[Federal Register Volume 82, Number 240 (Friday, December 15, 2017)]
[Notices]
[Pages 59838-59841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27023]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82263; File No. SR-NYSEMKT-2017-26]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Amendment No. 2 to Proposed Rule Change Amending the Consolidated Audit 
Trail Funding Fees

December 11, 2017.
    On May 10, 2017, NYSE MKT LLC \1\ (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to adopt a fee schedule to establish the fees for 
Industry Members related to the National Market System Plan Governing 
the Consolidated Audit Trail (``CAT NMS Plan''). The proposed rule 
change was published in the Federal Register for comment on May 22, 
2017.\4\ The Commission received seven comment letters on the proposed 
rule change,\5\ and a response to comments from the CAT NMS Plan 
Participants.\6\ On June 30, 2017, the Commission temporarily suspended 
and initiated proceedings to determine whether to approve or disapprove 
the proposed rule change.\7\ The Commission thereafter received seven 
comment letters,\8\ and a response to comments from the 
Participants.\9\ On October 25,

[[Page 59839]]

2017, the Exchange filed Amendment No. 1 to the proposed rule 
change.\10\ On November 9, 2017, the Commission extended the time 
period within which to approve the proposed rule change or disapprove 
the proposed rule change to January 14, 2018.\11\ On November 29, 2017, 
the Exchange filed Amendment No. 2 to the proposed rule change, as 
described in Items I and II below, which Items have been prepared by 
the Exchange. The Commission is publishing this notice to solicit 
comments from interested persons on Amendment No. 2.
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    \1\ NYSE MKT LLC has been renamed NYSE American LLC. See 
Securities Exchange Act Rel. No. 80283 (Mar. 21. 2017), 82 FR 15244 
(Mar. 27, 2017).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 80694 (May 16, 
2017), 82 FR 23416 (May 22, 2017) (``Original Proposal'').
    \5\ Since the CAT NMS Plan Participants' proposed rule changes 
to adopt fees to be charged to Industry Members to fund the 
consolidated audit trail are substantively identical, the Commission 
is considering all comments received on the proposed rule changes 
regardless of the comment file to which they were submitted. See 
text accompanying note 13 infra, for a list of the CAT NMS Plan 
Participants. See Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, Securities Industry and Financial 
Markets Association, to Brent J. Fields, Secretary, Commission 
(dated June 6, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf; Letter from 
Patricia L. Cerny and Steven O'Malley, Compliance Consultants, to 
Brent J. Fields, Secretary, Commission (dated June 12, 2017), 
available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1799253-153675.pdf; Letter from Daniel Zinn, General 
Counsel, OTC Markets Group Inc., to Eduardo A. Aleman, Assistant 
Secretary, Commission (dated June 13, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1801717-153703.pdf; Letter from Joanna Mallers, Secretary, FIA Principal 
Traders Group, to Brent J. Fields, Secretary, Commission (dated June 
22, 2017), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1819670-154195.pdf; Letter from Stuart J. Kaswell, 
Executive Vice President and Managing Director, General Counsel, 
Managed Funds Association, to Brent J. Fields, Secretary, Commission 
(dated June 23, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1822454-154283.pdf; and Letter from 
Suzanne H. Shatto, Investor, to Commission (dated June 27, 2017), 
available at: https://www.sec.gov/comments/sr-batsedgx-2017-22/batsedgx201722-154443.pdf. The Commission also received a comment 
letter which is not pertinent to these proposed rule changes. See 
Letter from Christina Crouch, Smart Ltd., to Brent J. Fields, 
Secretary, Commission (dated June 5, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1785545-153152.htm.
    \6\ See Letter from CAT NMS Plan Participants to Brent J. 
Fields, Secretary, Commission (dated June 29, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-1832632-154584.pdf.
    \7\ See Securities Exchange Act Release No. 81067 (June 30, 
2017), 82 FR 31656 (July 7, 2017).
    \8\ See Letter from W. Hardy Callcott, Partner, Sidley Austin 
LLP, to Brent J. Fields, Secretary, Commission (dated July 27, 
2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148338-157737.pdf; Letter from Kevin Coleman, 
General Counsel and Chief Compliance Officer, Belvedere Trading LLC, 
to Brent J. Fields, Secretary, Commission (dated July 28, 2017), 
available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148360-157740.pdf; Letter from Joanna Mallers, 
Secretary, FIA Principal Traders Group, to Brent J. Fields, 
Secretary, Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2151228-157745.pdf; Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150977-157744.pdf; Letter 
from Stuart J. Kaswell, Executive Vice President and Managing 
Director, General Counsel, Managed Funds Association, to Brent J. 
Fields, Secretary, Commission (dated July 28, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150818-157743.pdf; Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, 
Commission (dated August 10, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2214568-160619.pdf; Letter from Joseph Molluso, Executive Vice President and 
CFO, Virtu Financial, to Brent J. Fields, Commission (dated August 
18, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2238648-160830.pdf.
    \9\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating 
Committee, to Brent J. Fields, Commission, Secretary (dated November 
