan.
Paragraph (a)(1) sets forth the deadlines related to connectivity
and acceptance testing. Industry Members (other than Small Industry
Members) are required to begin connectivity and acceptance testing with
the Central Repository no later than August 15, 2018, and Small
Industry Members are required to begin connectivity and acceptance
testing with the Central Repository no later than August 15, 2019.
Paragraph (a)(2) sets forth the deadlines related to reporting
Customer and Industry Member information. Paragraph (a)(2)(i) requires
Industry Members (other than Small Industry Members) to begin reporting
Customer and Industry Member information, as required by Rules 4 and 5,
respectively, to the Central Repository for processing no later than
October 15, 2018. Paragraph (a)(2)(ii) requires Small Industry Members
to begin reporting Customer and Industry Member information, as
required by Rules 4 and 5, respectively, to the Central Repository for
processing no later than October 15, 2019.
Paragraph (a)(3) sets forth the deadlines related to the submission
of order data. Under paragraph (a)(3)(i), Industry Members (other than
Small Industry Members) are permitted, but not required, to submit
order data for testing purposes beginning no later than May 15, 2018.
In addition, Industry Members (other than Small Industry Members) are
required to participate in the coordinated and structured testing of
order submission, which will begin no later than August 15, 2018. Under
paragraph (a)(3)(ii), Small Industry Members are permitted, but not
required, to submit order data for testing purposes beginning no later
than May 15, 2019. In addition, Small Industry Members are required to
participate in the coordinated and structured testing of order
submission, which will begin no later than August 15, 2019.
Paragraph (a)(4) states that Industry Members are permitted, but
not required to, submit Quote Sent Times on Options Market Maker
quotes, beginning no later than October 15, 2018
Paragraph (b) of proposed Rule 9 implements the requirement under
the CAT NMS Plan that Industry Members participate in required industry
testing with the Central Repository.\29\ Specifically, proposed Rule 9
requires that each Industry Member participate in testing related to
the Central Repository, including any industry-wide disaster recovery
testing, pursuant to the schedule established pursuant to the CAT NMS
Plan. The Exchange intends to announce to its Industry Members the
schedule established pursuant to the CAT NMS Plan via Information
Memorandum.
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\29\ Adopting Release [sic] at 84725.
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(x) Recordkeeping
Proposed Rule 10 (Consolidated Audit Trail--Recordkeeping) sets
forth the recordkeeping obligations related to the CAT for Industry
Members. Proposed Rule 10 requires each Industry Member to maintain and
preserve records of the information required to be recorded under
proposed Article 23 for the period of time and accessibility specified
in SEC Rule 17a-4(b). The records required to be maintained and
preserved under proposed Article 23 may be immediately produced or
reproduced on ``micrographic media'' as defined in SEC Rule 17a-
4(f)(1)(i) or by means of ``electronic storage media'' as defined in
SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule
17a-4(f) and be maintained and preserved for the required time in that
form. Proposed Rule 10 is based on FINRA Rule 7440(a)(5), which sets
forth the recordkeeping requirements related to OATS.
(xi) Timely, Accurate and Complete Data
SEC Rule 613 and the CAT NMS Plan emphasize the importance of the
timeliness, accuracy, completeness and integrity of the data submitted
to the CAT.\30\ Accordingly, proposed Rule 11 (Consolidated Audit
Trail--Timely, Accurate and Complete Data) implements this requirement
with regard to Industry Members. Paragraph (a) of proposed Rule 11
requires that Industry Members record and report data to the Central
Repository as required by proposed Article 23 in a
[[Page 9915]]
manner that ensures the timeliness, accuracy, integrity and
completeness of such data.
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\30\ See SEC Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the
CAT NMS Plan.
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In addition, without limiting the general requirement as set forth
in paragraph (a), paragraph (b) of proposed Rule 11 requires Industry
Members to accurately provide the LEIs in their records as required by
proposed Article 23 and states that Industry Members may not knowingly
submit inaccurate LEIs to the Central Repository. Paragraph (b) notes,
however, that this requirement does not impose any additional due
diligence obligations on Industry Members with regard to LEIs for CAT
purposes. Accordingly, this provision does not impose any due diligence
obligations beyond those that may exist today with respect to
information associated with an LEI. Although Industry Members will not
be required to perform additional due diligence with regard to the LEIs
for CAT purposes, Industry Members will be required to accurately
provide the LEIs in their records and may not knowingly submit
inaccurate LEIs to the CAT. Paragraph (b) is consistent with the SEC's
statements in the Approval Order for the CAT NMS Plan regarding an
Industry Member's obligations regarding LEIs.\31\
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\31\ Approval Order at 84745.
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Paragraph (c) states that, if an Industry Member reports data to
the Central Repository with errors such that its error percentage
exceeds the maximum Error Rate established by the Operating Committee
pursuant to the CAT NMS Plan, then such Industry Member would not be in
compliance with the Article 23. As discussed above, the initial maximum
Error Rate is 5%, although the Error Rate is expected to be reduced
over time. The Exchange intends to announce to its Industry Members
changes to the Error Rate established pursuant to the CAT NMS Plan via
Information Memorandum.
