[Federal Register Volume 89, Number 230 (Friday, November 29, 2024)]
[Notices]
[Pages 94924-94983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-27644]
[[Page 94923]]
Vol. 89
Friday,
No. 230
November 29, 2024
Part III
Securities and Exchange Commission
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Joint Industry Plan; Order Approving, as Modified, a National Market
System Plan Regarding Consolidated Equity Market Data; Notice
Federal Register / Vol. 89 , No. 230 / Friday, November 29, 2024 /
Notices
[[Page 94924]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101672; File No. 4-757]
Joint Industry Plan; Order Approving, as Modified, a National
Market System Plan Regarding Consolidated Equity Market Data
November 20, 2024.
I. Introduction
On October 23, 2023, Cboe BYX Exchange, Inc. (``Cboe BYX''), Cboe
BZX Exchange, Inc. (``Cboe BZX''), Cboe EDGA Exchange, Inc. (``Cboe
EDGA''), Cboe EDGX Exchange, Inc. (``Cboe EDGX''), Cboe Exchange, Inc.,
Investors Exchange LLC (``IEX''), Long Term Stock Exchange, Inc.
(``LTSE''), MEMX LLC (``MEMX''), MIAX PEARL, LLC (``MIAX PEARL''),
Nasdaq BX, Inc. (``Nasdaq BX''), Nasdaq ISE, LLC (``Nasdaq ISE''),
Nasdaq PHLX LLC (``Nasdaq PHLX''), Nasdaq Stock Market LLC, New York
Stock Exchange LLC, NYSE American LLC (``NYSE American''), NYSE Arca,
Inc. (``NYSE Arca''), NYSE Chicago, Inc. (``NYSE Chicago''), NYSE
National, Inc. (``NYSE National''), and the Financial Industry
Regulatory Authority, Inc. (``FINRA'') (collectively, ``SROs'') \1\
filed with the Securities and Exchange Commission (``Commission''),
pursuant to section 11A of the Securities Exchange Act of 1934
(``Exchange Act'') \2\ and Rule 608 of Regulation National Market
System (``Regulation NMS'') thereunder,\3\ a proposed new single
national market system plan governing the public dissemination of real-
time consolidated equity market data for national market system stocks
(the ``Proposed CT Plan''). The Proposed CT Plan was published for
comment in the Federal Register on January 25, 2024.\4\
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\1\ For purposes of this order, the exchange group consisting of
Cboe BYX, Cboe BZX, Cboe EDGA, Cboe EDGX, and Cboe Exchange, Inc.,
will be referred to collectively as ``Cboe''; the exchange group
consisting of Nasdaq BX, Nasdaq ISE, Nasdaq PHLX, and Nasdaq Stock
Market LLC will be referred to collectively as ``Nasdaq''; and the
exchange group consisting of the New York Stock Exchange LLC, NYSE
American, NYSE Arca, NYSE Chicago, and NYSE National will be
referred to collectively as ``NYSE.''
\2\ 15 U.S.C. 78k-1.
\3\ 17 CFR 242.608.
\4\ See Joint Industry Plan; Notice of Filing of a National
Market System Plan Regarding Consolidated Equity Market Data,
Securities Exchange Act Release No. 99403 (Jan. 19, 2024), 89 FR
5002 (Jan. 25, 2024) (``Notice''). Comments received in response to
the Notice can be found on the Commission's website at: https://www.sec.gov/comments/4-757/4-757.htm.
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On April 23, 2024, the Commission instituted proceedings pursuant
to Rule 608(b)(2)(i) of Regulation NMS \5\ to determine whether to
approve or disapprove the Proposed CT Plan or to approve the Proposed
CT Plan with such changes or subject to such conditions as the
Commission may deem necessary or appropriate, if it finds that such
plan or amendment is necessary or 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 mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Exchange Act.\6\ On July 11, 2024, pursuant to Rule 608(b)(2)(i) of
Regulation NMS,\7\ the Commission extended the period within which to
conclude proceedings regarding the Proposed CT Plan to September 21,
2024.\8\ On September 20, 2024, pursuant to Rule 608(b)(2)(ii) of
Regulation NMS,\9\ the Commission further extended the period within
which to conclude proceedings regarding the Proposed CT Plan to
November 20, 2024.\10\
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\5\ 17 CFR 242.608(b)(2)(i).
\6\ See Joint Industry Plan; Order Instituting Proceedings to
Determine Whether to Approve or Disapprove a National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 100017 (Apr. 23, 2024), 89 FR 33412 (Apr. 29, 2024)
(``OIP''). Comments received in response to the OIP can be found on
the Commission's website at: https://www.sec.gov/comments/4-757/4-757.htm.
\7\ 17 CFR 242.608(b)(2)(i).
\8\ See Joint Industry Plan; Notice of Designation of a Longer
Period for Commission Action on a Proposed National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 100500 (July 11, 2024), 89 FR 58235 (July 17, 2024).
\9\ 17 CFR 242.608(b)(2)(ii).
\10\ See Joint Industry Plan; Notice of Designation of a Longer
Period for Commission Action on a Proposed National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 101125 (Sept. 20, 2024), 89 FR 78950 (Sept. 26,
2024).
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This order approves the Proposed CT Plan with certain modifications
that the Commission has determined are appropriate, which are described
in detail below. As discussed throughout this order, the Commission
finds that the Proposed CT Plan, as modified, is 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 Exchange Act. A copy of the Proposed CT Plan,
marked to reflect the modifications the Commission has made, is
Attachment A to this order.
II. Discussion and Commission Findings
A. Background
On May 6, 2020, the Commission ordered the SROs to act jointly in
developing and filing with the Commission a proposed new national
market system plan to govern the public dissemination of real-time,
consolidated equity market data for NMS stocks to replace the existing
equity data plans.\11\ The Commission sought to address with the
Governance Order, among other things, the inherent conflicts of
interest between the SROs' role in collecting and disseminating
consolidated equity market data and their interests in selling
proprietary data products. As the Commission stated in the Governance
Order, since the adoption of Regulation NMS in 2005,
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\11\ See Order Directing the Exchanges and the Financial
Industry Regulatory Authority to Submit a New National Market System
Plan Regarding Consolidated Equity Market Data, Securities Exchange
Act Release No. 88827 (May 6, 2020), 85 FR 28702 (May 13, 2020)
(File No. 4-757) (``Governance Order''). The three NMS plans that
currently govern the collection, consolidation, processing, and
dissemination of equity market data for NMS stocks and oversee the
securities information processors (``SIPs'') for equity market data
for NMS stocks are (1) the Consolidated Tape Association Plan (``CTA
Plan''), (2) the Consolidated Quotation Plan (``CQ Plan''), and (3)
the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation, and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis (``UTP Plan'')
(collectively, the ``Equity Data Plans''). See id. at 28703, n.34.
developments in technology and changes in the equities markets have
heightened an inherent conflict of interest between the
Participants' collective responsibilities in overseeing the Equity
Data Plans and their individual interests in maximizing the
viability of proprietary data products that they sell to market
participants. This conflict of interest, combined with the
concentration of voting power in the Equity Data Plans among a few
large ``exchange groups''--multiple exchanges operating under one
corporate umbrella--has contributed to significant concerns
regarding whether the consolidated feeds meet the purposes for them
set out by Congress and by the Commission in adopting the national
market system. Additionally, the Commission believes that the
continued existence of three separate NMS plans for equity market
data creates inefficiencies and unnecessarily burdens ongoing
improvements in the provision of equity market data to market
participants. Addressing the issues with the current governance
structure of the Equity Data Plans . . . is a key step in responding
to broader concerns about the consolidated data feeds.\12\
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\12\ Governance Order, supra note 11, 85 FR at 28702.
Moreover, as stated in the Governance Order, ``[t]he Commission
believes that
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the demutualization of the exchanges and the proliferation of
proprietary exchange data products have heightened the conflicts
between the SROs' business interests in proprietary data offerings and
their obligations as SROs under the national market system to ensure
prompt, accurate, reliable, and fair dissemination of core data through
the jointly administered Equity Data Plans.'' \13\
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\13\ Id. at 28704.
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Thus, the Commission determined that the current governance
structure of the existing Equity Data Plans is ``inadequate to respond
to changes in the market and in the ownership of exchanges, and to the
evolving needs of investors and other market participants,'' \14\ and
the Commission ordered the SROs to develop and file with the Commission
a proposed new NMS plan regarding equity market data with a set of
specified governance provisions designed to address the issues
identified by the Commission,\15\ and to ensure, consistent with the
Exchange Act, the ``prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of information with respect
to quotations for and transactions in such securities and the fairness
and usefulness of the form and content of such information.'' \16\
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\14\ Id. at 28702.
\15\ See id. at 28729-31.
\16\ 15 U.S.C. 78k-1(c)(1)(B).
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On August 11, 2020, the SROs \17\ filed a proposed new NMS plan
pursuant to the Governance Order, and notice of the proposed plan was
published for comment in the Federal Register on October 13, 2020.\18\
After instituting proceedings with respect to the new NMS plan proposed
by the SROs, the Commission ultimately approved, as modified, the new
NMS plan on August 6, 2021 (``2021 CT Plan'').\19\
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\17\ MIAX PEARL was not among the SROs filing that proposed plan
because it did not become national securities exchange for trading
equity securities until after that filing was made. See Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1, To
Establish Rules Governing the Trading of Equity Securities,
Securities Exchange Act Release No. 89563 (Aug. 14, 2020), 85 FR
51510 (Aug. 20, 2020).
\18\ See Joint Industry Plan; Notice of Filing of a National
Market System Plan Regarding Consolidated Equity Market Data,
Securities Exchange Act Release No. 90096 (Oct. 6, 2020), 85 FR
64565 (Oct. 13, 2020) (File No. 4-757).
\19\ See Joint Industry Plan; Order Approving, as Modified, a
National Market System Plan Regarding Consolidated Equity Market
Data, Securities Exchange Act Release No. 92586 (Aug. 6, 2021), 86
FR 44142 (Aug. 11, 2021) (File No. 4-757) (``2021 Approval Order'').
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Nasdaq, NYSE, and Cboe then petitioned the U.S. Court of Appeals
for the District of Columbia Circuit (``D.C. Circuit'') for review of
the Commission's action, challenging three aspects of the Governance
Order and the 2021 Approval Order: (1) the inclusion of non-SRO
representatives as voting members of the 2021 CT Plan's operating
committee; (2) the grouping of SROs by corporate affiliation for
voting; and (3) the requirement that the 2021 CT Plan's administrator
be independent of any SRO that sells its own proprietary equity market
data.\20\
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\20\ See The Nasdaq Stock Market LLC, et al. v. Securities and
Exchange Commission, 38 F.4th 1126, 1131 (D.C. Cir. 2022) (``Nasdaq
v. SEC ''). The petitioners were Nasdaq, NYSE, and Cboe. The
petitioners also filed a motion with the Commission seeking a stay
of the effect of the 2021 Approval Order pending final resolution of
their petitions before the D.C. Circuit, which the Commission
denied. See Order Denying Stay, Securities Exchange Release No.
93051 (Sept. 17, 2021), 86 FR 52933 (Sept. 23, 2021) (File No. 4-
757). The petitioners also filed for and, on October 13, 2021,
received a stay of the 2021 Approval Order from the D.C. Circuit.
See Nasdaq v. SEC, 38 F.4th at 1135.
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On July 5, 2022, the D.C. Circuit granted the exchanges' petition
with respect to the inclusion of non-SRO voting members on the new NMS
plan operating committee, but denied the petition with respect to the
other challenged aspects of the Governance Order and the 2021 Approval
Order, including upholding the Commission's actions with respect to
requiring voting by SRO group and requiring an independent
administrator.\21\ The court vacated the 2021 Approval Order in full,
but ``sever[ed] only those parts of the Governance Order directing [the
SROs] to include non-SRO representation in its proposed plan, leaving
the remainder in place.'' \22\
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\21\ See Nasdaq v. SEC, supra note 20, 38 F.4th at 1131.
\22\ Id. at 1145.
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On September 1, 2023, in light of the court's decision, the
Commission issued an amended order directing the SROs to file a new NMS
plan regarding consolidated equity market data,\23\ and the SROs filed
the Proposed CT Plan pursuant to that Amended Governance Order.\24\
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\23\ Amended Order Directing the Exchanges and the Financial
Industry Regulatory Authority, Inc., to File a National Market
System Plan Regarding Consolidated Equity Market Data, Securities
Exchange Act Release No. 98271 (Sept. 1, 2023), 88 FR 61630, 61631
(Sept. 7, 2023) (File No. 4-757) (``Amended Governance Order'').
\24\ See Notice, supra note 4, 89 FR at 5003.
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Below, this order separately addresses each of the provisions of
the Proposed CT Plan, discussing the comments received and explaining
the modifications, if any, that the Commission is making.
B. The Provisions of the Proposed CT Plan
1. Recitals
Paragraph (a) of the Recitals states the procedural history of the
Proposed CT Plan. Paragraph (a) of the Recitals also establishes that
the Proposed CT Plan is filed with the Commission in response to the
Commission's Amended Governance Order.\25\
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\25\ See Paragraph (a) of the Recitals of the Proposed CT Plan.
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Paragraph (b) of the Recitals states that, as the Members have
already formed the Company \26\ as a limited liability company pursuant
to the Delaware Limited Liability Company Act \27\ by filing a
certificate of formation with the Delaware Secretary of State, the
Proposed CT Plan will become effective on the date (the ``Effective
Date'') when approved by the Commission pursuant to Rule 608 of
Regulation NMS as an NMS plan governing the public dissemination of
real-time consolidated market data for Eligible Securities.\28\
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\26\ For purposes of this order, all capitalized terms not
otherwise defined in this order shall have the same meaning as in
the Proposed CT Plan.
\27\ See Article I, Section 1.1(21) of the Proposed CT Plan (as
approved) (defining ``Delaware Act'' as ``the Delaware Limited
Liability Company Act, Title 6, Chapter 18, Sec. Sec. 18-101, et
seq., and any successor statute, as amended'').
\28\ See Paragraph (b) of the Recitals of the Proposed CT Plan.
Upon approval by the Commission, the Proposed CT Plan will be an
``effective national market system plan'' within the meaning of Rule
600(b)(34) of Regulation NMS, 17 CFR 242.600(b)(34), and an
``effective transaction reporting plan,'' within the meaning of Rule
600(b)(35) of Regulation NMS, 17 CFR 242.600(b)(35).
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Paragraph (c) of the Recitals sets forth the SROs' statement of
their regulatory obligations to the Proposed CT Plan. Specifically,
paragraph (c) states that, in performing their obligations and duties
under the Proposed CT Plan, the Members are performing and discharging
functions and responsibilities related to the operation of the national
market system for and on behalf of the Members in their capacities as
self-regulatory organizations, as required under section 11A of the
Exchange Act, and pursuant to Rule 603(b) of Regulation NMS thereunder.
Paragraph (c) of the Recitals further provides that the Proposed CT
Plan and the operations of the Company shall be subject to ongoing
oversight by the Commission.\29\ Finally this paragraph of the Recitals
sets forth that no provision of the Proposed CT Plan shall be construed
to limit or diminish the obligations and duties of the Members as self-
regulatory
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organizations under the federal securities laws and the regulations
thereunder.\30\
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\29\ See Paragraph (c) of the Recitals of the Proposed CT Plan.
\30\ See Paragraph (b) of the Recitals of the Proposed CT Plan.
The ``Members'' of the Agreement, as defined in the first paragraph
of the Agreement, are the SROs identified in Exhibit A to the
Agreement.
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The Commission is making a non-substantive modification to
paragraph (b) to add the defined term ``Plan'' at the end of the phrase
``an NMS plan governing the public dissemination of real-time
consolidated market data for Eligible Securities.'' This modification
is appropriate because the Proposed CT Plan contains numerous
references to the ``plan,'' which term had not been defined. Apart from
this modification, the Recitals are substantively similar to
corresponding recitals of the 2021 CT Plan approved by the Commission
\31\ and were not required to be modified by the Amended Governance
Order. The Commission received no comments addressing paragraphs (a),
(b), and (c) of the Recitals of the Proposed CT Plan, and the
Commission is approving the Recitals as modified.
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\31\ See 2021 Approval Order, supra note 19, 86 FR at 44143-49
(approving Paragraph (a) of the Recitals of the 2021 CT Plan, as
proposed, Paragraph (b) of the Recitals of the 2021 CT Plan, as
modified, and Paragraph (g) of the Recitals of the 2021 CT Plan as
modified).
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2. Definitions
Article I of the Proposed CT Plan sets forth the defined terms used
throughout, as well as provisions for interpreting, the Proposed CT
Plan and its Exhibits.\32\
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\32\ See Article I, Sections 1.1 and 1.2 of the Proposed CT
Plan.
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(a) Section 1.1 Definitions
While the Commission received no comments on the proposed
definitions, it is, as explained below, making certain modifications to
the proposed definitions.
The Commission is modifying the definition of ``Administrator'' to
delete text that incompletely duplicates part of the provisions of
Article VI, Section 6.2 of the Proposed CT Plan as modified and instead
refer directly to Article VI of the Proposed CT Plan. Specifically, the
Commission is revising the definition to read, `` `Administrator' means
the Person selected by the Company to perform the administrative
functions under Article VI of this Agreement.'' This modification is
appropriate to avoid potential ambiguity between the terms of the
definition as proposed and the provisions of Article VI as modified by
the Commission, in particular the text of Section 6.2 of the Agreement
regarding the independence of the Administrator, as modified by the
Commission.\33\
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\33\ See infra Section II.B.7(b).
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The Commission is modifying Section 1.1 to add a new paragraph (2)
to define the term ``Advisory Committee'' to mean ``the committee
formed in accordance with Section 4.7 of this Agreement.'' \34\ This
modification is appropriate because the term ``Advisory Committee'' is
used throughout the Proposed CT Plan but was undefined. The Commission
is further modifying Section 1.1 to renumber the following paragraphs
of Section 1.1 accordingly.
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\34\ See Section 1.1(2) of the Proposed CT Plan (as approved).
The Commission has also renumbered the paragraphs of Section 1.1 to
reflect this addition.
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The Commission is modifying the definitions of ``Company Identified
Party,'' ``Covered Persons,'' ``Executive Session,'' and ``Party to a
Proceeding'' to delete the acronym ``SRO'' from the term ``SRO Voting
Representative.'' These modifications are appropriate because the
defined term proposed in the Proposed CT Plan is ``Voting
Representative'' rather than ``SRO Voting Representative.'' \35\
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\35\ See Article I, Section 1.1(83) of the Proposed CT Plan (as
approved) (defining ``Voting Representative'').
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The Commission is modifying the definition of ``Agent'' to insert,
immediately after the words ``the Administrator,'' the words ``the
Interim Administrator(s).'' The Commission is also modifying the
definition of ``Covered Persons'' to insert in two places immediately
following the words ``the Administrator,'' the words ``the Interim
Administrator(s).'' \36\ These modifications are appropriate because,
as discussed below in Section II.B.7 of this order, the Commission is
modifying the Proposed CT Plan to permit the appointment by the
Operating Committee of one or more Interim Administrator(s), and these
insertions are needed to conform to that modification.
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\36\ As modified, Section 1.1(14) provides that the term
``Covered Persons'' means ``representatives of the Members
(including the Voting Representative, alternate Voting
Representative, and Member Observers), members of the Advisory
Committee, SRO Applicants, SRO Applicant Observers, the
Administrator, the Interim Administrator(s), and the Processors;
Affiliates, employees, and Agents of the Operating Committee, a
Member, the Administrator, the Interim Administrator(s), and the
Processors; and any third parties invited to attend meetings of the
Operating Committee or subcommittees. Covered Persons do not include
staff of the SEC.''
