[Federal Register Volume 85, Number 72 (Tuesday, April 14, 2020)]
[Notices]
[Pages 20743-20745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07789]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88608]


Order Granting Conditional Exemptive Relief, Pursuant to Section 
36 of the Securities Exchange Act of 1934 (``Exchange Act'') and Rule 
608(e) of Regulation NMS Under the Exchange Act to Rule 608(e) of 
Regulation NMS Under the Exchange Act, Relating to Granularity of 
Timestamps Specified in Section 6.8(b) and Appendix D, Section 3 of the 
National Market System Plan Governing the Consolidated Audit Trail

April 8, 2020.

I. Introduction

    By letter dated February 3, 2020, BOX 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., 
Financial Industry Regulatory Authority, Inc. (``FINRA''), Investors 
Exchange LLC, Miami International Securities Exchange LLC, MIAX 
Emerald, LLC, MIAX PEARL, LLC, NASDAQ BX, LLC, 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., 
NYSE Chicago, Inc., NYSE National, Inc., and Long Term Stock Exchange, 
Inc. (collectively, the ``Participants'') to the National Market System 
Plan Governing the Consolidated Audit Trail (``CAT NMS Plan''),\1\ 
requested that the Securities and Exchange Commission (``Commission'' 
or ``SEC'') grant limited exemptive relief to the Participants, 
pursuant to its authority under Section 36 of the Securities Exchange 
Act of 1934 (``Exchange Act'') \2\ and Rule 608(e) of Regulation NMS 
under the Exchange Act, from the timestamp granularity requirements of 
Section 6.8(b) and Section 3 of Appendix D of the CAT NMS Plan.\3\
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    \1\ The CAT NMS Plan was approved by the Commission, as 
modified, on November 15, 2016. See Securities Exchange Act Release 
No79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (``CAT 
NMS Plan Approval Order'').
    \2\ 15 U.S.C. 78mm(a)(1).
    \3\ See letter from the Participants to Vanessa Countryman, 
Secretary, Commission, dated February 3, 2020 (the ``February 3, 
2020 Exemption Request''). Unless otherwise noted, capitalized terms 
are used as defined in the CAT NMS Plan.
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    Section 36 of the Exchange Act grants the Commission the authority, 
with certain limitations, to ``conditionally or unconditionally exempt 
any person, security, or transaction . . . from any provision or 
provisions of [the Exchange Act] or of any rule or regulation 
thereunder, to the extent that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.'' \4\ Under Rule 608(e) of Regulation NMS, the 
Commission may ``exempt from [Rule 608], either unconditionally or on 
specified terms and conditions, any self-regulatory organization, 
member thereof, or specified security, 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 mechanism of, 
a national market system.'' \5\
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    \4\ 15 U.S.C. 78mm(a)(1).
    \5\ 17 CFR 242.608(e).
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    For the reasons set forth below, this Order grants the 
Participants' request for an exemption from Section 6.8(b) and Appendix 
D, Section 3 of the CAT NMS Plan as set forth in the February 3, 2020 
Exemption Request, subject to certain conditions.\6\
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    \6\ The February 3, 2020 Exemption Request also includes a 
separate request for exemptive relief from Section 6.4(d)(ii)(C) of 
the CAT NMS Plan. Specifically, in circumstances in which an 
Industry Member uses an established trading relationship for an 
individual Customer (rather than an account) on the order reported 
to the CAT, the Participants request an exemption from the 
requirement in Section 6.4(d)(ii)(C) of the CAT NMS Plan for each 
Participant to require, through its Compliance Rules, its Industry 
Members to record and report to the Central Repository the account 
number, the date account opened and account type for the relevant 
individual customer, subject to certain conditions. The Commission 
is not addressing that request at this time.
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II. Description

