[Federal Register Volume 82, Number 44 (Wednesday, March 8, 2017)]
[Notices]
[Pages 13034-13036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04479]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80142]


Order Granting Limited Exemptive Relief, Pursuant to Rule 608(e) 
of the Securities Exchange Act of 1934, From the Clock Synchronization 
Compliance Deadline Specified in Section 6.7(a)(ii) of the National 
Market System Plan Governing the Consolidated Audit Trail

March 2, 2017.
    By letter dated January 17, 2017, Bats BYZ 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, Chicago Stock Exchange, Inc., Financial 
Industry Regulatory Authority, Inc. (``FINRA''), International 
Securities Exchange, Inc., Investors' Exchange, LLC, ISE Gemini, LLC, 
ISE Mercury, LLC, Miami International Securities Exchange LLC, NASDAQ 
BX, Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock 
Exchange, Inc., New York Stock Exchange LLC, NYSE Arca, Inc., and NYSE 
MKT, LLC (collectively, the ``Participants'' to the National Market 
System (``NMS'') Plan Governing the Consolidated Audit Trail (``CAT NMS 
Plan'')) requested that the Securities and Exchange Commission 
(``Commission'' or ``SEC'') grant limited exemptive relief to the 
Participants, pursuant to its authority under Rule 608(e) of Regulation 
NMS under the Securities Exchange Act (``Exchange Act''),\1\ from the 
clock synchronization compliance deadline set forth in Section 
6.7(a)(ii) of the CAT NMS Plan.\2\
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    \1\ 17 CFR 242.608(e).
    \2\ See letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated January 17, 2017 (``Exemption 
Request''). Unless otherwise noted, capitalized terms are used as 
defined in Rule 613, in the CAT NMS Plan, or in this letter.
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    Rule 608(c) of Regulation NMS under the Exchange Act requires that 
each self-regulatory organization (``SRO'') comply with and, absent 
reasonable justification or excuse, enforce compliance by its members 
with, the terms of any effective NMS plan of which it is a sponsor or a 
participant.\3\ Section 6.7(a)(ii) of the CAT NMS Plan states that 
``[u]nless otherwise ordered by the SEC: . . . within four (4) months 
after the Effective Date, each Participant shall, and through its 
Compliance Rule shall require its Industry Members to, synchronize its 
or their Business Clocks as required by Section 6.8 and certify to the 
Chief Compliance Officer (in the case of Participants) or the 
applicable Participant (in the case of Industry Members) that such 
Participant has met this requirement.'' \4\
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    \3\ 17 CFR 242.608(c).
    \4\ Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 
81 FR 84696, 84963 (Nov. 23, 2016) (Order Approving CAT NMS Plan) 
Ex. A, Sec. 6.7(a)(ii).
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    The Participants request that the Commission extend the clock 
synchronization compliance date set forth in Section 6.7(a)(ii) from 
within four months after the effective date of CAT NMS Plan, or March 
15, 2017, to February 19, 2018 only with respect to Industry Members 
with Business Clocks that do not capture time in milliseconds as of the 
date of this order. The Participants note that the existing clock 
synchronization compliance date under Section 6.7(a)(ii) of March 15, 
2017 would remain in effect for those Industry Members with Business 
Clocks that capture time in milliseconds.\5\ In support of their 
Exemption Request, the Participants state, generally, that the request 
is narrowly tailored and would

[[Page 13035]]