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The Commission is modifying the definition of ``Highly Confidential
Information'' to specify that ``Highly Confidential Information'' shall
also include the Company's contract negotiations with the Interim
Administrator(s).\37\ This modification is appropriate because the
Company's contract negotiations with the Interim Administrator(s) would
raise confidentiality concerns similar to those of the Company's
contract negotiations with the Administrator, which require
classification as Highly Confidential Information under the
confidentiality provisions of the Proposed CT Plan. The Commission is
further modifying the definition of ``Highly Confidential Information''
\38\ to delete the word ``applicable'' and insert, immediately after
the words ``privilege or immunity'' the words ``recognized under
Applicable Law.'' This modification is appropriate to place clear
limits around the circumstances in which sharing of information with
Advisory Committee members will be restricted under the Confidentiality
Policy by requiring that the ``privilege or immunity'' under which
information may be designated as Highly Confidential Information must
be a ``privilege or immunity recognized under Applicable Law,'' which
is a term defined in Section 1.1 of the Proposed CT Plan.\39\
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\37\ To effect this modification, the Commission is inserting,
immediately after ``Administrator'' the words ``or Interim
Administrator(s).'' See Section 1.1(35) of the Proposed CT Plan (as
approved).
\38\ See Article I, Section 1.1(35) of the Proposed CT Plan (as
approved).
\39\ See infra Section II.B.5(l) (discussing the Confidentiality
Policy set forth in Article IV, Section 4.12 of and Exhibit C to the
Proposed CT Plan).
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The Commission is modifying the definition of ``Operative Date'' to
insert, immediately after ``Exchange Act,'' the words ``and the rules
and regulations thereunder.'' This modification is appropriate to help
ensure that this provision more broadly encompasses all of the laws and
regulations governing the regulatory functions to be performed by the
Members through the Proposed CT Plan. The proposed and approved
definition of ``Operative Date'' also differs from that approved by the
Commission in the 2021 CT Plan \40\ in that it specifies the two major
conditions required to be fulfilled before the Proposed CT Plan has
been fully implemented. This change is appropriate because it ties the
definition of Operative Date to the accomplishment of key milestones.
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\40\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
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Except as described above (and with respect to the removal of
provisions regarding non-SRO representatives, as required by the
Amended Governance Order \41\), the definitions in Section 1.1
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are identical to the corresponding definitions in the 2021 CT Plan
approved by the Commission,\42\ and were not required to be modified by
the Amended Governance Order. The Commission received no comments on
Article I, Section 1.1 of the Proposed CT Plan, and the Commission is
approving Article I, Section 1.1 of the Proposed CT Plan as modified.
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\41\ See Amended Governance Order, supra note 23, 88 FR at 61631
(``In accordance with the D.C. Circuit's ruling, the Commission is
modifying the Governance Order to remove the provisions regarding
the participation of non-SRO representatives as members of the
operating committee of the Revised New Consolidated Data Plan and to
make conforming changes.'').
\42\ See 2021 Approval Order, supra note 19, 86 FR at 44149-50,
44207-10.
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(b) Section 1.2 Interpretation
Section 1.2 of the Proposed CT Plan provides rules for the
interpretation of terms used in the Proposed CT Plan. This provision is
identical to the corresponding plan provisions of the 2021 CT Plan
approved by the Commission \43\ and was not required to be modified by
the Amended Governance Order. The Commission received no comments
addressing Section 1.2, and the Commission is approving Section 1.2 as
proposed.
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\43\ See 2021 Approval Order, supra note 19, 86 FR at 44210.
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3. Organization
Article II of the Proposed CT Plan sets forth provisions governing
the organization of the Company. The SROs have organized the Proposed
CT Plan in the form of a Delaware limited liability company pursuant to
a limited liability company agreement, entitled the Limited Liability
Company Agreement (``Agreement'') of CT Plan LLC (``Company'').\44\ The
Members of the Company will be the national securities exchanges for
equities and FINRA,\45\ each of which will be a ``Participant'' of the
Proposed CT Plan as an effective NMS plan for the dissemination of
consolidated equity market data.
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\44\ See Article II, Section 2.1 of the Proposed CT Plan.
\45\ See Article III, Section 3.1 of the Proposed CT Plan. The
names and addresses of each Member are set forth in Exhibit A to the
Proposed CT Plan.
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The Proposed CT Plan states that the purposes of the Company are to
engage in the following activities on behalf of the Members: (i) the
collection, consolidation, and dissemination of Transaction Reports,
Quotation Information, and such other information concerning Eligible
Securities as the Members shall agree as provided therein; (ii)
contracting for the distribution of such information; (iii) contracting
for and maintaining facilities to support any activities permitted in
the Agreement and guidelines adopted thereunder, including the
operation and administration of the System; \46\ (iv) providing for
those other matters set forth in the Agreement and in all guidelines
adopted thereunder; (v) operating the System to comply with Applicable
Laws; and (vi) engaging in any other business or activity that now or
thereafter may be necessary, incidental, proper, advisable, or
convenient to accomplish any of the foregoing purposes and that is not
prohibited by the Delaware Act, the Exchange Act, or other Applicable
Law.\47\ The Agreement itself, including its appendices, constitutes
the Proposed CT Plan. Under the Proposed CT Plan, the governing body of
the Company would be the Operating Committee.\48\
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\46\ Section 1.1(75) of Article I of the Proposed CT Plan
defines the term ``System'' as ``all data processing equipment,
software, communications facilities, and other technology and
facilities, utilized by the Company or the Processors in connection
with the collection, consolidation, and dissemination of Transaction
Reports, Quotation Information, and other information concerning
Eligible Securities.''
\47\ See Article II, Section 2.4 of the Proposed CT Plan.
\48\ See Article IV, Section 4.1(a) of the Proposed CT Plan.
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Article II of the Proposed CT Plan is identical to the
corresponding plan provisions of the 2021 CT Plan approved by the
Commission \49\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments addressing
Article II of the Proposed CT Plan, and the Commission is approving
Article II of the Proposed CT Plan as proposed for the same reasons
stated in the 2021 Approval Order.\50\
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\49\ See 2021 Approval Order, supra note 19, 86 FR at 44150-52.
\50\ Id.
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4. Membership
Article III of the Proposed CT Plan sets forth provisions relating
to membership in the Company. Pursuant to Article III, Section 3.2(a)
of the Proposed CT Plan, any national securities association or
national securities exchange whose market, facilities, or members, as
applicable, trades Eligible Securities \51\ may become a Member by (i)
providing written notice to the Company; (ii) executing a joinder to
the Agreement; (iii) paying a Membership Fee to the Company as
determined pursuant to Section 3.2(b) (``Membership Fee''); and (iv)
executing a joinder to any other agreements to which all of the other
Members have been made party in connection with being a Member.\52\
Membership Fees paid will be added to the general revenues of the
Company.\53\
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\51\ See Article I, Section 1.1(23) of the Proposed CT Plan (as
approved) (defining ``Eligible Security'' as ``(i) any equity
security, as defined in Section 3(a)(11) of the Exchange Act, or
(ii) a security that trades like an equity security, in each case
that is listed on a national securities exchange'').
\52\ See Article III, Section 3.2(a) of the Proposed CT Plan.
\53\ See Article III, Section 3.2(a) of the Proposed CT Plan.
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Article III, Section 3.2 of the Proposed CT Plan specifies that the
factors that will be considered in determining a Membership Fee are:
(1) the portion of costs previously paid by the Company (or by the
Members prior to the formation of the Company) for the development,
expansion and maintenance of the System which, under generally accepted
accounting principles (``GAAP''), would have been treated as capital
expenditures and would have been amortized over the five years
preceding the admission of the new member; and (2) an assessment of
costs incurred and to be incurred by the Company for modifying the
System or any part thereof to accommodate the new member, which costs
are not otherwise required to be paid or reimbursed by the new
Member.\54\ The Proposed CT Plan prohibits a Member's transfer of its
Membership Interest in the Company, except in connection with the
withdrawal of a Member from the Company, as discussed below.\55\
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\54\ See Article III, Section 3.2(b) of the Proposed CT Plan.
The Proposed CT Plan provides that Participants of the CQ Plan, CTA
Plan, and UTP Plan are not required to pay the Membership Fee. See
Article III, Section 3.2(c) of the Proposed CT Plan.
\55\ See Article III, Section 3.3 of the Proposed CT Plan.
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Pursuant to Article III, Section 3.4, any Member may voluntarily
withdraw from the Company by: (i) providing not less than 30 days'
prior written notice of such withdrawal to the Company, (ii) causing
the Company to file with the Commission an amendment to effectuate the
withdrawal,\56\ and (iii) transferring such Member's Membership
Interest to the Company.\57\ If a Member ceases to be a registered
national securities association or registered national securities
exchange, that Member automatically withdraws from the Company.\58\
Section 3.4 further provides that after withdrawal from Membership, the
Member will remain liable for any obligations arising prior to
withdrawal.\59\ A withdrawing Member
[[Page 94928]]
is entitled to receive a portion of the Net Distributable Operating
Income attributable to the period prior to the Member's withdrawal.\60\
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\56\ See Article III, Section 3.4(a) of the Proposed CT Plan.
\57\ See Article III, Section 3.4(a) of the Proposed CT Plan.
\58\ See Article III, Section 3.4(b) of the Proposed CT Plan.
\59\ See Article III, Section 3.4(d)(i) of the Proposed CT Plan.
\60\ See Article III, Section 3.4(d)(ii) of the Proposed CT
Plan.
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Pursuant to proposed Sections 3.4(d)(iii) and (iv), a Member that
has withdrawn from the Company will no longer have the right to have
its Transaction Reports, Quotation Information, or other information
disseminated over the System, and the Capital Account of that Member
will not be allocated profits and losses of the Company.
Article III, Section 3.5 of the Proposed CT Plan provides that a
Member's bankruptcy under Section 18-304 of the Delaware Act shall not
itself cause a withdrawal of such Member from the Company, so long as
such Member continues to be a national securities association or
national securities exchange. As proposed, Section 3.6 provides that,
following the Operative Date, each Member will be required to comply
with the provisions of the Proposed CT Plan and enforce compliance with
the Proposed CT Plan by its members.\61\
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\61\ See Article III, Section 3.6 of the Proposed CT Plan.
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Article III of the Proposed CT Plan also sets forth the obligations
and liabilities of the Members. Article III, Section 3.7 provides that
Members will not be required to contribute capital or make loans to the
Company, nor will Members have any liability for the debts and
liabilities of the Company.\62\ This section also states that it is the
intent of the Members that no distribution to any Member pursuant to
the Company Agreement will be considered a return of money or other
property paid or distributed in violation of the Delaware Act, and that
any such payment will be considered a compromise within the meaning of
Delaware Act, and the Member receiving any payment will not be required
to return any payment to any person, provided that a Member will be
required to return any payment made due to a clear accounting or
similar error or as otherwise provided in Section 3.7(b).\63\ In
addition, Article III of the Proposed CT Plan provides that no Member,
unless authorized by the Operating Committee, has the authority to
represent the Company or to make any expenditure on behalf of the
Company; provided, however, that the Tax Matters Partner may represent,
act for, sign for or bind the Company as permitted under Sections 10.2
and 10.3 of the Agreement.\64\ Finally, Section 3.7(e) provides that no
Member owes any duty (fiduciary or otherwise) to the Company or to any
other Member other than the duties expressly set forth in the
Agreement.\65\
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\62\ See Article III, Section 3.7(a)-(b) of the Proposed CT
Plan. However, in the event that the Processors or the Administrator
have not been paid pursuant to the terms of the Processor Services
Agreements and Administrative Services Agreement, the Proposed CT
Plan requires each Member to return to the Company its pro rata
share of any moneys distributed to it by the Company until an
aggregated amount equal to the amount owed has been recontributed to
the Company. The Company will pay the amount(s) owed. See Article
III, Section 3.7(b) of the Proposed CT Plan.
\63\ See Article III, Section 3.7(c) of the Proposed CT Plan.
The Proposed CT Plan further provides that if any court of competent
jurisdiction holds that any Member is obligated to make any such
payment, such obligation shall be the obligation of such Member and
not of the Operating Committee. See id.
\64\ See Article III, Section 3.7(d) of the Proposed CT Plan.
\65\ See Article III, Section 3.7(e) of the Proposed CT Plan.
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The Commission is modifying Section 3.6 to replace the ``Operative
Date'' with ``Effective Date'' as that term is defined in the Recitals.
This change is appropriate because the Effective Date of the Agreement
is the date it is approved by the Commission, whereas the Operative
Date is defined as the date that Members conduct, through the Company,
the Processor and Administrator functions related to the public
dissemination of real-time consolidated equity market data and the
Equity Data Plans cease their operations. This modification will
facilitate the implementation of the Proposed CT Plan as, pursuant to
Article XIV of the approved plan, the obligation of each Member to
comply with the provisions of the Agreement and enforce compliance by
its members shall begin when the Agreement is approved.
Aside from the modification to Section 3.6, Article III is, with
immaterial differences, identical to the corresponding provisions of
the 2021 CT Plan approved by the Commission \66\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments on Article III of the Proposed CT Plan, and the Commission
is approving Article III of the Proposed CT Plan as modified for the
same reasons stated in the 2021 Approval Order.\67\
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\66\ See 2021 Approval Order, supra note 19, 86 FR at 44152-54,
44211-12. With respect to proposed Article III of the Proposed CT
Plan, the differences between the language of the 2021 CT Plan
approved by the Commission in the 2021 Approval Order and that of
the Proposed CT Plan as proposed are the substitution of the word
``will'' for the word ``are'' in Section 3.2(c) as proposed and the
paragraph numbering in Section 3.4(d) as proposed.
\67\ Id.
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5. Management of the Company
Article IV of the Proposed CT Plan establishes the overall
governance structure for the management of the Company.
(a) Operating Committee
As an initial matter, Section 4.1 of the Proposed CT Plan has a
typographical error in that the subsections are numbered in Section 4.1
as (f), (g), and (h), rather than (a), (b), and (c). Accordingly, the
Commission is modifying the Proposed CT Plan to correct this
typographical error, and, for ease of reading, all further references
to Section 4.1 will be to the paragraphs as renumbered. These
modifications are appropriate because they would alleviate confusion on
those referencing the Proposed CT Plan.
Article IV, Section 4.1(a) provides that the Company be managed by
the Operating Committee.\68\ Article IV, Section 4.1(a) also provides
that the Operating Committee has the authority to take actions it deems
necessary to accomplish the purposes of the Company, including: (1)
proposing amendments or implementing policies and procedures; \69\ (2)
selecting, overseeing, specifying the role and responsibilities of, and
evaluating the performance of the Administrator, the Processor, an
auditor, and any other professional service providers; \70\ (3)
developing fair and reasonable fees and consistent terms for
Transaction Reports and Quotation Information; \71\ (4) reviewing the
performance of the Processors and ensuring public reporting of the
Processors' performance and other metrics and information about the
processors; \72\ (5) assessing the marketplace for equity data products
and ensuring that the CT Feeds are priced in a manner that is fair and
reasonable, and designed to ensure the
[[Page 94929]]
widespread availability of CT Feeds data to investors and market
participants; \73\ (6) designing a fair and reasonable formula to be
applied by the Administrator for allocating plan revenues, and
overseeing, reviewing, and revising the formula as needed; \74\ (7)
interpreting the Agreement and its provisions; \75\ and (8) carrying
out other specific responsibilities provided for in the Agreement.\76\
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\68\ See Article IV, Section 4.1(a) of the Proposed CT Plan.
This paragraph further provides that unless otherwise expressly
provided to the contrary in this Agreement, no Member shall have
authority to act for, or to assume any obligation or responsibility
on behalf of, the Company, without the prior approval of the
Operating Committee. See id.
\69\ See Article IV, Section 4.1(a)(i) of the Proposed CT Plan.
\70\ See Article IV, Section 4.1(a)(ii) of the Proposed CT Plan.
\71\ See Article IV, Section 4.1(a)(iii) of the Proposed CT Plan
(providing that that the Operating Committee has the authority to
take actions it deems necessary to accomplish the purposes of the
Company, including ``developing and maintaining fair and reasonable
Fees and consistent terms for the distribution, transmission, and
aggregation of Transaction Reports and Quotation Information in
Eligible Securities''). See id.
\72\ See Article IV, Section 4.1(a)(iv) of the Proposed CT Plan.
\73\ See Article IV, Section 4.1(a)(v) of the Proposed CT Plan.
\74\ See Article IV, Section 4.1(a)(vi) of the Proposed CT Plan.
\75\ See Article IV, Section 4.1(a)(vii) of the Proposed CT
Plan.
\76\ See Article IV, Section 4.1(a)(viii) of the Proposed CT
Plan.
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Section 4.1(b) proposes to permit the Operating Committee to
delegate all or part of its administrative functions under the Proposed
CT Plan, excluding those administrative functions to be performed by
the Administrator pursuant to Section 6.1, to (1) a subcommittee; (2)
one or more of the Members; or (3) any other Persons (including the
Administrator),\77\ provided that a delegation would not convey the
authority to take action on behalf of the Proposed CT Plan.\78\ And
Section 4.1(c) provides that neither the Company nor the Operating
Committee will have authority over any Member's proprietary systems or
the collection and dissemination of quotation or transaction
information in Eligible Securities in any Member's Market, or, in the
case of FINRA, from FINRA Participants. Section 4.1 as proposed and
approved differs from the corresponding provision of the 2021 CT Plan
approved by the Commission in two ways. First, in lieu of the term
``core data'' in Section 4.1(a)(iii) of the 2021 CT Plan, the Proposed
CT Plan uses the phrase ``Transaction Reports and Quotation Information
in Eligible Securities.'' Second, Section 4.1(b) as proposed and
approved removes a reference to Non-SRO Voting Representatives, which
is consistent with the Amended Governance Order.\79\
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\77\ The limitations on the Operating Committee's authority to
delegate those administrative functions to be performed by the
Administrator pursuant to Section 6.1, to (1) a subcommittee; (2)
one or more of the Members; or (3) any other Persons (including the
Administrator) under Section 4.1(b) of the Proposed CT Plan apply
equally with respect to those administrative functions to be
performed by the Interim Administrator(s) appointed pursuant to
Section 6.5 of the Proposed CT Plan.
\78\ See Article IV, Section 4.1(b) of the Proposed CT Plan.
\79\ See Amended Governance Order, supra note 23, 88 FR at 61631
(``In accordance with the D.C. Circuit's ruling, the Commission is
modifying the Governance Order to remove the provisions regarding
the participation of non-SRO representatives as members of the
operating committee of the Revised New Consolidated Data Plan and to
make conforming changes.'').
---------------------------------------------------------------------------
One commenter states that the Commission should ``encourage the
Revised CT Plan to consider'' whether current policies of the Equity
Data Plans, ``such as those surrounding non-display use reporting and
professional versus non-professional designations, are necessary or
merely add unnecessary complexity and confusion.'' \80\ The commenter
states that a ``benefit of transparent, simple, fee schedules and
policies governing consolidated equity market data is that they [would]
also likely reduce the scope of services that the Plan Administrator
would need to provide to the Revised CT Plan, thereby reducing Plan
costs.'' \81\ Another commenter states that the policies for the
Proposed CT Plan ``must be improved'' from those of the Equity Data
Plans.\82\ This commenter states that ``there must be greater
transparency in the various stages of the workstreams and alternative
views considered'' and that the ``seemingly rent-seeking behavior that
has plagued the Existing Plans must be addressed, and every aspect
surrounding the governance and administration of Consolidated Data must
be reimagined.'' \83\ Another commenter suggests that, in developing
policies, consideration should be given to ``invit[ing] potential RFP
respondents to present their thoughts on issues and potential solutions
for the new plan.'' \84\
---------------------------------------------------------------------------
\80\ Letter from Krista Ryan, SVP, Deputy General Counsel and
Holly Grotnik, Head of Consolidated Data Services, Fidelity
Investments, at 5 (Feb. 26, 2024) (``Fidelity Letter'') at 5.
\81\ Id.