2, 2017), available at https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2674608-161412.pdf.
    \10\ Amendment No. 1 to the proposed rule change replaced and 
superseded the Original Proposal in its entirety. See Securities 
Exchange Act Release No. 82262 (December 11, 2017).
    \11\ See Securities Exchange Act Release No. 82049 (November 9, 
2017), 82 FR 53549 (November 16, 2017).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the NYSE American Equities Price 
List (``Price List''), and the NYSE American Options Fee Schedule 
(``Options Fee Schedule''), to adopt the fees for Industry Members 
related to the National Market System Plan Governing the Consolidated 
Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\12\ On October 25, 
2017, the Exchange filed an amendment to the Original Proposal (``First 
Amendment''). The Exchange files this proposed rule change (the 
``Second Amendment'') to amend the Original Proposal, as amended by the 
First Amendment. The proposed change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.
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    \12\ Unless otherwise specified, capitalized terms used in this 
rule filing are defined as set forth herein, the CAT Compliance Rule 
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
    BOX Options Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, 
Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), 
Investors' Exchange LLC, Miami International Securities Exchange, LLC, 
MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, 
Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York 
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc. and NYSE 
National, Inc.\13\ (collectively, the ``Participants'') filed with the 
Commission, pursuant to Section 11A of the Exchange Act \14\ and Rule 
608 of Regulation NMS thereunder,\15\ the CAT NMS Plan.\16\ The 
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,\17\ and approved by the Commission, 
as modified, on November 15, 2016.\18\ 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. The Plan accomplishes 
this by creating CAT NMS, LLC (the ``Company''), of which each 
Participant is a member, to operate the CAT.\19\ Under the CAT NMS 
Plan, the Operating Committee of the Company (``Operating Committee'') 
has discretion to establish funding for the Company to operate the CAT, 
including establishing fees that the Participants will pay, and 
establishing fees for Industry Members that will be implemented by the 
Participants (``CAT Fees'').\20\ The Participants are required to file 
with the SEC under Section 19(b) of the Exchange Act any such CAT Fees 
applicable to Industry Members that the Operating Committee 
approves.\21\ Accordingly, the Exchange submitted the Original Proposal 
to amend the Price List and the Options Fee Schedule to adopt the 
Consolidated Audit Trail Funding Fees, which would require Industry 
Members that are Exchange members to pay the CAT Fees determined by the 
Operating Committee.
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    \13\ Note that Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., 
Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., LLC, C2 Options 
Exchange, Incorporated, and Chicago Board Options Exchange, 
Incorporated, have been renamed Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc., Cboe Exchange, Inc., respectively.
    \14\ 15 U.S.C. 78k-1.
    \15\ 17 CFR 242.608.
    \16\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \17\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \18\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \19\ The Plan also serves as the limited liability company 
agreement for the Company.
    \20\ Section 11.1(b) of the CAT NMS Plan.
    \21\ Id.
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    The Commission published the Original Proposal for public comment 
in the Federal Register on May 22, 2017,\22\ and received comments in 
response to the Original Proposal or similar fee filings by other 
Participants.\23\ On June 30, 2017, the Commission suspended, and 
instituted proceedings to determine whether to approve or disapprove, 
the Original Proposal.\24\ The Commission received seven comment 
letters in response to those proceedings.\25\
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    \22\ Securities Exchange Act Rel. No. 80694 (May 16, 2017), 82 
FR 23416 (May 22, 2017) (SR-NYSEMKT-2017-26).
    \23\ For a summary of comments, see generally Securities 
Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 
2017) (``Suspension Order'').
    \24\ Suspension Order.
    \25\ See Letter from Stuart J. Kaswell, Executive Vice 
President, Managing Director and General Counsel, Managed Funds 
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017) 
(``MFA Letter''); Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
SEC (July 28, 2017) (``SIFMA Letter''); Joanna Mallers, Secretary, 
FIA Principal Traders Group, to Brent J. Fields, Secretary, SEC 
(July 28, 2017) (``FIA Principal Traders Group Letter''); Letter 
from Kevin Coleman, General Counsel & Chief Compliance Officer, 
Belvedere Trading LLC, to Brent J. Fields, Secretary, SEC (July 28, 
2017) (``Belvedere Letter''); Letter from W. Hardy Callcott, Sidley 
Austin LLP, to Brent J. Fields, Secretary, SEC (July 27, 2017) 
(``Sidley Letter''); Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, SEC 
(Aug. 10, 2017) (``Group One Letter''); and Letter from Joseph 
Molluso, Executive Vice President, Virtu Financial, to Brent J. 
Fields, Secretary, SEC (Aug. 18, 2017) (``Virtu Financial Letter'').
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    In response to the comments on the Original Proposal, the Operating 
Committee determined to make the following changes to the funding 
model:

[[Page 59840]]

(1) Add two additional CAT Fee tiers for Equity Execution Venues; (2) 
discount the market share of Execution Venue ATSs exclusively trading 
OTC Equity Securities as well as the market share of the FINRA over-
the-counter reporting facility (``ORF'') by the average shares per 
trade ratio between NMS Stocks and OTC Equity Securities (calculated as 
0.17% based on available data from the second quarter of June 2017) 
when calculating the market share of Execution Venue ATS exclusively 
trading OTC Equity Securities and FINRA; (3) discount the Options 
Market Maker quotes by the trade to quote ratio for options (calculated 
as 0.01% based on available data for June 2016 through June 2017) when 
calculating message traffic for Options Market Makers; (4) discount 
equity market maker quotes by the trade to quote ratio for equities 
(calculated as 5.43% based on available data for June 2016 through June 
2017) when calculating message traffic for equity market makers; (5) 
decrease the number of tiers for Industry Members (other than the 
Execution Venue ATSs) from nine to seven; (6) change the allocation of 
CAT costs between Equity Execution Venues and Options Execution Venues 
from 75%/25% to 67%/33%; (7) adjust tier percentages and recovery 
allocations for Equity Execution Venues, Options Execution Venues and 
Industry Members (other than Execution Venue ATSs); (8) focus the 
comparability of CAT Fees on the individual entity level, rather than 
primarily on the comparability of affiliated entities; (9) commence 
invoicing of CAT Reporters as promptly as possible following the latest 
of the operative date of the Consolidated Audit Trail Funding Fees for 
each of the Participants and the operative date of the CAT NMS Plan 
amendment adopting CAT Fees for Participants; and (10) require the 
proposed fees to automatically expire two years from the operative date 
of the CAT NMS Plan amendment adopting CAT Fees for Participants. On 
October 25, 2017, the Exchange filed the First Amendment and proposed 
to amend the Original Proposal to reflect these changes.
    The Exchange submits this Second Amendment to the revise the 
proposal as set forth in the First Amendment to discount the OTC Equity 
Securities market share of all Execution Venue ATSs trading OTC Equity 
Securities, rather than applying the discount solely to those Execution 
Venue ATSs that exclusively trade OTC Equity Securities, when 
calculating the market share of Execution Venue ATS trading OTC Equity 
Securities. As discussed in the First Amendment:

    The Operating Committee determined to discount the market share 
of Execution Venue ATSs exclusively trading OTC Equity Securities as 
well as the market share of the FINRA ORF in recognition of the 
different trading characteristics of the OTC Equity Securities 
market as compared to the market in NMS Stocks. Many OTC Equity 
Securities are priced at less than one dollar--and a significant 
number at less than one penny--per share and low-priced shares tend 
to trade in larger quantities. Accordingly, a disproportionately 
large number of shares are involved in transactions involving OTC 
Equity Securities versus NMS Stocks. Because the proposed fee tiers 
are based on market share calculated by share volume, Execution 
Venue ATSs exclusively trading OTC Equity Securities and FINRA would 
likely be subject to higher tiers than their operations may 
warrant.\26\
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    \26\ See SR-NYSEMKT-2017-26, Amendment 1, Section 3(a), at page 
22.

    The Operating Committee believes that this argument applies equally 
to both Execution Venue ATSs exclusively trading OTC Equity Securities 
and to Execution Venue ATSs that trade OTC Equity Securities as well as 
other securities. Accordingly, the Exchange proposes to amend paragraph 
(b)(2) of the Consolidated Audit Trail Funding Fees to apply the 
discount to all Execution Venue ATSs trading OTC Equity Securities. 
Specifically, the Exchange proposes to change the parenthetical 
regarding the OTC Equity Securities discount in paragraph (b)(2) of the 
proposed fee schedule from ``with a discount for Equity ATSs 
exclusively trading OTC Equity Securities based on the average shares 
per trade ratio between NMS Stocks and OTC Equity Securities'' to 
``with a discount for OTC Equity Securities market share of Equity ATSs 
trading OTC Equity Securities based on the average shares per trade 
ratio between NMS Stocks and OTC Equity Securities.''
    Additionally, the Exchange proposes to delete footnote 45 in 
Section 3(a) on page 23 of the First Amendment as the footnote is 
erroneous and was included inadvertently.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b)(4) of the Act,\27\ because it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using its 
facilities. The Exchange believes the proposed rule change is also 
consistent with Section 6(b)(5) of the Act,\28\ which requires, among 
other things, that the Exchange's rules 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 not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers. The 
Exchange believes that the proposed rule change is consistent with the 
Act, and that the proposed fees are reasonable, equitably allocated and 
not unfairly discriminatory. In particular, the Exchange believes that 
the proposed rule change would treat all Equity ATSs trading OTC Equity 
Securities in a comparable manner when calculating applicable fees. In 
addition, the proposed fee structure would take into consideration 
distinctions in securities trading operations of CAT Reporters, 
including all ATSs trading OTC Equity Securities.
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    \27\ 15 U.S.C. 78f(b)(4).
    \28\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 6(b)(8) of the Act \29\ require that the Exchange's rules 
not impose any burden on competition that is not necessary or 
appropriate. 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. As previously 
described, the Exchange believes that the proposed rule change fairly 
and equitably allocates costs among CAT Reporters. In particular, the 
proposed rule change is structured to impose comparable fees on 
similarly situated CAT Reporters. The Exchange believes that the 
proposed rule change would treat all Equity ATSs trading OTC Equity 
Securities in a comparable manner when calculating applicable fees. In 
addition, the proposed rule change would take into consideration 
distinctions in securities trading operations of CAT Reporters, 
including all ATSs trading OTC Equity Securities. Moreover, the 
Operating Committee believes that the proposed rule change addresses 
certain competitive concerns raised by commenters related to ATSs 
trading OTC Equity Securities.
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    \29\ 15 U.S.C. 78f(b)(8).
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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.

[[Page 59841]]

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal, as 
amended by Amendment No. 1 and Amendment No. 2, 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-NYSEMKT-2017-26 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2017-26. 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 website (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 website 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEMKT-2017-26 and should be submitted 
on or before January 5, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27023 Filed 12-14-17; 8:45 am]
BILLING CODE 8011-01-P