provide significant costs savings to Industry Members with Business 
Clocks that do not capture time in milliseconds, without having any 
adverse effect on the consolidated audit trail under the CAT NMS 
Plan.\6\ The following outlines the Participants claims in support of 
their exemptive request.
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    \5\ See Exemption Request at 1 n.4.
    \6\ See Exemption Request at 1.
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    First, the Participants note that their requested alternative 
compliance date of February 19, 2018 is consistent with FINRA's 
compliance date for FINRA Rule 4590, which was approved last year and 
imposed a new clock synchronization standard of 50 milliseconds 
applicable to business clocks that are used to record certain events in 
NMS securities or OTC equity securities.\7\ Among other things, FINRA 
member firms that do not capture time in milliseconds have until 
February 19, 2018 to synchronize their business clocks to the new 50 
millisecond standard.\8\ The Participants believe that it is 
appropriate to have the CAT NMS Plan clock synchronization requirements 
also take effect by February 19, 2018 for those Industry Members that 
do not capture time in milliseconds as FINRA member firms currently are 
preparing for the implementation of clock synchronization requirements 
comparable to those set forth in the CAT NMS Plan by February 19, 
2018.\9\
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    \7\ See Securities Exchange Act Release No. 77565 (April 8, 
2016), 81 FR 22136 (April 14, 2016) (SR-FINRA-2016-005) (order 
approving FINRA's proposed rule change to reduce the synchronization 
tolerance for computer clocks that are used to record events in NMS 
securities and OTC equity securities).
    \8\ See FINRA Regulatory Notice 16-23 (July 2016) (establishing 
for FINRA Rule 4590 a Phase 1 implementation date of February 20, 
2017 for systems that capture time in milliseconds and a Phase 2 
implementation date of February 19, 2018 systems that do not capture 
time in milliseconds).
    \9\ See Exemption Request at 2. Because FINRA's compliance date 
for those firms that capture time in milliseconds (February 20, 
2017) is one month prior to the CAT clock synchronization compliance 
date (March 15, 2017), the Participants are not requesting exemptive 
relief with regard to Industry Members that capture time in 
milliseconds.
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    Second, the Participants state that Industry Members are not 
required to begin reporting information to the Central Repository for 
at least 20 months after the current March 15, 2017 deadline imposed by 
the CAT NMS Plan for clock synchronization.\10\ Specifically, large 
Industry Members are required to begin reporting to the Central 
Repository on November 15, 2018 (20 months after the CAT NMS Plan clock 
synchronization deadline),\11\ and Small Industry Members are required 
to begin reporting on November 15, 2019 (32 months after the CAT NMS 
Plan deadline).\12\ The Participants believe that allowing Industry 
Members that do not capture time in milliseconds until February 19, 
2018 to synchronize their Business Clocks will result in significant 
cost savings for such firms.\13\ The Participants state that during 
these 20 and 32 month periods they would not be required to incur the 
substantial costs of complying with the more rigorous clock 
synchronization requirements, such as updating and testing their clock 
technology, documenting and following clock synchronization procedures 
that would include performing regular clock synchronizations and 
preparing a log that documents each clock synchronization event, far in 
advance of the start of reporting obligations.\14\
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    \10\ See Exemption Request at 2-3.
    \11\ See Order Approving CAT NMS Plan, Ex. A, Sec. 6.7(a)(v), 81 
FR at 84963.
    \12\ See Order Approving CAT NMS Plan, Ex. A, Sec. 6.6(a)(v), 81 
FR at 84962.
    \13\ See Exemption Request at 2-3.
    \14\ See id. at 3.
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    Third, the Participants also believe that a compliance date of 
February 19, 2018 for Industry Members that do not capture time in 
milliseconds will provide Industry Members with sufficient preparation 
time to ensure the required level of clock synchronization is achieved 
prior to the commencement of their obligations to report to the Central 
Repository.\15\ The Participants note that a compliance date of 
February 19, 2018 provides a comparable clock synchronization deadline 
to that imposed by Rule 613 on the Participants themselves, who are 
required to synchronize their own Business Clocks eight months before 
they commence reporting data to the Central Repository.\16\ Under the 
requested exemption, large Industry Members that do not capture time in 
milliseconds would be required to synchronize their Business Clocks 
nine months before reporting to the Central Repository, and Small 
Industry Members would be required to do so 21 months before 
reporting.\17\
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    \15\ See id.
    \16\ See id. (citing 17 CFR 242.613(a)(3)(ii)).
    \17\ See Exemption Request at 3.
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    Rule 608(e) of Regulation NMS provides that the Commission may 
exempt from the provisions of an NMS plan, either unconditionally or on 
specified terms and conditions, any SRO or its members, if the 
Commission determines that such exemption is consistent with the public 
interest, the protection of investors, the maintenance of fair and 
orderly markets, and the removal of impediments to, and perfection of 
the mechanisms of, a national market system.\18\
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    \18\ 17 CFR 242.608(e).
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    The Commission finds that the requested exemption is consistent 
with the requirements set forth in Rule 608(e). The Commission notes 
that the Participants have narrowly tailored their exemptive request to 
seek such relief for a limited period of time and only with respect to 
those Industry Members with Business Clocks that do not capture time in 
milliseconds. Given that these Industry Members' obligations to report 
to the Central Repository do not commence until November 2018 or 
November 2019 (depending on the size of the firm), the Commission 
believes that the requested exemption should not result in any adverse 
effect on the implementation or operation of the consolidated audit 
trail. In addition, because any changes to these Industry Members' 
current Business Clocks would require modifications to their firm's 
systems and processes, this exemption will allow those Industry Members 
with Business Clocks that do not already capture time in milliseconds 
additional time to identify and implement the most cost effective clock 
synchronization solution to achieve compliance with the new standard. 
Further, the Commission believes that allowing less automated Industry 
Members to synchronize their clocks by February 19, 2018 is also 
consistent with the phased implementation approach set forth by FINRA 
in its Rule 4590.\19\ Thus, the exemption would serve the Participants' 
stated goal of achieving significant cost savings (from not incurring 
ongoing costs from March 15, 2017 to February 19, 2018 as well as a 
potential reduction in eventual costs if the delay allows for 
identification of lower costs solutions) for certain Industry Members. 
Accordingly, the Commission believes that imposing the more aggressive 
deadline required by Section 6.7(a)(ii) of CAT NMS Plan on those 
Industry Members with Business Clocks that do not capture time in 
milliseconds would not otherwise facilitate implementation of the 
consolidated audit trail.
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    \19\ See Securities Exchange Act Release No. 77196 (Feb. 19, 
2016), 81 FR 9550, 9553 n.35 (Feb. 25, 2016) (SR-FINRA-2016-005) 
(noting that, in FINRA's view, ``a phased implementation could allow 
firms, particularly smaller or less automated firms, a greater time 
period over which they can identify and implement the most cost 
effective clock synchronization solution that meets the standard 
required by this proposal'').
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    Therefore, the Commission believes that this exemption is 
consistent with the public interest, the protection of investors, the 
maintenance of fair and

[[Page 13036]]

orderly markets and the removal of impediments to, and the perfection 
of a national market system because it is narrowly tailored, may 
provide cost savings to those Industry Members that do not capture time 
in milliseconds, allows such Industry Members additional time to 
develop cost efficient ways to achieve clock synchronization and will 
not adversely affect the implementation of the consolidated audit 
trail.
    Accordingly, it is hereby ordered, pursuant to Rule 608(e) of the 
Exchange Act,\20\ that the Participants are granted a limited exemption 
extending the clock synchronization compliance date set forth in 
Section 6.7(a)(ii) of CAT NMS Plan from within four months after the 
effective date of CAT NMS Plan, or March 15, 2017, to February 19, 2018 
with respect to Industry Members with Business Clocks that do not 
capture time in milliseconds as of the date of this order.
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    \20\ 17 CFR 242.608(e).

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04479 Filed 3-7-17; 8:45 am]
BILLING CODE 8011-01-P