\82\ Letter from Stan Sater, Legal Counsel, Polygon.io, Inc.
(Feb. 26, 2024) (``Polygon Letter''), at 1.
\83\ Id. at 2.
\84\ Letter from Thomas Jordan, President, Jordan & Jordan, at 2
(June 12, 2024) (``Jordan Letter'').
---------------------------------------------------------------------------
With respect to the comments addressing the policies to be
developed for the Proposed CT Plan, including comments suggesting that
such policies should improve upon those of the Equity Data Plans with
respect to their complexity, effectiveness, and transparency,\85\ and
for the participants to the Proposed CT Plan to consider whether such
policies are necessary,\86\ these comments provide insufficient detail
with respect to the measures or specific plan language that, in the
commenters' views, would be necessary to address the commenters'
concerns. Additionally, the requirements of the Proposed CT Plan, as
proposed and approved, provide appropriate guidelines for the
development and implementation of such policies. For example, the
Proposed CT Plan, as proposed and approved, requires that the Operating
Committee implement ``policies and procedures as necessary to ensure
prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to
Transaction Reports and Quotation Information in Eligible Securities
and the fairness and usefulness of the form and content of that
information.'' \87\ Moreover, any plan policies or operational
interpretations adopted by the Operating Committee must be consistent
with the terms of the Plan.
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\85\ See Fidelity Letter, supra note 80, at 5; Polygon Letter,
supra note 82, at 1.
\86\ See Fidelity Letter supra note 80, at 5.
\87\ Article IV, Section 4.1(a)(1) of the Proposed CT Plan (as
approved).
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With respect to the concerns based on the commenters' experience
with the Equity Data Plans as it relates to equity market data or plan
policies in general,\88\ these commenters provide insufficient detail
with respect to the measures that, in the commenters' views, are
necessary to address the expressed concerns. Regarding the plan
policies to be developed, the Proposed CT Plan includes specified
provisions designed to, among other things, address the governance
concerns identified by the Commission with respect to the governance of
the Equity Data Plans.\89\ Implementing the governance reforms in the
Proposed CT Plan, as approved in this order, is a key step in
responding to broader concerns about whether the Equity Data Plans
continue to serve their regulatory purpose.\90\ These changes,
including, as approved in this order, a reallocation of
[[Page 94930]]
voting power,\91\ broader representation from members of the Advisory
Committee,\92\ as well as the appointment of an Administrator meeting
the independence requirements of Section 6.2 of the Proposed CT
Plan,\93\ should, when combined into a single new NMS plan,
significantly enhance the governance of the Proposed CT Plan.\94\ They
should also facilitate enhanced decision-making and innovation in the
provision of equity market data, including with respect to the
development of plan-related policies. Additionally, replacing the
Equity Data Plans' two current administrators with the single
independent Administrator upon full implementation of the Proposed CT
Plan should improve upon the policies of the Equity Data Plans by
facilitating both uniform plan policies and the uniform application of
those policies. Moreover, the Proposed CT Plan will provide for a
broader set of Advisory Committee members than the Equity Data Plans
do, and the Advisory Committee will have the opportunity to provide
input from a broader selection of market participants on any proposed
policies prior to the adoption of those policies by the Operating
Committee.\95\ Accordingly, the Commission is not modifying the
Proposed CT Plan in response to these comments.
---------------------------------------------------------------------------
\88\ See Fidelity Letter, supra note 80, at 5; Polygon Letter,
supra note 82, at 1-2.
\89\ See Amended Governance Order, supra note 23, 88 FR at
61631. In the Governance Order, ``[t]he Commission sought to address
. . . , among other things, the inherent conflicts of interest
between the self-regulatory organizations' role in collecting and
disseminating consolidated equity market data and their interests in
selling proprietary data products.'' See 2021 Approval Order, supra
note 19, 86 FR at 44142. See also Governance Order, supra note 11
(``[T]he Commission believes that the demutualization of the
exchanges and the proliferation of proprietary exchange data
products have heightened the conflicts between the SROs' business
interests in proprietary data offerings and their obligations as
SROs under the national market system to ensure prompt, accurate,
reliable, and fair dissemination of core data through the jointly
administered Equity Data Plans. And these conflicts bear on the
exchanges' incentives to meaningfully improve the provision of core
data.'') (citations omitted)).
\90\ See Governance Order, supra note 11, 85 FR at 28705 (citing
to Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR
2164, 2173 (Jan. 14, 2020) (File No. 4-757).
\91\ See Article IV, Section 4.3 (establishing requirements for
action of the Operating Committee of the Proposed CT Plan).
\92\ See Article IV, Section 4.7 of the Proposed CT Plan
(governing, among other things, the formation, composition,
function, and rights of the Advisory Committee of the Proposed CT
Plan).
\93\ See Article VI, Section 6.2 of the Proposed CT Plan
(governing independence requirements for the Administrator of the
Proposed CT Plan).
\94\ As the Commission stated in the Governance Order, changes
to the governance structure of the SIPs are appropriate to create a
governance structure that will reduce obstacles to ongoing
improvement of the consolidated market data feeds in ways that the
current governance structure of the Equity Data Plans has not; and
making these governance changes will facilitate decision-making
regarding operational changes. See Governance Order, supra note 11,
85 FR at 28707.
\95\ See, e.g., Article IV, Sections 4.1 and 4.7 of the Proposed
CT Plan.
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As discussed above, Section 4.1 of Article IV of the Proposed CT
Plan is substantively similar to the corresponding provision of the
2021 CT Plan approved by the Commission,\96\ and, other than for the
removal of provisions regarding non-SRO representatives, which is
consistent with the Amended Governance Order,\97\ Section 4.1 was not
required to be modified by the Amended Governance Order. For the same
reasons stated in the 2021 Approval Order (apart from those pertaining
to the participation of non-SRO representatives as members of the
operating committee of the 2021 CT Plan, which is not included in the
Proposed CT Plan),\98\ the Commission is approving Section 4.1 of
Article IV of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\96\ See 2021 Approval Order, supra note 19, 86 FR at 44156-63.
\97\ See Amended Governance Order, supra note 23, 88 FR at 61631
(stating that ``[i]n accordance with the D.C. Circuit's ruling, the
Commission is modifying the Governance Order to remove the
provisions regarding the participation of non-SRO representatives as
members of the operating committee of the Revised New Consolidated
Data Plan and to make conforming changes'').
\98\ See 2021 Approval Order, supra note 19, 86 FR at 44156-63.
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(b) Composition and Selection of Operating Committee
Article IV, Section 4.2 governs the composition and selection of
the Operating Committee members. Article IV, Section 4.2(a) provides
that each SRO group \99\ and each non-affiliated SRO \100\ will
designate a Voting Representative to serve on the Operating Committee
and vote on its behalf.\101\ Article IV, Section 4.2(b) of the Proposed
CT Plan provides that entities that have not yet been registered with
the Commission as national securities exchanges may appoint, subject to
Section 4.4(i), an individual to attend regularly scheduled Operating
Committee meetings (an ``SRO Applicant Observer'').\102\ Paragraph (b)
of Section 4.2 further provides that if the SRO Applicant's Form 1
petition or Section 19(b)(1) filing is withdrawn, returned, or is
otherwise not actively pending with the Commission for any reason, then
the SRO Applicant will no longer be eligible to have an SRO Applicant
Observer attend Operating Committee meetings. Article IV, Section
4.2(c) of the Proposed CT Plan provides that in the event that a non-
affiliated SRO, or that all national securities exchanges in an SRO
group, cease operations as a market (or have not commenced operation of
a market), those entities will not be permitted to appoint a Voting
Representative. Such a non-affiliated SRO or SRO group will, however,
be permitted to attend meetings of the Operating Committee as an
observer, except for Executive Sessions.\103\ If such a non-affiliated
SRO or SRO group does not commence operations within six months of
first attending an Operating Committee meeting as a non-operational
exchange(s), it will no longer be permitted to attend Operating
Committee meetings until it resumes operations as a market.\104\
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\99\ For example, New York Stock Exchange LLC, NYSE American,
NYSE Arca, NYSE Chicago, and NYSE National would be one SRO group
for purposes of the Proposed CT Plan and would select one individual
to represent the SRO group on the Operating Committee.
\100\ Currently, the non-affiliated SROs are FINRA, IEX, LTSE,
MEMX, and MIAX PEARL.
\101\ See Article IV, Section 4.2(a) of the Proposed CT Plan.
Section 4.2(a) further provides that each SRO group and each non-
affiliated SRO may designate an alternate individual or individuals
who shall be authorized to vote on behalf of such SRO group or such
non-affiliated SRO, respectively, in the absence of the designated
SRO Voting Representative. See id.
\102\ See Article IV, Section 4.2(b) of the Proposed CT Plan.
This section further provides that each SRO Applicant may designate
an alternate individual or individuals who shall be authorized to
act as the SRO Applicant Observer on behalf of the SRO Applicant in
the absence of the designated SRO Applicant Observer. See id.
\103\ See Article IV, Section 4.2(c) of the Proposed CT Plan.
\104\ See Article IV, Section 4.2(c) of the Proposed CT Plan.
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The text of Section 4.2 of the Proposed CT Plan is substantively
similar to the corresponding provision of the 2021 CT Plan approved by
the Commission, except for the following differences, which are
consistent with the requirements of the Amended Governance Order: \105\
(1) the removal of all provisions regarding the participation of non-
SRO representatives as members of the operating committee (``Non-SRO
Voting Representatives''), consistent with requirements of the Amended
Governance Order; (2) the replacement of references to ``SRO Voting
Representatives'' with references to ``Voting Representatives'' which,
as discussed above, conforms to the defined term; and (3) the
renumbering of paragraphs in proposed Section 4.2 to conform the
section with the foregoing deletions. The Commission received no
comments on Section 4.2 of the Proposed CT Plan. The Commission is
approving Section 4.2 as proposed for the reasons stated in the 2021
Approval Order (apart from those pertaining to the participation of
non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan).
---------------------------------------------------------------------------
\105\ See Amended Governance Order, supra note 23, 88 FR at
61631.
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(c) Action of Operating Committee
Article IV, Section 4.3 of the Proposed CT Plan sets forth the
voting allocation and voting structure for actions of the Operating
Committee.
(i) Allocation of Votes
Consistent with the requirements of the Amended Governance
Order,\106\ Article IV, Section 4.3(a) of the Proposed CT Plan provides
that each
[[Page 94931]]
Voting Representative will have one vote to cast on behalf of the SRO
group or non-affiliated SRO that he or she represents, with a second
vote provided if the SRO group or non-affiliated SRO has a market
center or centers that trade more than 15 percent of consolidated
equity market share \107\ for four of the six calendar months preceding
a vote of the Operating Committee.\108\ Commenters addressed the
allocation of votes in the Proposed CT Plan.\109\
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\106\ See Amended Governance Order, supra note 23, 88 FR at
61639.
\107\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
Section 4.3(a) further provides that, for purposes of Section
4.3(a), ``consolidated equity market share'' means the average daily
dollar equity trading volume of Eligible Securities of an SRO group
or non-affiliated SRO as a percentage of the average daily dollar
equity trading volume of all of the SRO groups and non-affiliated
SROs, as reported under this Agreement or under the CQ, CTA, and UTP
Plans. See id.
\108\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
Article IV, Section 4.3(a) of the Proposed CT Plan states that FINRA
shall not be considered to operate a market center within the
meaning of this Section 4.3(a) solely by virtue of facilitating
quoting on the FINRA Alternative Display Facility or reporting on
behalf of FINRA participants of transactions effected otherwise than
on an exchange.
\109\ See Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (Jan. 26, 2024)
(``Cboe Letter I''); Fidelity Letter, supra note 80; Letter from
Sarah Bessin, Deputy General Counsel, Securities Regulation and Nhan
Nguyen, Associate General Counsel, Securities Regulation, Investment
Company Institute (Feb. 26, 2024) (``ICI Letter''); Letter from
Adrian Griffiths, Head of Market Structure, MEMX LLC (Feb. 26, 2024)
(``MEMX Letter''); Letter from Erika Moore, Vice President and
Corporate Secretary, Nasdaq, Inc. (Feb. 26, 2024) (``Nasdaq
Letter''); Letter from Hope Jarkowski, General Counsel, NYSE Group,
Inc. (Feb. 26, 2024) (``NYSE Letter''); Letter from Ellen Greene,
managing Director, Equities & Options Market Structure and Joseph
Corcoran, Managing Directors, Associate General Counsel, Securities
Industry and Financial Markets Association (Feb. 26, 2024) (``SIFMA
Letter''); Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (May 20, 2024)
(``Cboe Letter II''); Jordan Letter, supra note 84; Letter from
Adrian Griffiths, Head of Market Structure, MEMX, John Ramsay, Chief
Market Policy Officer, IEX, Christopher Solgan, VP, Senior Counsel,
MIAX Pearl, and Alanna Barton, Director and Senior Counsel, Markets
and Regulation, LTSE (Aug. 16, 2024) (``MEMX-IEX-MIAX Pearl-LTSE
Letter''); Letter from Patrick Sexton, EVP, General Counsel &
Corporate Secretary, Cboe Global Markets, Inc. (Sept. 18, 2024)
(``Cboe Letter III'').
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(A) The Allocation of Votes by SRO Group and Trading Volume
Several commenters support approving the allocation of votes as
proposed.\110\ One commenter agrees with the Proposed CT Plan provision
that the voting power on the Operating Committee should be limited to
one vote per exchange group, with the ability to obtain a second vote
if the exchange group maintains a consolidated market share of at least
fifteen percent for at least four of the six calendar months preceding
a vote of the Operating Committee.\111\ One commenter states that it
supports the allocation of votes as proposed because it would reduce
the ``concentration of voting authority that is currently held by a
minority of Participant organizations that control several votes
today.'' \112\
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\110\ See Fidelity Letter, supra note 80, at 3; MEMX Letter,
supra note 109, at 2; ICI Letter, supra note 109, at 1-2; SIFMA
Letter, supra note 109, at 2; MEMX-IEX-MIAX Pearl-LTSE Letter, supra
note 109, at 1-5.
\111\ See Fidelity Letter, supra note 80, at 3.
\112\ MEMX Letter, supra note 109, at 2, 10.
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Conversely, certain commenters state that, while the Commission
stated in the 2021 Approval Order that its voting framework was
designed to reflect the importance of those SROs that oversee trading
activity that generates a significant amount of equity market data, the
15-percent consolidated equity market share necessary for a second vote
is not rationally related to the Commission's goal.\113\ Specifically,
these commenters state that the Proposed CT Plan's voting framework
violates the Exchange Act and is arbitrary and capricious under the
Administrative Procedure Act (``APA'').\114\
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\113\ See Cboe Letter I, supra note 109, at 2-5; Cboe Letter II,
supra note 109, at 2, 3-6; Nasdaq Letter, supra note 109, at 2-5;
NYSE Letter, supra note 109, at 5-7.
\114\ See Cboe Letter I, supra note 109, at 3-6; Nasdaq Letter,
supra note 109, at 2; NYSE Letter, supra note 109, at 7.
---------------------------------------------------------------------------
One commenter states that the proposed allocation of voting power
is ``illogical and violative of the APA'' because it (1) ``lacks a
rational basis'' and ``any rational connection'' to this commenter's
consolidated equity market share, (2) treats the commenter's SRO group
the same as dissimilarly situated non-affiliated exchanges, while
treating the commenter's SRO group differently from other similarly
situated SRO groups, and (3) unjustifiably equates this commenter's
significance to the market to that of the much smaller, non-affiliated
exchanges, thus yielding results that are ``antithetical'' and
inconsistent with the Commission's statement that voting should reflect
the ``significance within the national market system of those exchanges
that, in their roles as SROs, oversee trading activity that generates a
significant amount of equity market data.'' \115\
---------------------------------------------------------------------------
\115\ Cboe Letter I, supra note 109, at 2, 3-4; see also Cboe
Letter II, supra note 109, at 3-6; Cboe Letter III, supra note 109,
at 7-8.
---------------------------------------------------------------------------
This commenter further states that consolidated market share
statistics for 2023 and year-to-date (``YTD'') 2024 support its
argument against allocating to its SRO group the same single vote
allocated to each of the unaffiliated SROs.\116\ Specifically, the
commenter states that for YTD August 2024, the consolidated equity
market share of its SRO group is more than four times that of two
unaffiliated SROs, almost ten times more than a third unaffiliated SRO,
and approaching more than 2600 times more volume than a fourth
unaffiliated SRO.\117\ This commenter further states that for YTD
August 2024, the combined consolidated equity market share of these
four non-affiliated exchanges was little more than 50% of the
consolidated equity market share alone of this commenter's SRO
group.\118\ The commenter states that, by allocating the non-affiliated
exchanges four total votes and the commenter's SRO group one vote, the
Commission has effectively given the non-affiliated exchanges eight
times more voting power for their market share relative to the
commenter's, which the commenter states is unsupported by reasoned
analysis.\119\
---------------------------------------------------------------------------
\116\ See Cboe Letter II, supra note 109, at 3.
\117\ See Cboe Letter III, supra note 109, at 7.
\118\ See Cboe Letter II, supra note 109, at 3.
\119\ See id. at 4; Cboe Letter III, supra note 109, at 8.
---------------------------------------------------------------------------
One commenter states that the Commission should consider more than
just trading market share when considering the significance of
exchanges and SRO groups to the national market structure, saying that
it would not be reasonable for the Commission to conclude that an
exchange group that operates one or more listing exchanges, attracts
significant quoting and trading activity, generates a substantial
portion of equity market data, and commands more than 10% of the
trading market share is no longer ``significant'' enough to warrant a
second vote (and have the same voting power as an exchange with zero
percent market share).\120\
---------------------------------------------------------------------------
\120\ See NYSE Letter, supra note 109, at 6.
---------------------------------------------------------------------------
Another commenter states that consideration should be given to
comments favoring a ``more market oriented'' approach to the allocation
of votes under the Proposed CT Plan because, as proposed, the voting
mechanism seems ``somewhat arbitrary,'' with one SRO group and much
smaller unaffiliated SROs having equivalent voting power.\121\ This
commenter states that, based on average daily volume for the first week
of June 2024, one SRO group executed over 1400 times the volume of one
of the unaffiliated SROs.\122\ This commenter
[[Page 94932]]
questions whether it is appropriate for the basis for an equity market
data voting structure to differ from that of other regulations and
states that Section 31 fees, the Trading Activity Fee (``TAF'') and
Consolidated Audit Trail (``CAT'') fees are, for example, all based on
either notional amount of sales multiplied by a fixed assessment fee or
total number of round turn transactions multiplied by a fixed fee or
number of shares executed or even an income assessment based on gross
revenue.\123\
---------------------------------------------------------------------------
\121\ Jordan Letter, supra note 84, at 2.
\122\ See id. This commenter further states that approval of the
Proposed CT Plan, including its proposed voting structure, would
likely lead to litigation with consequent delays to the
implementation of the Proposed CT Plan. See id.
\123\ See id.
---------------------------------------------------------------------------
The Commission disagrees that the allocation of the same voting
power to a single SRO and to a group of several SROs--even if an SRO
group operates one or more listing exchanges, attracts significant
quoting and trading activity, generates a substantial portion of equity
market data, and commands more than 10% of the trading market share--is
without rational basis or inconsistent with the APA. As the Commission
stated in the Governance Order:
Congress charged the Commission with ensuring the ``prompt,
accurate, reliable, and fair collection, processing, distribution,
and publication of information with respect to quotations for and
transactions in such securities and the fairness and usefulness of
the form and content of such information.'' In furtherance of this
responsibility, the Commission seeks through its rules and
regulations to help ensure that certain ``core data'' is widely
available for reasonable fees. The Commission has recognized that
investors must have this core data ``to participate in the U.S.
equity markets.'' And the purpose of the Equity Data Plans, adopted
pursuant to Regulation NMS, is to facilitate the collection and
dissemination of core data so that the public has ready access to a
``comprehensive, accurate, and reliable source of information for
the prices and volume of any NMS stock at any time during the
trading day.'' \124\
---------------------------------------------------------------------------
\124\ Governance Order, supra note 11, 85 FR at 28705 (citations
omitted).