Furthermore, paragraph (d) of proposed Rule 11 addresses Compliance
Thresholds related to reporting data to the CAT. Proposed Rule 11
states that each Industry Member is required to meet a separate
compliance threshold which will be an Industry Member-specific rate
that may be used as the basis for further review or investigation into
the Industry Member's performance with regard to the CAT (the
``Compliance Thresholds''). Compliance Thresholds will compare an
Industry Member's error rate to the aggregate Error Rate over a period
of time to be defined by the Operating Committee. Compliance Thresholds
will be set by the Operating Committee, and will be calculated at
intervals to be set by the Operating Committee.\32\ Compliance
Thresholds will include compliance with the data reporting and clock
synchronization requirements. Proposed Rule 11 further states that an
Industry Member's performance with respect to its Compliance Threshold
will not signify, as a matter of law, that such Industry Member has
violated this proposed Article 23.
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\32\ Appendix C of the CAT NMS Plan.
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(xii) Compliance Dates
Proposed Rule 12 (Consolidated Audi [sic] Trail--Compliance Dates)
sets forth the compliance dates for the various provisions of proposed
Article 23. Paragraph (a) of proposed Rule 12 states that paragraphs
(b) and (c) of this Rule set forth the additional details with respect
to the compliance date of Article 23. Unless otherwise noted, Article
23 is fully effective and Industry Members must comply with their
terms.
Paragraph (b) of proposed Rule 12 establishes the compliance dates
for the clock synchronization requirements as set forth in proposed
Rule 2. Paragraph (b)(1) states that each Industry Member shall comply
with Rule 2 with regard to Business Clocks that capture time in
milliseconds commencing on or before March 15, 2017. Paragraph (b)(2)
states that each Industry Member shall comply with Rule 2 with regard
to Business Clocks that do not capture time in milliseconds commencing
on or before February 19, 2018. The compliance date set forth in
paragraph (b)(1) reflects the exemptive relief requested by the Plan
Participants with regard to the clock synchronization requirements
related to Business Clocks that do not capture time in
milliseconds.\33\
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\33\ See Letter from the Plan Participants to Brent J. Fields,
Secretary, Commission, dated January 17, 2017. Specifically, the
Participants will ask the Commission to extend the clock
synchronization compliance date from March 15, 2017 to February 19,
2018 for Industry Members' Business Clocks that do not capture time
in milliseconds.
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Paragraph (c) of proposed Rule 12 establishes the compliance dates
for the data recording and reporting requirements for Industry Members.
Paragraph (c)(1) requires each Industry Member (other than Small
Industry Members) to record and report the Industry Member Data to the
Central Repository by November 15, 2018. Paragraph (c)(2) requires that
each Industry Member that is a Small Industry Member to record and
report the Industry Member Data to the Central Repository by November
15, 2019. Such compliance dates are consistent with the compliance
dates set forth in SEC Rule 613(a)(3)(v) and (vi), and Section
6.7(a)(v) and (vi) of the CAT NMS Plan.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6(b)(5) of the Act,\34\ which require,
among other things, that CHX Rules must be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest, and Section 6(b)(8) of the Act,\35\ which
requires that CHX Rules not impose any burden on competition that is
not necessary or appropriate.
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\34\ 15 U.S.C. 78f(b)(6) [sic].
\35\ 15 U.S.C. 78f(b)(8).
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The Exchange believes that this proposal is consistent with the Act
because it implements, interprets or clarifies the provisions of the
Plan, and is designed to assist the Exchange and its Industry Members
in meeting regulatory obligations pursuant to the Plan. In approving
the Plan, the SEC noted that the Plan ``is necessary and appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanism of a national market system, or is otherwise in
furtherance of the purposes of the Act.'' \36\ To the extent that this
proposal implements, interprets or clarifies the Plan and applies
specific requirements to Industry Members, the Exchange believes that
this proposal furthers the objectives of the Plan, as identified by the
SEC, and is therefore consistent with the Act.
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\36\ Approval Order at 84697.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
notes that the proposed rule change implements provisions of the CAT
NMS Plan, and is designed to assist the Exchange in meeting its
regulatory obligations pursuant to the Plan. The Exchange also notes
that the proposed rules implementing provisions of the CAT NMS Plan
will apply equally to all firms that trade NMS Securities and OTC
Equity Securities. In addition, all national securities exchanges and
FINRA are proposing this proposed Article 23. Therefore, this is not a
competitive rule filing, and, therefore, it
[[Page 9916]]
does not impose a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CHX-2017-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CHX-2017-03. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CHX-2017-03 and should be
submitted on or before March 1, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\37\
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\37\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02553 Filed 2-7-17; 8:45 am]
BILLING CODE 8011-01-P