    The CAT NMS Plan sets forth certain requirements regarding the 
granularity of timestamps accepted by the CAT system. Specifically, 
Section 6.8(b) of the CAT NMS Plan states ``[e]ach Participant shall, 
and through its Compliance Rule shall require its Industry Members to, 
report information required by SEC Rule 613 and this Agreement to the 
Central Repository in milliseconds,'' but that ``[t]o the extent that 
any Participant's order handling or execution systems utilize 
timestamps in increments finer than the minimum required in this 
Agreement, such Participant shall utilize such finer increment when 
reporting CAT Data to the Central Repository so that all Reportable 
Events reported to the Central Repository can be adequately 
sequenced.'' \7\ Section 6.8(b) further states that ``each Participant 
shall, through its Compliance Rule: (i) Require that, to the extent 
that its Industry Members utilize timestamps in increments finer than 
the minimum required in this Agreement in their order handling or 
execution systems, such Industry Members shall utilize such finer 
increment when reporting CAT Data to the Central Repository.'' \8\ In 
addition, Section 3 of Appendix D of the CAT NMS Plan states that the 
Central Repository must be able to ``[a]ccept time stamps on order 
events handled electronically to the finest level of granularity 
captured by CAT Reporters.''
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    \7\ Notwithstanding other requirements of Section 6.8(b), the 
CAT NMS Plan provides that Participants and Industry Members are 
permitted to record and report Manual Order Events and the time of 
allocation on Allocation Reports in increments up to and including 
one second. See CAT NMS Plan Section 6.8(b).
    \8\ The CAT NMS Plan defines ``Compliance Rule'' to mean, ``with 
respect to a Participant, the rule(s) promulgated by such 
Participant as contemplated by Section 3.11.'' See CAT NMS Plan 
Section 1.1.
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    Section 6.8(c) of the CAT NMS Plan imposes further requirements on 
Participants regarding analysis of timestamp granularity. Specifically, 
Section 6.8(c) of the CAT NMS Plan requires the Chief Compliance 
Officer to, ``[i]n conjunction with Participants' and other appropriate 
Industry Member advisory groups,'' ``annually evaluate and make a 
recommendation to the Operating Committee as to whether industry 
standards have evolved such that: . . . (ii) the required time stamp in 
Section 6.8(b) should be in finer increments.''

III. Request for Relief

    In the February 3, 2020 Exemption Request, the Participants request 
that the Commission exempt the Participants from the requirement in 
Section 6.8(b) of the CAT NMS Plan that Participants reporting CAT Data 
to the Central

[[Page 20744]]

Repository utilize timestamps finer than nanoseconds to the extent that 
the Participant's order handling or execution systems utilize 
timestamps in increments finer than nanoseconds. As a condition to this 
exemption, if a Participant captures timestamps in increments more 
granular than nanoseconds, such Participant would truncate the 
timestamp after the nanosecond level for submission to CAT, not round 
up or down in such circumstances. In addition, the Participants request 
that the Commission exempt the Participants from the requirement in 
Section 6.8(b) of the CAT NMS Plan for each Participant, through its 
Compliance Rule, to require that, to the extent that its Industry 
Members utilize timestamps in increments finer than nanoseconds in 
their order handling or execution systems, such Industry Members 
utilize such finer increment when reporting CAT Data to the Central 
Repository. As a condition to this exemption, the Participants, through 
their Compliance Rules, will require Industry Members that capture 
timestamps in increments more granular than nanoseconds to truncate the 
timestamps, after the nanosecond level for submission to CAT, not round 
up or down in such circumstances.\9\ Lastly, the Participants request 
that the Commission exempt the Participants from the requirement in 
Section 3 of Appendix D of the CAT NMS Plan for the Central Repository 
to be able to accept timestamps on order events handled electronically 
to the finest level of granularity captured by CAT Reporters.
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    \9\ Participants would require that electronic timestamps 
submitted by Participants and Industry Members be truncated by 
Participants and Industry Members if they capture timestamps in 
increments more granular than nanoseconds, believing that rounding a 
timestamp would suggest an event occurred later or earlier than it 
actually occurred, while truncation treats all timestamps as if they 
were provided with the same level of granularity.
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    As a condition to this exemption, the Participants state that the 
Central Repository will be required to accept timestamps on order 
events handled electronically to a nanosecond granularity. In addition, 
the Participants request that the above timestamp granularity exemptive 
relief remain in effect for five years from the date that the 
Commission grants the exemptive relief. After five years, the timestamp 
granularity exemptive relief would no longer be in effect.
    The Participants state that they, in concert with the Plan 
Processor, have determined that the cost of providing the ability to 
utilize timestamps in the CAT in a finer granularity than nanoseconds 
outweighs the benefits. The Participants further state that, based on 
discussions with the Plan Processor, that Participants understand that 
expanding the capture of timestamp granularity to picoseconds by the 
Plan Processor would take at least six months at an estimated cost of 
approximately $700,000, and that this effort would include technical 
specification and database modifications, modifying query tools to 
support querying and sequencing at a picosecond granularity. The 
Participants also state that they understand that exchanges currently 
utilize timestamps only to the nanosecond and do not utilize timestamps 
to picoseconds or to finer increments.