However, as the Commission also stated, ``exchange consolidation has
altered the relative voting power of SROs such that exchange groups
under common management now have greater voting power with respect to
plan governance. Exchanges that historically had only one vote on NMS
plans have now been consolidated into exchange groups that can control
blocks of four or five votes.'' \125\ Thus, as the Commission explained
in the Governance Order, ``the current governance structure [of the
Equity Data Plans] provides voting power based on each exchange license
and thereby concentrates voting power in a small number of exchange
group stakeholders, which also have inherent conflicts of interest with
respect to the operation of the Plans,'' \126\ that these conflicts
have ``perpetuated disincentives for the Equity Data Plans to make
improvements to the SIP data products'' \127\ and ``contributed to
significant concerns regarding whether the consolidated feeds meet the
purposes for them set out by Congress and by the Commission in adopting
the national market system,'' \128\ and that ``modernizing plan
governance by reallocating votes by exchange group should help to
ensure the prompt, accurate, reliable, and fair collection, processing,
distribution, and publication of information with respect to quotations
for and transactions in NMS stocks and the fairness and usefulness of
the form and content of that information.'' \129\
---------------------------------------------------------------------------
\125\ Id. at 28712.
\126\ Id. at 28713.
\127\ Id.
\128\ Id. at 28702.
\129\ Id. at 28713.
---------------------------------------------------------------------------
Moreover, in ruling on the petition challenging the 2021 Approval
Order, the D.C. Circuit confirmed that the allocation of votes in the
CT Plan by exchange group is consistent with Section 11A of the
Exchange Act and Rule 608 of Regulation NMS.\130\ Inherent in that
structure--which was included in both the Governance Order and the
Amended Governance Order--is the provision of the same voting power to
some SRO groups with larger market share and exchanges with smaller
trading volume. And, at most, the largest SRO groups would have only
twice the voting power of the smallest unaffiliated exchange. By
implication, in upholding these provisions, the Court concluded that
these features were rational.\131\ Moreover, although commenters have
opposed granting similar voting power to SRO groups and non-affiliated
SROs with significantly different trading volumes,\132\ the existing
system for allocating votes in the Equity Data Plans, which is favored
by these commenters, allocates voting power without any consideration
of trading volume. The existing system also provides the large SRO
groups disproportionate influence over the Equity Data Plans through
casting the vote of multiple consolidated SROs as a unified block.\133\
Addressing this allocation of disproportionate voting power to SRO
groups with conflicts of interest--not simply favoring non-affiliated
SRO groups or denying the SRO groups a majority of voting power \134\--
remains the Commission's purpose in allocating votes among SROs in the
Amended Governance Order.
---------------------------------------------------------------------------
\130\ See Nasdaq v. SEC, supra note 20, 38 F.4th at 1138-42.
\131\ See id. at 1139-42 (addressing the petitioners' arguments
that the Commission's decision to ``limit SRO votes according to an
SRO's corporate affiliation with another SRO'' was arbitrary,
capricious, and contrary to section 11A of the Exchange Act); see
also infra notes 189-197 and accompanying text.
\132\ See supra notes 116-120, 122, 123 and accompanying text.
\133\ See Governance Order, supra note 11, 85 FR at 28713
(citing the ``disproportionate influence affiliated exchange groups
currently exercise in Plan matters by voting as a block,'' as well
as the ``need to rebalance voting power in Plan governance'' to
address this concern).
\134\ See Cboe Letter II, supra note 109, at 2.
---------------------------------------------------------------------------
Finally, while one commenter also questions whether it is
appropriate for the voting structure of the Proposed CT Plan to differ
from other regulations--such as the allocation of Section 31 fees, the
TAF, and CAT fees--the voting scheme required by the Amended Governance
Order is designed to address issues specific to the Equity Data Plans:
the concentration of voting power in a small number of exchange group
stakeholders with inherent conflicts of interest with respect to the
operation of the Equity Data Plans, which has perpetuated disincentives
for the Equity Data Plans to make improvements to the SIP data
products.\135\ Moreover, if the Commission allocated voting power on
the Proposed CT Plan purely by trading volume, similar to the fees
cited by the commenter, the result would be an even greater
concentration of voting power than currently exists in the Equity Data
Plans, perpetuating the existing disincentives to improve the SIP data
products.
---------------------------------------------------------------------------
\135\ See Governance Order, supra note 11, 85 FR at 28713;
Amended Governance Order, supra note 23, 88 FR at 61632. See also
Nasdaq v. SEC, supra note 20, 38 F.4th at 1140-41 (finding that the
Commission had justified its ``differing treatment of SROs for
voting'' in the 2021 Approval Order).
---------------------------------------------------------------------------
(B) Market Changes Since 2020
Several commenters also state that, because of changes that have
taken place in the markets since the Commission set the 15-percent
threshold in the Governance Order, that threshold is no longer
supportable and should be reconsidered. One commenter states that the
15-percent threshold for obtaining a second vote has become ``stale''
since the Commission first proposed it in 2020.\136\ This commenter
states that, since the Commission justified the 15-percent threshold in
the Governance Order, there has been a proliferation of non-affiliated
exchanges, with three independent exchanges having launched (LTSE,
MEMX, and MIAX PEARL), BOX
[[Page 94933]]
Exchange LLC having received approval of its registration as an
exchange, and that three other entities have announced plans to launch
new exchanges.\137\
---------------------------------------------------------------------------
\136\ NYSE Letter, supra note 109, at 2.
\137\ See id. at 5.
---------------------------------------------------------------------------
This commenter further states that the Commission's concerns in
2020 and 2021 about exchange consolidation were unfounded when
rejecting a 10% threshold.\138\ This commenter states that the
Commission justified the 15-percent threshold in 2020 as reflecting
``the significance within the national market system of those exchanges
that, in their roles as SROs, oversee trading activity that generates a
significant amount of equity market data,'' and by pointing to the
market shares of the three SRO groups at that time, which the commenter
says were all ``comfortably above'' the 15-percent threshold but have
since declined.\139\
---------------------------------------------------------------------------
\138\ See id. See also Nasdaq Letter, supra note 109, at 4
(stating that, as new exchanges have entered the market over the
past three years, the trend of liquidity moving toward non-exchange
venues has continued).
\139\ NYSE Letter, supra note 109, at 5 (quoting the 2021
Approval Order, supra note 19, 86 FR at 44164).
---------------------------------------------------------------------------
The commenter states that the Commission ``clearly did not foresee
this turn of events,'' and that, ``[b]y the Commission's own reasoning,
if the Proposed Plan does not allocate a second vote to the SRO Groups
that oversee the vast majority of on-exchange quoting, trading, and
related market data creation, then the voting threshold is incorrectly
set.'' \140\ The commenter states that, given the increasing
fragmentation of the market and decline of SRO-group market share, an
exchange group that manages to achieve 14, or 12, or even 10 percent
market share should qualify for a second vote,\141\ and observes that,
``while the four independent exchanges have collectively managed to
achieve almost 8 percent market share, none of them individually has
had a market share of more than 4 percent, and one of them has
essentially zero percent.'' \142\
---------------------------------------------------------------------------
\140\ Id. at 6.
\141\ See id.
\142\ Id.
---------------------------------------------------------------------------
Another commenter also states that the Commission based its
analysis on the erroneous assumption that the largest exchange groups
would have a market share ranging from 17 percent to 22 percent \143\--
with the 15-percent threshold well below that range--and that data show
the actual range to be approximately 4 points below that, between 13
and 18 percent, with the threshold in the middle of that range, a
downward trend that is likely to endure.\144\ According to this
commenter, the 15-percent threshold is therefore ``not fit for
purpose'' because it is too high to differentiate between exchanges
that oversee trading activity that generates a significant amount of
equity market data and those that do not.\145\ This commenter further
states that the Commission must examine the relevant data and
articulate a satisfactory explanation for its action including a
rational connection between the facts found and the choice made.\146\
The commenter states that the data does not support the proposed voting
scheme.\147\
---------------------------------------------------------------------------
\143\ See Nasdaq Letter, supra note 109, at 3 (citing Governance
Order, supra note 11, 85 FR at 28714).
\144\ See id. at 4.
\145\ Id.
\146\ See id.
\147\ See id. at 4-5.
---------------------------------------------------------------------------
Some commenters that support the proposed voting allocation state
that ``relative market share trends are fluid and subject to constant
change,'' and therefore are not relevant to the proper effectuation of
the SROs' shared regulatory responsibilities in the Proposed CT Plan's
voting framework.\148\
---------------------------------------------------------------------------
\148\ MEMX-IEX-MIAX Pearl-LTSE Letter, supra note 109, at 5.
---------------------------------------------------------------------------
The Commission agrees with commenters that stated that relative
market share trends are by their nature fluid and subject to constant
change and that the court's ruling did not suggest that a transitory
change in market share between competitors is relevant to the question
of how to properly effectuate the SROs' shared regulatory
responsibilities in the Proposed CT Plan's voting framework, or that
that proposed voting structure is now, after its long procedural
history, inconsistent with the Exchange Act.\149\
---------------------------------------------------------------------------
\149\ See id. at 3-4.
---------------------------------------------------------------------------
Additionally, while the commenters opposing the voting allocation
of the Proposed CT Plan \150\ state that there has been a proliferation
of non-affiliated exchanges and a decline in SRO-group market share,
and that the 15-percent threshold is now inconsistent with the
Commission's observation in the Governance Order that the consolidated
equity market share of the largest exchange groups was ``already well
above 10 percent and continues to range from 17 percent to 22
percent,'' \151\ and the Commission's statement that the threshold
``reflects the significance within the national market system of those
exchanges that, in their roles as SROs, oversee trading activity that
generates a significant amount of equity market data,'' \152\ the
Commission did not define ``significant'' to mean that each of the
three SRO groups would, in perpetuity, receive a second vote on the new
NMS plan's Operating Committee. That two SRO groups, as opposed to all
three, would receive a second vote under the current distribution of
trading volume, does not invalidate the Commission's decision to permit
a second vote only for those unaffiliated SROs or SRO groups with at
least a 15-percent market share.
---------------------------------------------------------------------------
\150\ See Cboe Letter I, supra note 109, at 2-6; Cboe Letter II,
supra note 109, at 2-8; Cboe Letter III, supra note 109, at 2-4;
NYSE Letter, supra note 109, at 1-7; Nasdaq Letter, supra note 109,
at 1-5.
\151\ See Governance Order, supra note 11, 85 FR at 28714.
\152\ See Cboe Letter I, supra note 109, at 3 (quoting 2021
Approval Order, supra note 19, 86 FR at 44164); see also Cboe Letter
II, supra note 109, at 4-5; Cboe Letter III, supra note 109, at 5,
8; NYSE Letter, supra note 109, at 2; Nasdaq Letter, supra note 109,
at 1-2 (citing 2021 Approval Order, supra note 19, 86 FR at 44164).
---------------------------------------------------------------------------
Moreover, the Commission specifically rejected a lower threshold in
the Governance Order precisely because adopting a lower threshold would
have created the expectation that SRO groups would receive a third vote
at a higher level of market share:
Setting the threshold for a second vote at 10 percent consolidated
equity market share would create the expectation that exchange
groups should receive a third vote at the same interval threshold
above 10 percent (e.g., 20 percent). However, the Commission is not
permitting the exchange groups, regardless of their consolidated
equity market share, to have a third vote as this would lead to a
continuing concentration of voting power.\153\
---------------------------------------------------------------------------
\153\ Governance Order, supra note 11, 85 FR at 28714.
And, in fact, the alternative voting framework proposed by one of the
SRO groups, and discussed in detail below,\154\ would do precisely
that: lower the threshold for a second vote such that certain SRO
groups would receive a third vote, increasing the concentration of
voting power on the Operating Committee in the SRO groups.
---------------------------------------------------------------------------
\154\ See infra Section II.B.5(c)(i)(D).
---------------------------------------------------------------------------
The Commission, in issuing the Governance Order, also agreed with a
``commenter's assertion that the two-vote cap would serve to deter
actions, such as establishing a new exchange or further consolidation
of existing exchanges into groups, taken for the sole purpose of
gaining additional voting power on the operating committee.'' \155\ The
Commission remains concerned that, as it stated in the Governance
Order, a lower market-share threshold ``may be too easy to achieve
through consolidation, which would result in too low a threshold for
obtaining an additional vote and could lead to a
[[Page 94934]]
continuing concentration of voting power.'' \156\
---------------------------------------------------------------------------
\155\ Id.
\156\ Governance Order, supra note 11, 85 FR at 28714.
---------------------------------------------------------------------------
And although commenters state that further growth in the number of
equities exchanges and further dispersion of trading volume across
venues counter the Commission's concerns about exchange consolidation--
and that, by the Commission's own reasoning, the threshold for a second
vote was incorrectly set because it would now fail to assign a second
vote to one of the three SRO groups--the ability of an SRO group or
unaffiliated SRO to cross the threshold over time, in either direction,
is entirely consistent with the voting scheme's express purpose. That
purpose, as the Commission stated in the Governance Order, is ``to
rebalance voting power in Plan governance to address the
disproportionate influence of affiliated exchange groups.'' \157\
Indeed, that an SRO group's market share has crossed the threshold for
a second vote since 2020 demonstrates that the threshold selected by
the Commission was set at a level that would, over time, continue to
distinguish the very largest SRO groups and non-affiliated SROs--which
will receive two votes on the Operating Committee--from the other SRO
groups and non-affiliated exchanges--which would receive one vote.
Thus, an analysis of the relevant data--the current distribution of
equity trading volume across the exchanges and exchange groups, as well
as the future distribution of voting power on the Operating Committee
of the Proposed CT Plan--supports the Proposed CT Plan's allocation of
a second vote on the Operating Committee only to SRO groups or non-
affiliated SROs with at least a 15-percent share of equities trading
volume.
---------------------------------------------------------------------------
\157\ Id. at 28713.
---------------------------------------------------------------------------
(C) Commission Rulemaking
One commenter states that a proposed Commission rulemaking would
affect the distribution of trading volume in a way that would undercut
the rationale behind the 15-percent threshold for a second vote. This
commenter states that the Commission's October 2023 proposal regarding
volume-based exchange transaction pricing for NMS stocks would drive
trading volumes away from exchanges to off-exchange venues where
volume-based pricing would still be available.\158\ The commenter
states that the Commission's proposed changes to on- and off-exchange
minimum pricing increments and exchange access fees \159\ are likely to
further impact the distribution of trading across on- and off-exchange
venues, as well as the market shares of individual exchanges and SRO
groups.\160\
---------------------------------------------------------------------------
\158\ See NYSE Letter, supra note 109, at 6 (citing Volume-Based
Exchange Transaction Pricing for NMS Stocks, Securities Exchange Act
Release No. 98766 (Oct. 18, 2023), 88 FR 76282 (Nov. 6, 2023) (File
No. S7-18-23) (Proposed Rule)).
\159\ See Regulation NMS: Minimum Pricing Increments, Access
Fees, and Transparency of Better Priced Orders, Securities Exchange
Act Release No. 101070 (Sept. 18, 2024), 89 FR 81620 (Oct. 8, 2024)
(File No. S7-30-22) (Final Rules) (``Regulation NMS Amendments'').
\160\ See NYSE Letter, supra note 109, at 6-7.
---------------------------------------------------------------------------
The Commission does not agree that a potential future change in the
distribution of trading in the equities markets, including from the
Commission's recently adopted amendments to Regulation NMS,\161\ would
merit changing the volume threshold for a second vote on the Proposed
CT Plan's Operating Committee. And if rules adopted by the Commission
were to significantly change the distribution of on- versus off-
exchange trading, then the Commission could consider whether the
threshold should be revisited, whether by proposed plan amendment or
Commission rulemaking. For example, if the commenter were correct that
Commission rulemaking would move significant trading volume off
exchange, then lowering the threshold might be appropriate. However,
the only recent rule amendments with expected distributional effects on
order flow are the recently adopted Regulation NMS Amendments.\162\
However, far from sending order flow off exchange, the net effect of
the rules is expected to be additional order flow on the exchanges,
potentially increasing the overall market share of the exchanges.\163\
Directionally this effect would be opposite to the commenter's position
and does not support its rational for lowering the threshold.
---------------------------------------------------------------------------
\161\ See Regulation NMS Amendments, supra note 159.
\162\ See id.
\163\ See id., 89 FR at 81760.
---------------------------------------------------------------------------
Changes in the distribution of trading may occur for many reasons
in the future.\164\ And that one SRO group has experienced a decline in
market share crossing the 15-percent threshold does not undermine the
rationale in initially setting that threshold. Indeed, the Commission
considered such a possibility at the time the 15-percent threshold was
set,\165\ and this eventuality is consistent with the Commission's
purpose in selecting the 15-percent threshold, which was to rebalance
voting power to address the disproportionate influence of affiliated
exchange groups.\166\
---------------------------------------------------------------------------
\164\ See Notice of Proposed Order Directing the Exchanges and
the Financial Industry Regulatory Authority To Submit a New National
Market System Plan Regarding Consolidated Equity Market Data,
Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR
2164, 2176 (Jan. 14, 2020) (File No. 4-757) (``While exchange group
market share has remained relatively steady over the past several
years, competition for order flow among the exchanges and the
registration of new national securities exchanges that trade
equities may lead to more significant changes in market share.'')
(citation omitted).
\165\ See Governance Order, supra note 11, 85 FR at 28714
(``[U]sing a look-back period of at least four of the six calendar
months preceding a vote of the operating committee for determining
whether an exchange group or an unaffiliated exchange has met the
threshold for a second vote would allow the voting structure of the
New Consolidated Data Plan to adapt over time to potential
fluctuations in trading volume among exchanges, while avoiding
frequent changes in vote allocations resulting from short-term
changes in trading activity.'').
\166\ See Governance Order, supra note 11, 85 FR at 28713.
---------------------------------------------------------------------------
(D) Alternative Proposed Voting Framework
One commenter suggests,\167\ and another commenter supports,\168\
modifying the Proposed CT Plan to provide for a three-tiered voting
framework in which SRO groups and non-affiliated SROs would receive
either one, two, or three votes based on their consolidated equity
market share. Pursuant to the commenter's suggestion, all SRO groups or
unaffiliated SROs would receive at least one vote; SRO groups or
unaffiliated SROs with between 5 and 15-percent consolidated equity
market share would receive two votes; and those with more than 15-
percent consolidated equity market share would receive three
votes.\169\ This commenter suggests that the Proposed CT Plan require a
two-thirds majority vote for Plan action and that the calculation of
consolidated equity market share in the Proposed CT Plan \170\ be
modified by removing 50 percent of the transaction volume reported by
the Transaction Reporting Facilities (``TRFs'') \171\ because,
according to the commenter, the TRFs contribute ``only trades, while
exchanges contribute both trades and quotes, and any calculation of
consolidated equity market share should
[[Page 94935]]
recognize this distinction.'' \172\ Another commenter states that
including the TRF volume is an error, and while it would remove the TRF
volume from the calculation of consolidated equity market share
altogether, it supports the other commenter's suggestion of removing 50
percent of transaction volume on the TRFs as a reasonable
compromise.\173\
---------------------------------------------------------------------------
\167\ See Cboe Letter I, supra note 109, at 6-11; Cboe Letter
II, supra note 109, at 4.
\168\ See Nasdaq Letter, supra note 109, at 5.
\169\ See Cboe Letter I, supra note 109, at 3, 6-11.
\170\ See Article IV, Section 4.3 of the Proposed CT Plan.
\171\ See Cboe Letter I, supra note 109, at 3, 6-11. This
commenter further states that its suggested voting allocation would
support, as proposed, the Proposed CT Plan's provision that an
exchange would be eligible to vote on the Proposed CT Plan's
operating committee only if it operates a trading venue. See id.
\172\ Cboe Letter I, supra note 109, at 3.
\173\ See Nasdaq Letter, supra note 109, at 5.
---------------------------------------------------------------------------
Another commenter states that the Commission should consider more
than just trading market share when evaluating the significance of the
SRO or SRO group in the trading ecosystem because, according to the
commenter, it would not be reasonable to conclude that an exchange
group that generates a substantial portion of equity market data and
commands more than 10 percent of the trading market share is no longer
significant enough to warrant a second vote.\174\
---------------------------------------------------------------------------
\174\ See NYSE Letter, supra note 109, at 6.
---------------------------------------------------------------------------
As discussed above and in the Governance Order,\175\ one reason
that the Commission selected the 15-percent threshold for a second vote
was to avoid creating the expectation that SRO groups should receive a
third vote at a higher market share (e.g., 20 percent), which would
perpetuate the ability of two exchange groups to command a majority of
votes, which would perpetuate the status quo.\176\ The Proposed CT
Plan's vote allocation should not be designed to perpetuate the
concentration of voting power among SRO groups or provide incentives
for further exchange-group consolidation. Therefore, an individual SRO
group should not receive a third vote on the Proposed CT Plan's
Operating Committee, regardless of trading volume.
---------------------------------------------------------------------------
\175\ See supra notes 153-156 and accompanying text; Governance
Order, supra note 11, 85 FR at 28714.
\176\ Governance Order, supra note 11, 85 FR at 28714.
---------------------------------------------------------------------------
The Commission disagrees with commenters suggesting that the
calculation of ``consolidated equity market share'' should be modified
to remove some or all TRF volume from that calculation, because, as the
Commission stated in the Governance Order, the threshold for a second
vote on the Operating Committee is designed to reflect ``the importance
to the national market system of those exchanges that, in their roles
as SROs, therefore oversee trading activity that generates a
significant amount of equity market data,'' \177\ and removing from the
calculation some or all of the trading volume that occurs off exchange
would serve to exaggerate the share of trading activity that occurs on
any given exchange. Further, the Proposed CT Plan's inclusion of TRF
volume is not an ``error,'' as characterized by a commenter,\178\ as
the vote allocation scheme and underlying calculation in the Proposed
CT Plan are consistent with the requirements of both the Governance
Order and the Amended Governance Order.\179\
---------------------------------------------------------------------------
\177\ Id.
\178\ See supra note 173 and accompanying text.
\179\ See Governance Order, supra note 11, 85 FR at 28712
(``[T]he term `consolidated equity market share' means the average
daily dollar equity trading volume of an exchange group or
unaffiliated SRO as a percentage of the average daily dollar equity
trading volume of all of the SROs, as reported by the Equity Data
Plans or the New Consolidated Data Plan.'' (emphasis added; citation
omitted)); Amended Governance Order, supra note 23, 88 FR at 61639
(providing that the threshold for a second vote on the Operating
Committee is ``consolidated equity market share of more than 15
percent during four of the previous six months preceding a vote of
the operating committee'').
---------------------------------------------------------------------------
(E) The Effect of the D.C. Circuit's Ruling
Some commenters state that while the D.C. Circuit held that the
Commission could not allocate votes to non-SRO market participants, the
Commission should not ``relitigate'' the allocation of votes to SRO
groups because the court already found that the arguments opposing the
voting allocation in the Proposed CT Plan were without merit.\180\
These commenters state that ``the court's ruling is clear: the
Commission is free to consider the policy objectives it identified in
allocating votes, and the mandated allocation of votes among SROs was
proper.'' \181\ Thus, these commenters state that the proposed
allocation of votes, including the 15-percent threshold for a second
vote, is consistent with the Exchange Act and request that the
Commission approve the Proposed CT Plan without change to the proposed
voting structure.\182\
---------------------------------------------------------------------------
\180\ MEMX-IEX-MIAX Pearl-LTSE Letter, supra note 109, at 2-4.
\181\ Id. at 3.
\182\ Id. at 5.
---------------------------------------------------------------------------
In response, another commenter states that ``the D.C. Circuit did
not consider whether the 15% voting threshold was consistent either
with the Exchange Act or the . . . APA . . . because that issue was
never presented to the Court.'' \183\ This commenter states that the
Commission is not precluded from considering this commenter's
alternative voting framework.\184\ The commenter further states that
the D.C. Circuit ruled only on the three issues raised by the
petitioning exchanges,\185\ and did not rule that any of the other
mandates in the Governance Order were proper.\186\ Moreover, this
commenter states, because the D.C. Circuit vacated the 2021 Approval
Order in its entirety, this had the procedural effect of ``sending the
SEC and the SROs back to the drawing board on how to structure voting
under the Plan.'' \187\ Finally, this commenter states that the
Commission ``did not limit the scope of the issues that could be raised
by commenters,'' and instead broadly sought comment on the Proposed CT
Plan.\188\
---------------------------------------------------------------------------
\183\ Cboe Letter III, supra note 109, at 2.
\184\ See id. at 3. See also supra Section II.B.5(c)(i)(D)
(discussing the commenter's suggested alternative voting framework).
\185\ See supra note 20 and accompanying text.
\186\ See Cboe Letter III, supra note 109, at 3.
\187\ Id. at 3.
\188\ Id. at 3-4.
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The Commission agrees that the D.C. Circuit's ruling does not
preclude consideration of comments on any aspect of the Proposed CT
Plan or the Amended Governance Order, including the voting framework
for the Proposed CT Plan. The Commission disagrees, however, that the
D.C. Circuit's decision did not address or uphold the allocation of
votes to SROs in the Governance Order. The precise allocation of votes
to SROs in the Governance Order and the 2021 Approval Order--which is
identical to that required by the Amended Governance Order \189\--was
upheld by the court.\190\ In challenging the 2021 Approval Order, the
SRO groups \191\ contended that ``the Commission's use of SRO Groups
departs from the Commission's past practice of treating affiliated SROs
as distinct legal entities in other regulatory settings and subjects
affiliated SROs to less favorable treatment as compared to unaffiliated
SROs.'' \192\ The petitioning SROs argued that the Commission's ``bare
assertion that its arbitrary 15% threshold for a second `SRO Group'
vote reflects the significance of those SROs' contributions to the
national market system is . . . insufficient because it fails to
justify affording the same number of votes to SRO groups that exceed
the 15-percent threshold no matter their market share or the number of
SROs in the group.'' \193\ They argued that the Commission
``arbitrarily selected a 15% threshold for acquiring a second vote
solely to dilute the
[[Page 94936]]
affiliated SROs' voting power,'' \194\ and that there could be no
``justifiable reason for treating an SRO group with 14% market share
differently from an otherwise identical SRO group with 15% market
share.'' \195\ The court, however, found the petitioners' arguments
about the allocation of votes to SROs and SRO groups to be ``without
merit.'' \196\ Further, the D.C. Circuit did not qualify in any way its
judgment upholding the voting allocation scheme in the Governance
Order. Thus, the court's decision did not cast any doubt on the
Commission's reasoning in the Governance Order, and in fact left the
allocation of votes to SROs unchanged. The Commission has considered
the comments regarding the voting scheme, including alternatives
suggested by commenters. However, as discussed above, the voting
allocation in the Governance Order remains appropriate.\197\
---------------------------------------------------------------------------
\189\ See Amended Governance Order, supra note 23, 88 FR at
61639.
\190\ See Nasdaq v. SEC, supra note 20; see also Cboe Letter I,
supra note 109; Cboe Letter II supra note 109; Cboe Letter III,
supra note 109; Nasdaq Letter, supra note 109, NYSE Letter, supra
note 109.
\191\ See supra note 190 and accompanying text.
\192\ Nasdaq v. SEC, supra note 20, 38 F.4th at 1140.
\193\ Nasdaq v. SEC, supra note 20, Reply Brief for Petitioners,
2022 WL 225906 at *24.
\194\ Nasdaq v. SEC, supra note 20, Opening Brief for
Petitioners, 2022 WL 225907 at *16.
\195\ Id., 2022 WL 225907 at *52-53.
\196\ Id.
\197\ Commenters' statements about other commenters' underlying
interests or motivations do not affect the Commission's analysis.
See, e.g., Cboe Letter III, supra note 109, at 6; MEMX-IEX-MIAX
Pearl-LTSE Letter, supra note 109, at 4.
---------------------------------------------------------------------------
(F) SRO Revisions to Section 4.3
Section 4.3(a) of Article IV of the Proposed CT Plan differs from
the corresponding provision of the 2021 CT Plan approved by the
Commission in three respects. First, and consistent with the Amended
Governance Order, proposed Section 4.3(a) omits provisions regarding
the participation of non-SRO representatives as members of the
Operating Committee and modifies the voting provisions to conform with
modifications required by the Amended Governance Order.\198\ Second, as
proposed, Section 4.3(a), specifies that the average daily dollar
equity trading volume used in the calculation of consolidated equity
market share for purposes of establishing the SRO voting allocation
pursuant to that section shall be that as reported under the Proposed
CT Plan, or under the CQ, CTA, and UTP Plans, rather than as solely as
reported under the CT Plan. The textual addition to Section 4.3(a) is
appropriate because the average daily dollar equity trading volume of
the Equity Data Plans, as proposed, would inform the initial allocation
of SRO votes pursuant to this section. Thereafter, and for all
subsequent allocation of SRO votes, it is the Proposed CT Plan's
average daily dollar equity trading volume--and not that of the Equity
Data Plans--that will be required to form the basis of that
calculation. Finally, proposed Section 4.3(a) differs from the
corresponding provision of the 2021 CT Plan in that the provision adds
``quoting on the FINRA Alternative Display Facility'' to the non-
exhaustive list of activities that shall not cause FINRA to be
considered to operate a market center within the meaning of Section
4.3. This change to proposed Section 4.3(a) makes clear that quoting
activity outside the Proposed CT Plan, such as that on the FINRA
Alternative Display Facility, will not figure into calculation for
allocating SRO votes pursuant to Section 4.3(a) of the Proposed CT
Plan.
---------------------------------------------------------------------------
\198\ See Amended Governance Order, supra note 23, at 61631-32.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission is approving
Article IV, Section 4.3(a) of the Proposed CT Plan as proposed.
(ii) Operating Committee Actions and Voting
Article IV, Section 4.3(b) of the Proposed CT Plan provides that
(with the limited exceptions listed in Section 4.3(c)) all actions of
the Operating Committee will require the affirmative vote of not less
than two-thirds of all votes on the Operating Committee, allocated in
the manner provided for in Section 4.3(a).
As proposed, Section 4.3(c) provides that, notwithstanding the
provisions of Section 4.3(b) the following Operating Committee actions
that would require a majority vote of the Operating Committee: (1) the
selection of the Advisory Committee; \199\ (2) the decision to enter
into Executive Session; \200\ (3) the decision to discuss a matter in a
legal subcommittee pursuant to Section 4.8(d) of the Proposed CT Plan;
\201\ and (4) decisions concerning the operation of the Company as an
LLC.\202\
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\199\ See Article IV, Section 4.7 of the Proposed CT Plan
(providing for, among other things, the formation, composition, and
function of the Advisory Committee).
\200\ See Article IV, Section 4.3(c)(ii) of the Proposed CT Plan
(providing that the decision to enter into Executive Session will be
subject to a majority vote of the Operating Committee).
\201\ See Article IV, Section 4.3(c)(iii) of the Proposed CT
Plan (providing that the decision to discuss a matter in a legal
subcommittee pursuant to Section 4.8(d) of the Proposed CT Plan will
require only a majority vote of the Operating Committee).
\202\ See Article IV, Section 4.3(c)(iv) of the Proposed CT Plan
(providing that decisions concerning the operation of the Company as
an LLC as specified in Section 10.3 and Section 11.2 of the Proposed
CT Plan will require a majority vote of the Operating Committee).
See also Article X, Section 10.3 of the Proposed CT Plan (providing
that any compromise or settlement of any tax audit or litigation
affecting members, as well as any material proposed inaction or
election to be taken by the Partnership Representative, require a
majority vote of Members); and Article XI, Section 11.2 of the
Proposed CT Plan (providing that the distribution of proceeds from
the liquidation of the Company to Members is subject to a majority
vote of the Members).
---------------------------------------------------------------------------
In the OIP, the Commission solicited comment on, among other
things, whether there were additional actions of the Proposed CT Plan
that should not be subject to the two-thirds voting requirement in
Section 4.3(b) of the Proposed CT Plan.\203\ The Commission received
several comments addressing the two-thirds voting requirement in
Section 4.3(b) of the Proposed CT Plan. One commenter states that the
Proposed CT Plan should be modified to provide that a simple--rather
than two-thirds--majority vote would be required for most actions of
the Operating Committee, including those relating to implementation of
the Proposed CT Plan, such as selection of the independent
administrator, or filing of required fee amendments.\204\ This
potential modification, the commenter states, would streamline the
Proposed CT Plan's decision-making process and reduce the risk of the
delay in implementing the Proposed CT Plan.\205\ This commenter states
that the proposed two-thirds voting requirement is likely to be
unworkable in practice, leading to gridlock, inaction, and delays in
implementation.\206\ This commenter states that another option would be
to require different voting thresholds depending on the subject matter
under consideration, adding that the commenter would not be opposed to
requiring a two-thirds supermajority for more significant Proposed CT
Plan amendments that are subject to a unanimous vote under the Equity
Data Plans.\207\
---------------------------------------------------------------------------
\203\ See OIP, supra note 6, 89 FR at 33413.
\204\ See MEMX Letter, supra note 109, at 12.
\205\ See id.
\206\ See id.
\207\ See id.
---------------------------------------------------------------------------
One commenter opposes the proposed two-thirds rather than simple
majority-vote threshold, stating that it is, in conjunction with the
allocation of voting by SRO group, ``a compromise, rather than striking
an appropriate balance in the divergence between private rights and
social costs,'' that will ``cause stagnation rather than encourage
innovation,'' and that the Operating Committee will ``continue to be a
bureaucracy with countless arguments among SROs and with the Advisory
Committee, while market participants continue to suffer from ever
higher market data and connectivity costs.'' \208\
---------------------------------------------------------------------------
\208\ Letter from Kelvin To, Founder and President, Data Boiler
Technologies, LLC, (Feb. 26, 2024) (``Data Boiler Letter''), at 2,
4.
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[[Page 94937]]
The Commission agrees that certain additional actions by the
Operating Committee should be subject to a majority vote pursuant to
Section 4.3(c), beyond those proposed, in order to facilitate efficient
operation of the Operating Committee and the Proposed CT Plan.
Specifically, the Commission is modifying Section 4.3(c) to permit the
election of the Chair and other Officers of the Plan by majority vote
of the Operating Committee, rather than by the proposed two-thirds
majority.\209\ This modification is appropriate because requiring a
two-thirds majority vote of the Operating Committee, as proposed, could
provide opportunities for a minority of the votes allocated on the
Operating Committee to obstruct a purely administrative action
necessary for the day-to-day operations of the Proposed CT Plan.\210\
Thus, modifying this section to require a majority vote of the
Operating Committee to elect the Chair and Officers of the Proposed CT
Plan is appropriate because it will reduce the likelihood of
unnecessary delays in the administration and implementation of the
Proposed CT Plan.
---------------------------------------------------------------------------
\209\ To effect this modification, the Commission is inserting,
under Section 4.3(c)(i), the words ``the election of the Chair and
other Officers of the Plan;'' and renumbering proposed Section
4.3(c)(i)-(iv) as Section 4.3(c)(ii-v) accordingly. See Article IV,
Section 4.3 of the Proposed CT Plan (as approved).
\210\ With respect to the Equity Data Plans, unless otherwise
specified, a majority vote of the Participants entitled to vote is
required to constitute the action of the Operating Committees,
including the election of a Chair. See Exhibit A, Article V, Section
2, and Article IV(a) of the CTA Plan; Article IV.C-D of the UTP
Plan.
---------------------------------------------------------------------------
Further expanding the list of actions that can be taken by a
majority vote of the Operating Committee is not warranted. While
commenters raise concerns about potential gridlock, stagnation, or
inefficiency, as the Commission stated in the Amended Governance Order:
the requirement for a two-thirds majority strikes an appropriate
balance between ensuring that plan action has broad support among
members of the operating committee while also preventing a single
SRO group or unaffiliated SRO from vetoing plan action. Moreover,
requiring a two-thirds, rather than a simple, majority of SRO votes,
in conjunction with allocating votes by exchange group, prevents a
small number of SRO groups from dictating plan action without
further support from other SRO members.\211\
---------------------------------------------------------------------------
\211\ Amended Governance Order, supra note 23, 88 FR at 61632.
Section 4.3(b) differs from the corresponding provision in 2021 CT
Plan approved by the Commission in that it conforms to the requirements
of the Amended Governance Order by: (1) removing provisions regarding
the participation of non-SRO representatives as members of the
Operating Committee, and (2) modifying voting provisions to provide
that all actions by the Operating Committee shall require a two-thirds
majority vote of the votes allocated to the Operating Committee, except
for the actions specified in Section 4.3(c).\212\ Section 4.3(c)
differs from the corresponding provision in the 2021 CT Plan in that it
conforms to requirements of the Amended Governance Order by removing
provisions relating to the participation of non-SROs representatives as
members of the Operating Committee and by requiring a majority vote of
the Operating Committee for the selection of members of the Advisory
Committee pursuant to Section 4.7. Separately, Section 4.3(c) adds to
the actions requiring only a majority vote of the Operating Committee:
(1) the election of the Chair and Officers of the Plan, as modified by
the Commission, as well as (2) the decision to discuss a matter in a
legal subcommittee pursuant to Section 4.8(d) of the Proposed CT
Plan,\213\ which, as discussed above, is consistent with the Amended
Governance Order.
---------------------------------------------------------------------------
\212\ See id. at 61639-41.
\213\ See id.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission is approving
Sections 4.3(b) as proposed and Section 4.3(c) as renumbered and
modified.
(d) Meetings of the Operating Committee
Article IV, Section 4.4 of the Proposed CT Plan addresses meetings
of the Operating Committee. Sections 4.4(a) through 4.4(f) contain
general provisions regarding Operating Committee meetings, and Section
4.4(g) contains provisions specific to meetings in Executive Session.
Sections 4.4(a) through 4.4(f) are identical to the corresponding
provisions of the 2021 CT Plan approved by the Commission,\214\ with
the following exceptions, all of which are consistent with the
requirements of the Amended Governance Order.\215\ First, as proposed,
Section 4.4(a) adds a reference to ``Advisory Committee members'' \216\
and corrects a cross-reference to reflect the numbering of paragraphs
in the Proposed CT Plan. Second, proposed Section 4.4(c) deletes
language regarding quorum requirements of Voting Representatives,
consistent with the requirements of the Amended Governance Order.\217\
And third, for the same reason as explained above--that the replaced
term is the defined term--proposed Section 4.4(e) replaces reference to
``SRO Voting Representatives'' with reference to ``Voting
Representatives.'' \218\ The Commission is, however, modifying the text
of Section 4.4(e)(ii) to replace the reference to ``Section 4.3'' in
the first sentence of paragraph (ii) of Section 4.4(e) with a reference
to ``Section 4.3(c),'' to conform this provision to the Commission's
modifications to Section 4.3(c)(i) regarding the election of the Chair
and other officers of the Proposed CT Plan.\219\ Separately, the
Commission is modifying Section 4.4(e) to replace the term ``Operative
Date'' with the term ``Effective Date'' as that term is defined in the
Recitals. This change is appropriate because the Effective Date of the
Agreement is the date it is approved by the Commission, whereas the
Operative Date, as defined, does not occur until the date that Members
conduct, through the Company, the Processor and Administrator functions
related to the public dissemination of real-time consolidated equity
market data and the Equity Data Plans cease their operations. As
proposed, Section 4.4(e) states that the Chair of the Operating
Committee shall be elected beginning with the first quarterly meeting
of the Operating Committee following the Operative Date. The
modification will, consistent with the role and functions of the Chair
as outlined in Section 4.4(e), facilitate the implementation of the
Proposed CT Plan, as the Chair will be able to be elected following the
Effective Date and will be able to enter into contracts on behalf of
the Company.