IV. Discussion

    The Commission has carefully considered the information provided by 
the Participants in support of the Participants' exemption request from 
Section 6.8(b) and Section 3 of Appendix D of the CAT NMS Plan with 
respect to timestamp granularity. Based on the information provided by 
the Participants in the February 3, 2020 Exemption Request, the 
Commission believes that the exemptive relief would provide cost 
savings and reduce build time for the Plan Processor while not 
negatively impacting the ability of regulators to use CAT. As noted 
above, the Participants state that it would take at least six months 
and approximately $700,000 to modify the Plan Processor to accept 
picosecond timestamps. The Participants state that, as described above, 
Section 6.8(c) of the CAT NMS Plan will require annual review of 
timestamp granularity,\10\ and the Participants have requested that 
such exemptive relief expire in five years.
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    \10\ In the February 3, 2020 Exemption Request, the Participants 
state that an analysis of the timestamp granularity would be 
required as part of the annual evaluation required to be performed 
by the Chief Compliance Officer pursuant to Section 6.8(c) of the 
CAT NMS Plan. If the Operating Committee determines that this 
analysis concludes that the benefit of the CAT Reporters reporting, 
and the Central Repository providing the ability to accept, 
timestamps in finer granularity than nanoseconds outweighs the 
burdens, then the timestamp exemption could be terminated or be 
revised to reflect more granular timestamps than nanoseconds in 
accordance with the analysis. See February 3, 2020 Exemption 
Request, supra note 2, at 4.
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    The Commission has previously stated that regulators need 
sufficiently granular timestamps to sequence events across orders and 
within order lifecycles, and that a lack of uniform and granular 
timestamps can limit the ability of regulators to sequence events 
accurately and link data with information from other data sources.\11\ 
Many public data sources report time in seconds or milliseconds, and 
some, including direct data feeds, report time in microseconds or 
nanoseconds.\12\ The Participants state that the exchanges currently 
utilize timestamps only to the nanosecond and do not utilize timestamps 
to picoseconds or to finer increments.\13\ Nanoseconds are smaller than 
milliseconds or microseconds and so the Participants' proposal would 
result in the collection of information that is at least as granular as 
existing data sources, and more granular than FINRA's Order Audit Trail 
System which requires timestamps in milliseconds for firms that capture 
time in milliseconds but does not require members to capture time in 
milliseconds.\14\ The Participants also believe that CAT Reportable 
Events can be adequately sequenced in the CAT without requiring 
timestamps in a finer granularity than nanoseconds, and the 
Participants believe that the requested relief would serve to maintain 
and enhance the reliability and accuracy of the data reported to the 
Central Repository.\15\
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    \11\ See CAT NMS Plan Approval Order, supra note 1.
    \12\ Id. at 84813. For example, Options Price Reporting 
Authority allows for timestamps in nanoseconds, while other 
registered Securities Information Processors require timestamps in 
microseconds for equity trades and quotes. Id. at 84813-14.
    \13\ See February 3, 2020 Exemption Request, supra note 2, at 3.
    \14\ See CAT NMS Plan Approval Order, supra note 1, at 84813-14.
    \15\ See February 3, 2020 Exemption Request, supra note 2, at 2 
and 3.
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    The proposed approach described in the February 3, 2020 Exemption 
Request would require both Participants and Industry Members to 
truncate timestamps in increments more granular than nanoseconds to 
nanoseconds for submission to the CAT, and the Central Repository will 
be required to accept timestamps on order events handled electronically 
to a nanosecond granularity. Based on the foregoing, the Commission 
believes that, pursuant to Section 36 of the Exchange Act, this 
exemption is appropriate in the public interest and consistent with the 
protection of investors, and that pursuant to Rule 608(e), this 
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 the perfection of a national market system to 
exempt the SROs from Section 6.8(b) and Section 3 of Appendix D of the 
CAT NMS Plan with respect to

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timestamp granularity for a period of five years.
    Accordingly, it is hereby ordered, pursuant to Section 36(a)(1) of 
the Exchange Act,\16\ and Rule 608(e) of the Exchange Act \17\ and with 
respect to the proposed approaches specifically described above, that 
the Participants are granted a five-year exemption from the timestamp 
granularity requirement set forth in Section 6.8(b) and Section 3 of 
Appendix D of the CAT NMS Plan of the CAT NMS Plan, subject to the 
conditions described above.
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    \16\ 15 U.S.C. 78mm(a)(1).
    \17\ 17 CFR 242.608(e).

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-07789 Filed 4-13-20; 8:45 am]
 BILLING CODE 8011-01-P