---------------------------------------------------------------------------
\214\ See 2021 Approval Order, supra note 19, 86 FR at 44166-68,
44213-14.
\215\ See Amended Governance Order, supra note 23, 88 FR at
61639-41.
\216\ See id. at 61632 (stating that ``because non-SRO
representatives will no longer be required to be included as voting
members of the operating committee of the Revised New Consolidated
Data Plan, the Commission is modifying the Governance Order's
requirements to provide that the Revised New Consolidated Data Plan
must provide for participation by non-SROs in the operation of the
plan as members of an advisory committee'').
\217\ See id.
\218\ See Article I, Section 1.1(84) of the Proposed CT Plan (as
approved) (defining the term ``Voting Representative'').
\219\ See supra note 209 and accompanying text.
---------------------------------------------------------------------------
The Commission received no comments on Section 4.4(a)-(d) and (f)
of the Proposed CT Plan, and for the foregoing reasons, as well as for
the reasons stated with respect to the corresponding provisions in the
2021 Approval Order,\220\ the Commission is approving Section 4.4(a)-
(d), and (f) of
[[Page 94938]]
the Proposed CT Plan as proposed, and Section 4.4(e) as modified.\221\
---------------------------------------------------------------------------
\220\ See 2021 Approval Order, supra note 19, 86 FR at 44166-68.
\221\ See id. at 44166-72.
---------------------------------------------------------------------------
Article IV, Section 4.4(g) of the Proposed CT Plan provides that,
notwithstanding any other provision of the Proposed CT Plan, the Voting
Representatives, Member Observers, SEC staff, and other persons as
deemed appropriate by a majority vote of the Voting Representatives may
meet in an Executive Session of the Operating Committee to discuss an
item of business for which it is appropriate to exclude the Advisory
Committee. A request to meet in Executive Session must be included on
the written agenda for an Operating Committee meeting, along with a
clearly stated rationale as to why that item would be appropriate for
discussion in Executive Session.\222\ A majority vote of the Voting
Representatives would be required to create an Executive Session.\223\
The Voting Representatives would be permitted to discuss only the topic
for which the Executive Session was created and would disband upon
fully discussing the topic.\224\
---------------------------------------------------------------------------
\222\ See Article IV, Section 4.4(g) of the Proposed CT Plan.
\223\ See id.
\224\ See Article IV, Section 4.4(g) of the Proposed CT Plan.
---------------------------------------------------------------------------
Article IV, Section 4.4(g)(i) of the Proposed CT Plan also provides
that topics discussed in Executive Session ``should'' be limited to the
following: (1) any topic that requires discussion of Highly
Confidential Information; (2) Vendor or Subscriber Audit Findings; (3)
litigation matters; (4) responses to regulators with respect to
inquiries, examinations, or findings; and (5) other discrete matters
approved by the Operating Committee.\225\ Section 4.4(g)(ii) states
that the mere fact that a topic is controversial or a matter of dispute
does not, by itself, make a topic appropriate for Executive
Session.\226\ This section further provides that the minutes for an
Executive Session must include the reason for including any item in an
Executive Session.\227\ Section 4.4(g)(iii) provides that requests to
discuss a topic in Executive Session must be included on the written
agenda for the Operating Committee meeting, along with the clearly
stated rationale for each topic as to why such discussion is
appropriate for Executive Session.\228\ This section further provides
that the rationale may be that the topic to be discussed falls within
the list of topics that may be discussed pursuant to paragraph
4.4(g)(i).\229\
---------------------------------------------------------------------------
\225\ See Article IV, Section 4.4(g)(i)(A)-(E) of the Proposed
CT Plan.
\226\ See Article IV, Section 4.4(g)(ii) of the Proposed CT
Plan.
\227\ See id.
\228\ See Article IV, Section 4.4(g)(iii) of the Proposed CT
Plan.
\229\ See id.
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The Commission received one comment on Section 4.4(g).
Specifically, one commenter suggests that the Proposed CT Plan should
be modified to: (1) use non-discretionary, rather than permissive
language, with respect to the scope of potential items that could be
discussed in Executive Session and (2) preclude discussions regarding
contract negotiations with the plan processors or the plan
administrator in Executive Session.\230\ This commenter states that
``similar policy rationales for narrowly tailoring the use of Executive
Sessions or other exclusive meeting forums apply where non-SROs are
Advisory Committee members'' rather than voting non-SRO members, as
provided in the 2021 CT Plan.\231\
---------------------------------------------------------------------------
\230\ See ICI Letter, supra note 109, at 3, n.11.
\231\ Id. See also Section 4.4(g)(i) of the 2021 CT Plan; 2021
Approval Order, supra note 19, 86 FR at 44214.
---------------------------------------------------------------------------
The Commission agrees with the commenter that the Proposed CT Plan
should provide clear boundaries with respect to the scope of potential
topics permitted to be discussed in an Executive Session.\232\ Thus,
for the same reasons discussed in the 2021 Approval Order,\233\ the
Commission is modifying Article IV, Section 4.4(g)(i) of the Proposed
CT Plan to require that the items for discussion in an Executive
Session ``shall be'' limited to the topics enumerated in subsections
4.4(g)(i)(A)-(E) of the Proposed CT Plan.\234\
---------------------------------------------------------------------------
\232\ See 2021 Approval Order, supra note 19, 86 FR at 44170
(stating that ``the topics that may be discussed in Executive
Session should be specifically enumerated in the CT Plan to provide
transparent and clear boundaries'').
\233\ See id. (modifying Article IV, Section 4.4(g)(i) of the
2021 CT Plan to require that the items for discussion in an
Executive Session ``shall be'' limited to the topics enumerated in
subsections 4.4(g)(i)(A)-(E) of that plan).
\234\ To effect this change, the Commission is modifying
proposed Section 4.4(g)(i) of the Proposed CT Plan to delete the
word ``should'' and replace it with ``shall.'' The Commission is
also making a conforming change to proposed Section 4.4(g)(i) of the
Proposed CT Plan to remove the word ``as'' that appears after
``topics'' in that subsection.
---------------------------------------------------------------------------
As the Commission stated in the 2021 Approval Order, ``not every
topic that may be appropriate for Executive Session can be foreseen,
and . . . some provision must therefore be made in the CT Plan for
unanticipated topics suitable for Executive Session.'' \235\ The
language in Section 4.4(g)(i)(E) that permits the SROs to meet in
Executive Session to discuss ``[o]ther discrete matters approved by the
Operating Committee'' provides the necessary flexibility for
unanticipated topics to be addressed without altering the list of
permissible topics for Executive Session into a non-exclusive list of
suggestions.
---------------------------------------------------------------------------
\235\ 2021 Approval Order, supra note 19, 86 FR at 44171.
---------------------------------------------------------------------------
The Commission does not agree with the commenter's suggestion that
the Proposed CT Plan provide that ``discussions regarding contract
negotiations with the Processors or Administrator'' do not qualify for
discussion in Executive Session.\236\ While the Commission specifically
added this language to the plan it approved in the 2021 Approval
Order,\237\ that was in the context of an Operating Committee that
included Non-SRO Voting Representatives as full members, and the
Commission did not believe that it was appropriate for any members of
the Operating Committee to be excluded from such discussions by holding
the discussions in an SRO-only Executive Session.\238\ In the Proposed
CT Plan, however, the Operating Committee will not include any non-SRO
representatives,\239\ and it is therefore appropriate, and consistent
with the Amended Governance Order, for the Operating Committee to meet
in Executive Session to discuss ``[a]ny topic that requires discussion
of Highly Confidential Information,'' which, by definition, includes
discussion concerning contract negotiations with the Processors or the
Administrator.
---------------------------------------------------------------------------
\236\ ICI Letter, supra note 109, at 3.
\237\ See 2021 Approval Order, supra note 19, 86 FR at 44170-71.
\238\ See id.
\239\ See Amended Governance Order, supra note 23, 88 FR at
61639-41.
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Section 4.4(g) of the Proposed CT Plan differs from the
corresponding provision of the 2021 CT Plan approved by the Commission
\240\ in several respects. First, this section conforms to requirements
of the Amended Governance Order by removing provisions governing the
participation of non-SROs as members of the Operating Committee, and,
relatedly, by using the terms ``Voting Representatives'' rather than
``SRO Voting Representatives,'' and ``Advisory Committee'' rather than
``Non-SRO Voting Representatives.'' Separately, Section 4.4(g)(i)
differs in that it (1) removes, as a topic not permitted for discussion
within an Executive Session, discussions regarding contract
negotiations with the Processor or the Administrator for the reasons
discussed, and (2) removes a provision addressing voting requirements
for actions requiring a vote in Executive Session,
[[Page 94939]]
which reduces redundancy because such requirements are set forth in
Section 4.3(a). The modification made by the Commission to Section
4.4(g)(i) (to replace ``should'' with ``shall'') is appropriate because
it conforms this provision with the corresponding provision of the 2021
CT Plan approved by the Commission.\241\ For the foregoing reasons, as
well as those stated in the 2021 Approval Order with respect to the
corresponding provisions of the 2021 CT Plan, (apart from those
pertaining to the participation of non-SROs representatives as members
of the operating committee of the 2021 CT Plan, which is not included
in the Proposed CT Plan),\242\ the Commission is approving Section
4.4(g) as modified.
---------------------------------------------------------------------------
\240\ See 2021 Approval Order, supra note 19, 86 FR at 44168-71.
\241\ See id. at 44170.
\242\ See id. at 44168-71.
---------------------------------------------------------------------------
(e) Certain Transactions
Article IV, Section 4.5 of the Proposed CT Plan states that the
Company is not prohibited from employing or dealing with persons in
which an SRO or any of its affiliates has a connection or a direct or
indirect interest. Specifically, the section provides that the fact
that a Member or any of its Affiliates is directly or indirectly
interested in or connected with any person employed by the Company to
render or perform a service, or from which or to whom the Company may
buy or sell any property, shall not prohibit the Company from employing
or dealing with such person.
Section 4.5 is identical to the corresponding provision of the 2021
CT Plan approved by the Commission,\243\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comment on Section 4.5 of the Proposed CT Plan, and for the same
reasons stated in the 2021 Approval Order,\244\ the Commission is
approving Section 4.5 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\243\ See id.
\244\ See id.
---------------------------------------------------------------------------
(f) Company Opportunities
Article IV, Section 4.6(a) of the Proposed CT Plan provides that
each Member, its Affiliates, and each of its respective equity holders,
controlling persons, and employees may have business interests and
engage in business activities in addition to those relating to the
Company.\245\ Section 4.6(b) provides that Members are permitted to
have, and may presently or in the future have, investments or other
business relationships with persons engaged in the business of the
Company other than through the Company, and that Members have and may
develop strategic relationships with businesses that are and may be
competitive or complementary with the Company.\246\ Section 4.6(b)
further provides that none of the SROs shall be obligated to recommend
or take any action that prefers the interest of the Company or any
other Member over its own interests, prohibited from pursing and
engaging in other activities, nor obligated to inform or present to the
Company any opportunity, relationship, or investment.\247\ Finally,
this section states that Members will not acquire or be entitled to any
interest or participation in any other business as a result of the
participation therein of any of the other Members, and that the
involvement of another Member in any other business does not constitute
a conflict of interest by such person with respect to the Company. This
provision defines investments or other business relationships with
persons engaged in the business of the Company other than through the
Proposed CT Plan as ``Other Business.'' \248\ Separately, Exhibit B
(``Disclosures'') of the Proposed CT Plan provides a list of questions
and instructions tailored to elicit responses that disclose potential
conflicts of interest.
---------------------------------------------------------------------------
\245\ See Article IV, Section 4.6(a). This Section further
provides that neither the Company nor any Member shall have any
rights by virtue of this Agreement in any business ventures of any
such Person. See id.
\246\ See Article IV, Section 4.6(b) of the Proposed CT Plan.
\247\ See id.
\248\ See id.
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Section 4.6 is identical to the corresponding provision of the 2021
CT Plan approved by the Commission,\249\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comment on Section 4.6 of the Proposed CT Plan, and, for the same
reasons stated in the 2021 Approval Order,\250\ the Commission is
approving Section 4.6 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\249\ See 2021 Approval Order, supra note 19, 86 FR at 44173-74.
\250\ See id.
---------------------------------------------------------------------------
(g) Advisory Committee
Article IV, Section 4.7 of the Proposed CT Plan governs the
formation, composition, and function of the Advisory Committee to the
Proposed CT Plan. Section 4.7(a) provides that, notwithstanding any
other provision of the Proposed CT Plan, an Advisory Committee to the
Proposed CT Plan shall be formed and shall function in accordance with
the provisions set forth in that section.\251\ Section 4.7(b) governs
the composition of the Advisory Committee. Specifically, this section
provides that the members of the Advisory Committee will be selected by
the Operating Committee for two-year terms as follows: (1) by
affirmative vote of a majority of the Members entitled to vote, the
Operating Committee will select at least one representative from each
of the following categories to be members of the Advisory Committee:
(A) an institutional investor; (B) a broker-dealer with a predominantly
retail investor customer base; (C) a broker-dealer with a predominantly
institutional investor customer base; (D) a securities market data
vendor that is not affiliated or associated with a Member, broker-
dealer, or investment adviser with third-party clients; (E) an issuer
of NMS stock that is not affiliated or associated with a Member,
broker-dealer, or investment adviser with third-party clients; and (F)
a Retail Representative.\252\ Section 4.7(b)(i) further addresses
Advisory Committee selections and provides that the Operating Committee
will not be permitted to select any person employed by or affiliated
with any Member or its affiliates or facilities.\253\ Section
4.7(b)(ii) governs Member selections and provides that each Member will
have the right to select one member of the Advisory Committee,
provided, however, that a Member will not be permitted to select any
person employed by or affiliated with any Member or its affiliates or
facilities.
---------------------------------------------------------------------------
\251\ See Article IV, Section 4.7(a) of the Proposed CT Plan.
\252\ See Article IV, Section 4.7(b)(i) of the Proposed CT Plan.
\253\ See Article IV, Section 4.7(b)(ii) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Section 4.7(c), as proposed, sets forth the function of the
Advisory Committee. Specifically, Section 4.7(c) provides that members
of the Advisory Committee will have the right to submit their views to
the Operating Committee on Plan matters, prior to a decision by the
Operating Committee on such matters.\254\ This section further provides
that such matters will include, but not be limited to, any new or
modified product, fee, contract, or pilot program that is offered or
used pursuant to the Plan.\255\ Finally, Section 4.7(d), as proposed,
clarifies that members of the Advisory Committee are not Members of the
Company.\256\
---------------------------------------------------------------------------
\254\ See Article IV, Section 4.7(c) of the Proposed CT Plan.
\255\ See id.
\256\ See Article IV, Section 4.7(d) of the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter supports provisions addressing the composition and
attendance at Operating Committee and subcommittee meetings by members
of
[[Page 94940]]
the Advisory Committee, stating that this feature of the Proposed CT
Plan is essential to providing non-SRO market participants with the
transparency needed to continue to provide their views to the Operating
Committee and participate in plan governance.\257\
---------------------------------------------------------------------------
\257\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
As required by the Amended Governance Order, the Proposed CT Plan
provides for participation by non-SROs in the operation of the Proposed
CT Plan as members of an advisory committee.\258\ Further, the
provisions of Section 4.4(a) (permitting attendance by Advisory
Committee members at meetings of the Operating Committee, except for
Executive Sessions), Section 4.4(b) (requiring the provision of
subcommittee minutes to members of the Advisory Committee), and Section
4.8(c) (permitting attendance by Advisory Committee members at
subcommittee meetings, other than a legal subcommittee) provide
transparency in the operations of the Proposed CT Plan, as supported by
the commenter.
---------------------------------------------------------------------------
\258\ See Amended Governance Order, supra note 23, 88 FR at
61632, 61639.
---------------------------------------------------------------------------
The Commission is, however, modifying proposed Section 4.7 to
further conform provisions regarding the composition and selection of
members of the Advisory Committee with the requirements of the Amended
Governance Order. First, the Commission is modifying Section 4.7(b) to
require that selection of members of the Advisory Committee shall be by
majority vote of the Operating Committee,\259\ as required by the
Amended Governance Order,\260\ rather than ``[b]y affirmative vote of a
majority of the Members entitled to vote,'' as proposed. The
modification is appropriate to conform the Proposed CT Plan to the
requirements of the Amended Governance Order, which requires that votes
on the Operating Committee shall be allocated by SRO Group or Non-
Affiliated SRO rather than by individual SROs. To effect this
modification the Commission, is deleting, from paragraph (b)(i) of
proposed Section 4.7 the following text: ``Members of the Advisory
Committee shall be selected for two-year terms as follows: (i)
Operating Committee Selections. By affirmative vote of a majority of
the Members entitled to vote.'' \261\ The Commission is further
modifying Section 4.7(b), as renumbered, to insert, in its first
sentence, the words ``by majority vote,'' and is moving the phrase
``Members of the Advisory Committee shall be selected for two-year
terms'' to a new Section 4.7(c).\262\
---------------------------------------------------------------------------
\259\ See Article IV Section 4.3(c)(ii) of the Proposed CT Plan
(as approved).
\260\ See Amended Governance Order, supra note 23, 88 FR at
61639 (``The Revised New Consolidated Data Plan shall provide for a
non-voting Advisory Committee to be selected by majority vote of the
operating committee.'').
\261\ The Commission is further modifying Section 4.7(b)(i) to
(1) remove, from its first sentence, the comma and spacing after
``vote,'' as well as the ``t'' that immediately follows, and (2)
substitute, for the stricken ``t,'' a capital ``T.'' See Article IV,
Section 4.3(c)(ii) of the Proposed CT Plan (as approved).
\262\ Accordingly, the Commission is renumbering proposed
Sections 4.7(c) and (d) as Section 4.7(d) and (e), respectively.
---------------------------------------------------------------------------
Further, the Commission is modifying the Proposed CT Plan by
deleting Section 4.7(b)(ii) in its entirety. Section 4.7(b)(ii) would
have provided each SRO with the ability to appoint a person to serve on
the Advisory Committee. That provision, however, is inconsistent with
the requirement of the Amended Governance Order:
The Revised New Consolidated Data Plan shall provide for a non-
voting Advisory Committee to be selected by majority vote of the
operating committee. The Advisory Committee shall consist of
individuals representing each of the following categories: an
institutional investor, a broker-dealer with a predominantly retail
investor customer base, a broker-dealer with a predominantly
institutional investor customer base, a securities market data
vendor, an issuer of NMS stock, and a person who represents the
interests of retail investors (``retail representative''), provided
that the representatives of the securities market data vendor and
the issuer are not permitted to be affiliated or associated with an
SRO, a broker-dealer, or an investment adviser with third-party
clients.\263\
---------------------------------------------------------------------------
\263\ Amended Governance Order, supra note 23, 88 FR at 61639.
The Amended Governance Order thus requires that members of the Advisory
Committee be selected by a majority vote of the Operating Committee and
lists the categories of persons who shall constitute the Advisory
Committee to allow for participation by non-SROs in the operation of
the new NMS plan.\264\ The modification to delete Section 4.7(b)(ii) of
the Proposed CT Plan is appropriate because, as discussed above, that
provision is inconsistent with requirements of the Amended Governance
Order.\265\ Permitting each of the SROs that are ``Members'' of the
Proposed CT Plan to appoint its own member to the Advisory Committee
would create an Advisory Committee numerically dominated by the chosen
representatives of individual SROs, rather than one reflecting the
broader industry perspectives provided by the six required categories
specified by the Amended Governance Order.
---------------------------------------------------------------------------
\264\ See id.
\265\ See id.
---------------------------------------------------------------------------
For the foregoing reasons, the Commission is approving Section 4.7
of the Proposed CT Plan as modified.
(h) Subcommittees
Section 4.8 of Article IV of the Proposed CT Plan governs the
Operating Committee's discretion to create and disband subcommittees,
as well as the selection of subcommittee chairs, permissible attendees
at subcommittee meetings, minutes of subcommittee meetings, and special
provisions applicable to meetings of a legal subcommittee.
(i) Selection of Subcommittee Chairs
Paragraph (a) of Section 4.8 permits the Operating Committee to
create and disband subcommittees and to determine the duties,
responsibilities, powers, and composition of any of its
subcommittees.\266\ This paragraph also requires that subcommittee
chairs be selected by the Operating Committee from Voting
Representatives.\267\ Furthermore, this paragraph provides that the
Operating Committee may not delegate to a subcommittee the
administrative functions to be performed by the Administrator of the
Proposed CT Plan.\268\
---------------------------------------------------------------------------
\266\ See Article IV, Section 4.8(a) of the Proposed CT Plan.
\267\ See id.
\268\ See id.
---------------------------------------------------------------------------
One commenter supports the provision of the Proposed CT Plan
precluding subcommittees from carrying out administrative functions of
the independent administrator.\269\
---------------------------------------------------------------------------
\269\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
Article IV, Section 4.8(a) is consistent with requirements of the
Amended Governance Order \270\ and differs from the corresponding
provision of the 2021 CT Plan approved by the Commission \271\ in that,
consistent with requirements of the Amended Governance Order, it (1)
removes all references to ``SRO Voting Representatives,'' (2) replaces
the term ``SRO Voting Representatives'' with Voting Representatives,
and (3) prohibits the Operating Committee from delegating to a
subcommittee the administrative functions to be performed by the
Administrator.\272\ For the foregoing reasons, as well as those in the
2021 Approval Order (apart from those pertaining to the participation
of
[[Page 94941]]
non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan),\273\ the
Commission is approving Section 4.8(a) as proposed.
---------------------------------------------------------------------------
\270\ See Amended Governance Order, supra note 23, 88 FR at
61641.
\271\ See 2021 Approval Order, supra note 19, 86 FR at 44214.
\272\ See Amended Governance Order, supra note 23, 88 FR at
61631, 61641.
\273\ See 2021 Approval Order, supra note 18, 86 FR 44174.
---------------------------------------------------------------------------
(ii) Transparency of Subcommittee Meetings
Paragraph (b) of Section 4.8 provides that, except that as provided
for minutes of the legal subcommittee in Section 4.8(d), the Secretary
or designee will prepare minutes of all subcommittee minutes and that
such minutes will be made available to the Operating Committee and
members of the Advisory Committee.\274\
---------------------------------------------------------------------------
\274\ See Article IV, Section 4.8(b) of the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter supports the provisions of the Proposed CT Plan
addressing the preparation and distribution of all meeting
minutes.\275\
---------------------------------------------------------------------------
\275\ See ICI Letter, supra note 109, at 2.
---------------------------------------------------------------------------
Section 4.8(b) differs from the corresponding provision of the 2021
CT Plan approved by the Commission in that it conforms this provision
with requirements of the Amended Governance Order regarding
transparency of subcommittee meetings.\276\ Accordingly, the Commission
is approving Section 4.8(b) as proposed.
---------------------------------------------------------------------------
\276\ See Amended Governance Order, supra note 23, 88 FR at
61638, 61641.
---------------------------------------------------------------------------
(iii) Permissible Attendees of Subcommittee Meetings
Paragraph (c) of Section 4.8 of the Proposed CT Plan states that
Voting Representatives, the Advisory Committee, Member Observers, SEC
staff, and other persons as deemed appropriate by the Operating
Committee may attend subcommittee meetings.\277\
---------------------------------------------------------------------------
\277\ See Article IV, Section 4.8(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 4.8(c) is consistent with requirements of the Amended
Governance Order \278\ and substantively similar to the corresponding
provision of the 2021 CT Plan approved by the Commission,\279\ other
than for replacing the term ``Non-SRO Voting Representatives'' with
``the Advisory Committee,'' consistent with requirements in the Amended
Governance Order.\280\ The Commission received no comments on Section
4.8(c), and, for the same reasons as stated in the 2021 Approval Order
(apart from those pertaining to participation of non-SRO
representatives as member of the operating committee of the 2021 CT
Plan, which is not part of the Proposed CT Plan),\281\ the Commission
is approving Section 4.8(c) as proposed.
---------------------------------------------------------------------------
\278\ See Amended Governance Order, supra note 23, 88 FR at
61631, 61638-39.
\279\ See 2021 Approval Order, supra note 19, 86 FR at 44175,
44214.
\280\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
\281\ See 2021 Approval Order, supra note 19, 86 FR at 44175,
44214.
---------------------------------------------------------------------------
(iv) Legal Subcommittee
Article IV, Section 4.8(d) provides that Voting Representatives,
Member Observers, and other persons as deemed appropriate by majority
vote of the Voting Representatives may meet in a subcommittee to
discuss an item that exclusively affects the Members with respect to
the following: (1) litigation matters or responses to regulators with
respect to inquiries, examinations, or findings; and (2) other discrete
legal matters approved by the Operating Committee.\282\ Section 4.8(d)
further provides that the Secretary will prepare the minutes of legal
subcommittee meetings, and that such minutes will include the
following: (i) attendance at the meeting; (ii) the subject matter of
each item discussed; (iii) sufficient non-privileged information to
identify the rationale for referring the matter to the legal
subcommittee, and (iv) the privilege or privileges claimed with respect
to that item.\283\ This paragraph further provides that such minutes
will be made available only to the Voting Representatives, Member
Observers, and other persons deemed appropriate by a majority vote of
the Operating Committee.\284\
---------------------------------------------------------------------------
\282\ See Article IV, Section 4.8(d) of the Proposed CT Plan.
\283\ See id.
\284\ See id.
---------------------------------------------------------------------------
One commenter supports the provisions of the Proposed CT Plan
addressing the preparation and distribution of all meeting
minutes.\285\ This commenter also states that the Commission should
reincorporate provisions of the 2021 CT Plan approved by the Commission
that were intended to promote the role of non-SROs, including expanding
the scope of information required to justify referral of a matter to a
legal subcommittee.\286\ This commenter states that similar policy
rationales for narrowly tailoring the use of Executive Sessions or
other exclusive meetings apply when non-SROs are Advisory Committee
members.\287\
---------------------------------------------------------------------------
\285\ See ICI Letter, supra note 109, at 2, n.6.
\286\ See id. at 3, 4.
\287\ See id. at 3, n.11.
---------------------------------------------------------------------------
The provisions of proposed Section 4.8(d) sufficiently limit the
matters that may be discussed in a legal subcommittee meeting of the
Proposed CT Plan. Proposed Section 4.8(d) specifically requires that a
matter referred to the legal subcommittee be limited to ``an item that
exclusively affects the Members'' in two circumstances: (1) litigation
matters or responses to regulators with respect to inquiries,
examinations, or findings; and (2) other discrete legal matters
approved by the Operating Committee.\288\ Moreover, referral to the
legal subcommittee must be approved by a majority vote of the Operating
Committee. The SROs have a right to consult with legal counsel with
respect to such items, and permitting non-SROs to attend discussions
regarding those items might cause a waiver of the SROs' attorney-client
privilege.
---------------------------------------------------------------------------
\288\ See Section 4.8(d) of the Proposed CT Plan.
---------------------------------------------------------------------------
Moreover, the provisions of proposed Section 4.8(d) provide
sufficient accountability regarding the use by the SROs of the legal
subcommittee. Minutes of legal subcommittee meetings will be required,
and those minutes must, for each matter discussed, identify the
privilege claimed and include sufficient non-privileged information to
identify the reason the matter was referred to the legal subcommittee.
These minutes, like all CT Plan documents, will be available to the
Commission and its staff,\289\ which will provide accountability
regarding use of the legal subcommittee, while preserving, to the
extent appropriate, the SROs' attorney-client privilege with respect to
discussions at legal subcommittee meetings.
---------------------------------------------------------------------------
\289\ See Section 4.10 of the Proposed CT Plan (Commission
Access to Information and Records).
---------------------------------------------------------------------------
Therefore, the provisions of proposed Section 4.8(d) are consistent
with the requirements of the Amended Governance Order.\290\ Moreover,
other than for differences to conform to requirements of the Amended
Governance Order, including (1) the omission of references to Non-SRO
Voting Representatives,\291\ which are no longer part of the Proposed
CT Plan, (2) the use of the term ``Voting Representative'' rather than
``SRO Voting Representative,'' \292\ as well as (3) the addition of
specific requirements regarding the content, preparation, and
distribution of subcommittee minutes,\293\ the provisions of Section
4.8(d) are substantively similar to the corresponding provisions of the
2021 CT Plan approved by the
[[Page 94942]]
Commission.\294\ For the foregoing reasons, as well as those in the
2021 Approval Order (apart from those pertaining to the participation
of non-SRO representatives as members of the operating committee of the
2021 CT Plan, which is not included in the Proposed CT Plan),\295\ the
Commission is approving Section 4.8(d) as proposed.
---------------------------------------------------------------------------
\290\ See Amended Governance Order, supra note 23, 88 FR at
61638-39.
\291\ See id. at 61631.
\292\ See id.
\293\ See id. at 61641.
\294\ See 2021 Approval Order, supra note 19, 86 FR at 44175-77.
\295\ See 2021 Approval Order, supra note 19, 86 FR at 44175-77.
---------------------------------------------------------------------------
(i) Officers
Section 4.9 of Article IV of the Proposed CT Plan governs the
selection of CT Plan Officers. Paragraph (a) of Section 4.9 provides
that, other than the Chair, the Operating Committee may, from time to
time, designate and appoint one or more persons as Officers of the
Company.\296\ This paragraph further provides that other than the
Chair, no such officer need be a Voting Representative.\297\ Pursuant
to this paragraph, any officer so designated will have such authority
and perform such duties as the Operating Committee may, from time to
time, delegate to them, and that any such delegation may be revoked at
any time by the Operating Committee.\298\ Paragraph (a) of Section 4.9
further provides that the Operating Committee may assign titles to
particular Officers, and that each Officer will hold office until a
successor is designated, or until the Officer's death, resignation, or
removal, as provided in the Proposed CT Plan.\299\ This paragraph
further provides that an individual may hold any number of offices, and
that Officers shall not be entitled to receive salary or other
compensation, unless approved by the Operating Committee.\300\ This
section further provides that any Officer may resign at any time, that
such resignation must be made in writing, and that it shall take effect
at the time specified in the notice, or if no time be specified, at the
time of its receipt by the Operating Committee.\301\ Pursuant to this
section, the acceptance of a resignation will not be necessary to make
it effective.\302\ Finally, this section provides that any officer may
be removed at any time by a majority vote of the Members.\303\
---------------------------------------------------------------------------
\296\ See Article IV, Section 4.9(a) of the Proposed CT Plan.
\297\ See id.
\298\ See id.
\299\ See id.
\300\ See id.
\301\ See Article IV, Section 4.9(b) of the Proposed CT Plan.
\302\ See id.
\303\ See Article IV, Section 4.9(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
The Commission is modifying Section 4.9 to provide that a majority
vote of the Operating Committee, rather than of its Members, shall be
required to remove any Officer. To effect this modification, the
Commission is therefore deleting, from proposed Section 4.9(c), the
word ``Members,'' and substituting the words ``Operating Committee.''
This modification is appropriate to make the provision consistent with
the requirements of Section 4.3(a) of the Proposed CT Plan, which
governs the allocation of votes to the Members of the Proposed CT Plan.
As required by the Amended Governance Order, Section 4.3 allocates
votes to SRO Groups and Non-Affiliated SROs--not to each individual SRO
that is a Member of the Proposed CT Plan.\304\
---------------------------------------------------------------------------
\304\ See Article IV, Section 4.3(a) of the Proposed CT Plan.
---------------------------------------------------------------------------
Other than as modified by the Commission to conform to Amended
Governance Order requirements regarding action of the Operating
Committee,\305\ as discussed above, Section 4.9 is, other than for
immaterial differences,\306\ substantively similar to the corresponding
provision of the 2021 CT Plan approved by the Commission.\307\ The
Commission received no comments addressing Section 4.9 of the Proposed
CT Plan, and, for the reasons discussed above, as well as for the
reasons stated in the 2021 Approval Order (apart from those pertaining
to the participation of non-SRO representatives as members of the
operating committee of the 2021 CT Plan, which is not included in the
Proposed CT Plan),\308\ the Commission is approving Section 4.9 of the
Proposed CT Plan as modified.
---------------------------------------------------------------------------
\305\ See Amended Governance Order, supra note 23, 88 FR at
61631.
\306\ Article IV, Section 4.9 of the Proposed CT Plan
corresponds to Article IV, Section 4.8 of the 2021 CT Plan. See 2021
Approval Order, supra note 19, 86 FR at 44215.
\307\ See 2021 Approval Order, supra note 19, 86 FR at 44178.
\308\ See id.
---------------------------------------------------------------------------
(j) Commission Access to Information and Records
Section 4.10 of Article IV of the Proposed CT Plan provides that
``[n]othing in this Agreement shall be interpreted to limit or impede
the rights of the Commission or SEC staff to access information and
records of the Company or any of the Members (including their
employees) pursuant to U.S. federal securities laws and the rules and
regulations promulgated thereunder.'' \309\ This provision is identical
to the corresponding provision of the 2021 CT Plan approved by the
Commission,\310\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments addressing this
provision, and the Commission is approving Section 4.10 of the Proposed
CT Plan as proposed.
---------------------------------------------------------------------------
\309\ See Article IV, Section 4.10 of the Proposed CT Plan.
\310\ See 2021 Approval Order, supra note 19, at 86 FR at 44178.
---------------------------------------------------------------------------
(k) Disclosure of Potential Conflicts of Interest; Recusal
Article IV, Section 4.11 of the Proposed CT Plan sets forth the
disclosure requirements with respect to conflicts of interest, and the
provisions for recusal, as approved by the Commission \311\ with
certain modified requirements as set forth in the Amended Governance
Order.\312\
---------------------------------------------------------------------------
\311\ See Securities Exchange Act Release Nos. 88823 (May 6,
2020), 85 FR 28046 (May 12, 2020); 88824 (May 6, 2020), 85 FR 28119
(May 12, 2020) (collectively, the ``Conflicts of Interest Approval
Orders''). In the Governance Order, as well as in the Amended
Governance Order, the Commission ordered the SROs to incorporate
into the new NMS plan provisions consistent with the Conflicts of
Interest Approval Orders. See Governance Order, supra note 11, 85 FR
at 28726; Amended Governance Order, supra note 23, 88 FR at 61633-
34, 61640.
\312\ See Amended Governance Order, supra note 23, 88 FR at
61634-35, 61640.
---------------------------------------------------------------------------
(i) Disclosure Requirements
Section 4.11 of Article IV provides that the Members (including any
Member Observers), the Processors, the Administrator, and each service
provider or subcontractor (each a ``Disclosing Party'') engaged in
Company business (including the audit of Subscribers' data usage) that
has access to Restricted \313\ or Highly Confidential Information \314\
(``Disclosing Parties''), as defined in the Plan,\315\ shall complete a
prescribed questionnaire and be subject to the disclosure requirements
as described in Section 4.11(c) and Exhibit B to the Plan to disclose
all material facts necessary to identify potential conflicts of
interest.\316\ Exhibit B to the Proposed CT Plan provides a list of
questions and instructions tailored to elicit responses that disclose
potential conflicts of interest.\317\ Section 4.11(a) also states that
the Operating Committee, a Member, Processors, or Administrator
[[Page 94943]]
may not use a service provider or subcontractor on Company business
unless that service provider or subcontractor has agreed in writing to
provide the disclosures required by this section and has submitted
completed disclosures to the Administrator prior to starting work.\318\
---------------------------------------------------------------------------
\313\ See Article I, Section 1.1(64) of the Proposed CT Plan
(defining ``Restricted Information'').
\314\ See Article I, Section 1.1(34) of the Proposed CT Plan
(defining ``Highly Confidential Information'').
\315\ See supra notes 313-314 and accompanying text.
\316\ See Article IV, Section 4.11(a) of the Proposed CT Plan.
\317\ See Article IV, Section 4.11(c) of and Exhibit B to the
Proposed CT Plan.
\318\ See Article IV, Section 4.11(a) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 4.11(a) further provides that if state laws, rules, or
regulations, or applicable professional ethics rules or standards of
conduct, would act to restrict or prohibit a Disclosing Party from
making any particular required disclosure, a Disclosing Party must
refer to such law, rule, regulation, or professional ethics rule or
standard and include in response to that disclosure the basis for its
inability to provide a complete response, and further, that this would
not relieve the Disclosing Party from disclosing any information it is
not restricted from providing.\319\
---------------------------------------------------------------------------
\319\ See id.
---------------------------------------------------------------------------
Section 4.11(a) also describes circumstances in which a potential
conflict of interest may exist,\320\ provides for required updates of
disclosures,\321\ provides for public dissemination of
disclosures,\322\ and provides that Disclosing Parties that are not
Members or members of the Advisory Committee to comply with the
required disclosure and recusal provisions in their respective
agreements with the Company, a Member, the Administrator, or the
Processors.\323\
---------------------------------------------------------------------------
\320\ See Article IV, Section 4.11(a)(i) of the Proposed CT
Plan.
\321\ See Article IV, Section 4.11(a)(ii) of the Proposed CT
Plan.
\322\ See Article IV, Section 4.11(a)(iii) of the Proposed CT
Plan.
\323\ See Article IV, Section 4.11(a)(iv) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Section 4.11(a) differs substantively from the corresponding
provision of the 2021 CT Plan approved by the Commission only in that,
consistent with the Amended Governance Order,\324\ the term ``Non-SRO
Voting Representatives'' has been struck where it appeared and has been
replaced by ``members of the Advisory Committee'' in Section
4.11(a)(iv). The Commission is modifying proposed Section 4.11(a) to
add ``members of the Advisory Committee'' to the first sentence of this
section, which defines ``Disclosing Parties.'' It is appropriate that
members of the Advisory Committee be included in the definition, given
that they are replacing the Non-SRO Voting Representatives, will have
access to Restricted or Highly Confidential Information, and are
referenced in Section 4.11(a)(iv) as a Disclosing Party, they should be
subject to the requirements of Section 4.11, including disclosing all
material facts necessary to identify potential conflicts of interest
and be recused consistent with Section 4.11(b) (discussed below).
Additionally Exhibit B (the disclosure questionnaire) differs
substantively from the corresponding portion of the 2021 CT Plan
approved by the Commission \325\ only in that, consistent with the
Amended Governance Order,\326\ it replaces references to Non-SRO Voting
Representatives with references to members of the Advisory Committee.
The Commission received no comments on Section 4.11(a) of the Proposed
CT Plan, and for the foregoing reasons, the Commission is approving
Section 4.11(a) as modified and Exhibit B as proposed.
---------------------------------------------------------------------------
\324\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
\325\ See 2021 Approval Order, supra note 19, 86 FR at 44178-82,
44221-22.
\326\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
---------------------------------------------------------------------------
(ii) Recusal
Article IV, Section 4.11(b) of the Proposed CT Plan discusses
recusals and expressly prohibits a Member from appointing as its Voting
Representative, alternate Voting Representative, or a Member Observer a
person that is responsible for or involved with procurement for, or
development, modeling, pricing, licensing (including all functions
related to monitoring or ensuring a subscriber's compliance with the
terms of the license contained in its data subscription agreement and
all functions relating to the auditing of subscriber data usage and
payment), or sale of proprietary market data product offered to
customers of the CT Feeds,\327\ if the person has a financial interest
(including compensation) that is tied directly to the Disclosing
Party's market data business or the procurement of market data, and if
that compensation would cause a reasonable objective observer to expect
the compensation to affect the impartiality of the representative.\328\
Section 4.11(b) further requires recusal of a Disclosing Party
(including its representative(s), employees, and agents) from
participating in Company activities if it has not submitted the
required disclosure form, or the Operating Committee votes that the
Disclosing Party's disclosure form is materially deficient. Pursuant to
this paragraph (ii), such recusal will be in effect until the
Disclosing Party submits a sufficiently complete disclosure form to the
Administrator.\329\ Section 4.11(b)(iii) provides that a Disclosing
Party, including its representatives(s), and its Affiliates and their
representatives(s), is recused from voting on matters in which it or
its Affiliate is seeking a position or contract with the Company or has
a position or contract with the Company and whose performance is being
evaluated by the Company.\330\ Section 4.11(b)(iv) requires that all
recusals, including a person's determination of whether to voluntarily
recuse himself or herself, be reflected in the meeting minutes.\331\
---------------------------------------------------------------------------
\327\ See Article I, Sections 1.16-1.18 of the Proposed CT Plan
(as approved).
\328\ See Article IV, Section 4.11(b)(i) of the Proposed CT
Plan.
\329\ See Article IV, Section 4.11(b)(ii) of the Proposed CT
Plan.
\330\ See Article IV, Section 4.11(b)(iii) of the Proposed CT
Plan.
\331\ See Article IV, Section 4.11(b)(iv) of the Proposed CT
Plan.
---------------------------------------------------------------------------
One commenter supports the provision of the Proposed CT Plan that
prohibits an SRO from appointing a representative that is involved with
licensing of proprietary data products.\332\ This commenter also
supports the Proposed CT Plan's inclusion of provisions applying the
conflicts-of-interest policies to any SRO-designated person, including
a member observer, that attends operating committee and subcommittee
meetings as proposed under this section.\333\
---------------------------------------------------------------------------
\332\ See ICI Letter, supra note 109, at 2, n.6.
\333\ See id.
---------------------------------------------------------------------------
Proposed Section 4.11(b) differs substantively from the
corresponding provision of the 2021 CT Plan approved by the Commission
\334\ only in that it includes language specified by the Commission in
the Amended Governance Order.\335\ Accordingly, the Commission is
approving Section 4.11(b) as proposed.
---------------------------------------------------------------------------
\334\ See 2021 Approval Order, supra note 19, 86 FR at 44178-82,
44215.
\335\ See Amended Governance Order, supra note 23, 88 FR at
61635, 61640 (requiring that the term ``licensing'' include ``all
functions related to monitoring or ensuring a subscriber's
compliance with the terms of the license contained in its data
subscription agreement and all functions relating to the auditing of
subscriber data usage and payment'').
---------------------------------------------------------------------------
(iii) Required Disclosures
Article IV, Section 4.11(c) of the Proposed CT Plan provides that,
as part of the disclosure regime, the Members, the Processors, the
Administrator, members of the Advisory Committee, and service providers
and subcontractors must respond to questions that are tailored to
elicit responses that disclose the potential conflicts of interest as
set forth in Exhibit B.
[[Page 94944]]
Proposed Section 4.11(c) differs substantively from the
corresponding 2021 CT Plan provision approved by the Commission \336\
only in that, consistent with the Amended Governance Order,\337\ it
replaces a reference to ``Non-Voting SRO Representatives'' with a
reference to ``members of the Advisory Committee.'' The Commission
received no comments addressing Section 4.11(c) of the Proposed CT
Plan, and the Commission is approving Section 4.11(c) as proposed.
---------------------------------------------------------------------------
\336\ See 2021 Approval Order, supra note 19, 86 FR at 44181-82,
44215.
\337\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
---------------------------------------------------------------------------
(l) Confidentiality Policy
Article IV, Section 4.12 provides that all Covered Persons are
subject to the Confidentiality Policy set forth in Exhibit C to the
Proposed CT Plan.\338\ This Section further provides that the Company
will arrange for Covered Persons that are not Voting Representatives,
Member Observers, or members of the Advisory Committee to comply with
the Confidentiality Policy under their respective agreements with
either the Company, a Member, the Administrator, or the
Processors.\339\
---------------------------------------------------------------------------
\338\ See Article IV, Section 4.12 of the Proposed CT Plan. See
also Section 1.1(3) of the Proposed CT Plan (defining ``Covered
Persons'').
\339\ See Article IV, Section 4.12 of the Proposed CT Plan.
---------------------------------------------------------------------------
This provision is identical to the corresponding provision of the
2021 CT Plan approved by the Commission,\340\ and it was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing Section 4.12 of the Proposed CT Plan, and the
Commission is approving Section 4.12 of the Proposed CT Plan as
proposed.
---------------------------------------------------------------------------
\340\ See 2021 Approval Order, supra note 19, 86 FR at 44182-90.
---------------------------------------------------------------------------
Exhibit C to the Proposed CT Plan constitutes the Confidentiality
Policy and describes the purpose and scope of the policy, including,
among other things, the procedures regarding the custodian of and
designations for all documents, as well as the procedures concerning
Restricted Information, Highly Confidential Information, and
Confidential Information.
The Commission received no comments on Exhibit C.
Paragraph (a) of the Confidentiality Policy lays out the purpose
and scope of the policy. Paragraph (a) is unchanged from the
corresponding provision of the 2021 CT Plan approved by the
Commission,\341\ and it was not required to be modified by the Amended
Governance Order. The Commission is approving paragraph (a) of Exhibit
C as proposed.
---------------------------------------------------------------------------
\341\ See id. at 44182-89, 44222-24.
---------------------------------------------------------------------------
Paragraph (b) of the Confidentiality Policy lays out the procedures
for treatment and disclosure of Restricted Information, Highly
Confidential Information, and Confidential Information. Paragraph
(b)(i) is identical to the corresponding 2021 CT Plan provisions
approved by the Commission,\342\ and it was not required to be modified
by the Amended Governance Order. The Commission is approving paragraph
(b)(i) of the Exhibit C as proposed.
---------------------------------------------------------------------------
\342\ See id.
---------------------------------------------------------------------------
Paragraph (b)(ii) of Exhibit C sets forth the procedures concerning
Restricted Information. While paragraph (b)(ii) was not required to be
modified by the Amended Governance Order, this paragraph has been
reorganized from the corresponding provisions of the 2021 CT Plan
approved by the Commission,\343\ and the substance of the provisions
has not changed. The Commission is, however, making one modification to
this paragraph. In paragraph (b)(ii)(A)(2), where the policy states
that any authorization to disclose Restricted Information must identify
the Covered Persons or third party authorized to receive information,
the Commission is modifying this sentence to specify that the
Restricted Information to be disclosed must also be specified: ``Any
authorization to disclose Restricted Information must specify the
information to be disclosed and identify the Covered Persons or third
party authorized to receive the Restricted Information. . . .'' This
modification is appropriate, as it is designed to help ensure that the
Restricted Information is tightly controlled and that only the
Restricted Information specified is permitted to be disclosed.
Accordingly, the Commission is approving paragraph (b)(ii) of Exhibit C
as modified.
---------------------------------------------------------------------------
\343\ See id.
---------------------------------------------------------------------------
Paragraph (b)(iii) of Exhibit C sets forth the procedures
concerning Highly Confidential Information. While paragraph (b)(iii)
was not required to be modified by the Amended Governance Order, this
paragraph has been reorganized from the corresponding provisions of the
2021 CT Plan approved by the Commission,\344\ and the substance of the
provisions has changed in only three respects.
---------------------------------------------------------------------------
\344\ See id.
---------------------------------------------------------------------------
First, for the reasons explained above, references to a ``Non-SRO
Voting Representative'' have been replaced by references to ``a member
of the Advisory Committee.'' \345\ Second, proposed paragraph
(b)(iii)(A)(2) would permit Voting Representatives to share certain
Highly Confidential Information with ``officers and employees'' of a
Member who have direct or supervisory responsibility for the Member's
participation in the plan, rather than with only ``officers'' as in the
2021 CT Plan. The addition of ``employees'' to the list of persons who
may receive certain Highly Confidential Information is appropriate
because disclosure would still be limited to those with direct or
supervisory responsibility for the Member's participation in the plan
and because not all persons with such responsibilities may formally be
``officers'' of a Member.
---------------------------------------------------------------------------
\345\ See Amended Governance Order, supra note 23, 88 FR at
61631-32.
---------------------------------------------------------------------------
And third, proposed paragraph (b)(iii)(A)(1) would permit
disclosures of Highly Confidential Information in specified
circumstances ``or as otherwise required by law (such as those required
to receive the information to ensure the Member complies with its
regulatory obligations).'' In the 2021 Approval Order, the Commission
specifically removed identical quoted language in response to
commenters' concern that it was too broad and their request for greater
clarity. Consequently, the Commission in the 2021 CT Plan separately
permitted the disclosure of Highly Confidential Information ``as
required by Applicable Law'' because it provided greater specificity as
to when Highly Confidential Information could be disclosed, consistent
with the defined term.\346\ Moreover, paragraph (b)(iii)(A)(2) of the
Proposed CT Plan would permit a Voting Representative to share Highly
Confidential Information with ``officers or employees of a Member who
have direct or supervisory responsibility for the Member's
participation in the Plan, or with agents for the Member supporting the
Member's participation in the Plan,'' which would thereby facilitate
the Member's ability to meet its regulatory obligations with respect to
the operations of the Proposed CT Plan. Accordingly, it is appropriate
to modify paragraph (b)(iii)(A)(1) of Exhibit C to delete the phrase
``or as otherwise required by law (such as those required to receive
the information to ensure the Member complies with its regulatory
obligations).''
---------------------------------------------------------------------------
\346\ See 2021 Approval Order, supra note 19, 86 FR at 44186;
see also Paragraph (b)(iii)(A)(4) of Exhibit C.
---------------------------------------------------------------------------
The Commission is also modifying paragraph (b)(iii) to make the
following
[[Page 94945]]
typographical corrections. In paragraph (b)(iii)(A)(1), the Commission
is correcting a cross-reference to read ``Section 4.8(d)'' instead of
``Section 4.7(c).'' In paragraph (b)(iii)(A)(2), the Commission is
correcting two references to ``SRO Voting Representatives'' to read
``Voting Representatives'' because that is the defined term in the
Proposed CT Plan,\347\ and the Commission is also correcting a
reference to ``Restricted Information'' to read ``Highly Confidential
Information'' because the paragraph in fact relates to procedures
concerning Highly Confidential Information. In paragraph
(b)(iii)(A)(5), which discusses disclosures to third parties, the
Commission is striking two references to ``Covered Persons'' because
the paragraph discusses disclosure to identified third parties that are
acting as Agents, rather than to Covered Persons. There are two
paragraphs numbered (b)(iii)(A)(5), and the Commission is renumbering
the second of those paragraphs as paragraph (b)(iii)(A)(6). The
Commission is also correcting a reference to ``SRO Voting
Representatives'' in paragraph (b)(iii)(B) to read ``Voting
Representative'' because other references to SRO Voting Representatives
in the Proposed CT Plan have been removed and replaced with references
to Voting Representatives to conform to the Amended Governance
Order.\348\ These modifications are appropriate because they would
alleviate confusion on those referencing the Proposed CT Plan by
correcting typographical errors. For the reasons discussed above, the
Commission is approving paragraph (b)(iii) of Exhibit C as modified.
---------------------------------------------------------------------------
\347\ See supra Section II.B.2.
\348\ See id.
---------------------------------------------------------------------------
Paragraph (b)(iv) of Exhibit C to the Proposed CT Plan governs
procedures concerning Confidential Information. With one exception,
paragraph (b)(iv) as proposed is identical to the corresponding
provisions of the 2021 CT Plan approved by the Commission,\349\ and it
was not required to be modified by the Amended Governance Order. That
exception is that the word ``only'' was removed from the corresponding
provision in the 2021 CT Plan that stated, ``Additionally, a Covered
Person may disclose Confidential Information only to other persons who
need to receive such information to fulfill their responsibilities to
the Plan, including oversight of the Plan.'' (Emphasis added.) Although
the Commission added the word ``only'' to this sentence in the 2021
Approval Order,\350\ the general provision of paragraph (a)(iii) of
Exhibit C--which provides that ``Covered Persons may not disclose
Restricted, Highly Confidential, or Confidential information except as
consistent with this Policy and directed by the Operating Committee''--
sufficiently limits the authorization provided by paragraph (b)(iv)(A)
without adding the word ``only'' in the sentence described above. The
Commission is, however, modifying the last phrase of paragraph
(b)(iv)(A), ``or as may be otherwise required by law,'' to read, ``or
as may be otherwise required by Applicable Law.'' The modification is
appropriate because it uses a term specifically defined in the Proposed
CT Plan, thus adding clarity to the application of the phrase, and
because the modification will make paragraph (b)(iv)(A) consistent with
paragraph (b)(iii)(A)(4) as proposed, which also uses the term
``Applicable Law.''
---------------------------------------------------------------------------
\349\ See 2021 Approval Order, supra note 19, 86 FR at 44182-89,
44222-24.
\350\ See id. at 44188, 44223.
---------------------------------------------------------------------------
For the reasons discussed above, the Commission is approving
paragraph (b)(iv) of Exhibit C as modified.
6. The Processors; Information; Indemnification
Article V of the Proposed CT Plan sets forth the provisions related
to the Processors.
(a) General Functions of the Processors
Pursuant to Article V, Section 5.1, the Company, under the
direction of the Operating Committee, shall be required to enter into
agreements with the Processors obligating the Processors to perform
certain processing functions on behalf of the Company (the ``Processor
Services Agreements'').\351\ The Proposed CT Plan specifies that, among
other things, the Company shall require the Processors to collect from
the Members, and consolidate and disseminate to Vendors and
Subscribers, Transaction Reports and Quotation Information in Eligible
Securities in a manner designed to ensure the prompt, accurate, and
reliable collection, processing, and dissemination of information with
respect to all Eligible Securities in a fair and non-discriminatory
manner.\352\
---------------------------------------------------------------------------
\351\ See Article V, Section 5.1 of the Proposed CT Plan.
\352\ See id.
---------------------------------------------------------------------------
Proposed Section 5.1 is identical to the corresponding provision of
the 2021 CT Plan approved by the Commission,\353\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing this provision, and the Commission is approving
Section 5.1 as proposed.
---------------------------------------------------------------------------
\353\ See 2021 Approval Order, supra note 19, 86 FR at 44190-91,
44215.
---------------------------------------------------------------------------
(b) Evaluation of the Processors
Article V, Section 5.2 of the Proposed CT Plan requires that the
Processors' performance of their functions under the Processor Services
Agreements shall be subject to review at any time as determined by an
affirmative vote of the Operating Committee, provided, however, that a
review will be conducted at least once every two calendar years but not
more than once each calendar year unless the Processors have materially
defaulted under the Processor Services Agreement and the default has
not been cured within the applicable cure period established in the
Processor Services Agreement, in which case such limitations will not
apply.\354\ This section further provides that the Operating Committee
may review the Processors at staggered intervals.\355\
---------------------------------------------------------------------------
\354\ See Article V, Section 5.2 of the Proposed CT Plan.
\355\ See id.
---------------------------------------------------------------------------
Proposed Section 5.2 is identical to the corresponding provision of
the 2021 CT Plan approved by the Commission,\356\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing this provision, and the Commission is approving
Section 5.2 as proposed.
---------------------------------------------------------------------------
\356\ See 2021 Approval Order, supra note 19, 86 FR at 44191-92,
44215.
---------------------------------------------------------------------------
(c) Process for Selecting New Processors
Article V, Section 5.3 of the Proposed CT Plan requires that the
Operating Committee, by an affirmative vote pursuant to Section 4.3 of
the Proposed CT Plan,\357\ establish procedures for selecting a new
Processor (the ``Processor Selection Procedures'').\358\ The Proposed
CT Plan requires that the Processor Selection Procedures be established
no later than upon the termination or withdrawal of a Processor or the
expiration of a Processor Services Agreement with a Processor.\359\ The
Processor Selection Procedures are required to set forth, at a minimum:
(i) the minimum technical and operational requirements to be fulfilled
by the Processor; (ii) the criteria for selecting the Processor; (iii)
the entities (other than Voting Representatives) that are eligible to
comment on the selection of the Processor; and (iv) the entity that
will:
[[Page 94946]]
(A) draft the Operating Committee's request for proposal for a new
Processor; (B) assist the Operating Committee in evaluating bids for
the new Processor; and (C) otherwise provide assistance and guidance to
the Operating Committee in the selection process.\360\ The Operating
Committee, as part of the process of establishing the Processor
Selection Procedures, is permitted to solicit and consider the timely
comment of any entity affected by the operation of the Proposed CT
Plan.\361\
---------------------------------------------------------------------------
\357\ See Article V, Section 5.3(a) of the Proposed CT Plan.
\358\ See id.
\359\ See id.
\360\ See Article V, Section 5.3(b)(i)(A)-(C) of the Proposed CT
Plan.
\361\ See Article V, Section 5.3(a) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 5.3 provides that the Operating Committee does not need to
establish Processor Selection Procedures ``if the Operating Committee
initially selects the CQ Plan and CTA Plan's processor and the UTP
Plan's processor to provide the same services to the Company that are
currently provided under the CQ Plan, CTA Plan, and UTP Plan.'' \362\
In the Transmittal Letter, the SROs state that, because the focus of
the Amended Governance Order is the selection of a new independent
Administrator rather than new Processors, the SROs believe it is
reasonable for the Operating Committee to have the option of continuing
with the current processors without having to go through an extensive
procedure for selecting the processors.\363\ The SROs state that this
option would also allow for quicker implementation of the plan by
allowing the Operating Committee to focus on the selection of the new
Administrator.\364\
---------------------------------------------------------------------------
\362\ Id.
\363\ See Letter from James P. Dombach, Davis Wright Tremaine
LLP, to Vanessa Countryman, Secretary, Commission, at 2 (Oct. 23,
2023) (``Transmittal Letter'').
\364\ See Transmittal Letter, supra note 363, at 2.
---------------------------------------------------------------------------
With respect to Section 5.3(a), one commenter states that it
supports the proposal to provide the Operating Committee with the
option of selecting an existing NMS plan processor to serve as
processor for the Proposed CT Plan, provided that selection of the
current processor is for the sole purpose of expediting transition to
the competing consolidator model, and that such processor be fully
retired at the end of the transition period.\365\ Another commenter
agrees that it is reasonable for the Operating Committee to have the
option to continue with the current processors.\366\ This commenter
states its ``expectation'' that the Commission and the SROs ``will
promptly take the requisite steps necessary to transition to a
competitive decentralized consolidation model for consolidated market
data such that the role of a CT Plan Processor is time-limited,
mitigating the need to create new procedures for Plan Processor
selection.'' \367\
---------------------------------------------------------------------------
\365\ See Letter from Christina Qi, Chief Executive Officer,
Luca Lin, Chief Technology Officer, Zach Banks, Engineering
Director, Databento Inc., at 1-2 (Mar. 15, 2024) (``Databento
Letter'').
\366\ See Fidelity Letter, supra note 80, at 6.
\367\ Id.
---------------------------------------------------------------------------
The establishment of Processor Selection Procedures is appropriate,
as proposed, because the existing exclusive SIP model will continue to
operate during the transition to the competing consolidator model, and
the proposed Selection Procedures are reasonably designed to help
ensure that the Operating Committee establishes a process that governs
the selection of a new Processor for the Proposed CT Plan through a
fair, transparent, and competitive process. The Commission agrees with
the commenter, that it is reasonable to provide the Operating Committee
with the option of initially selecting the current processors to
provide the same services under the Proposed CT Plan without having to
establish procedures for their selection, as proposed in Section
5.3(a).\368\ Providing the Operating Committee with this option should
facilitate implementation of the Proposed CT Plan as the Operating
Committee would not have to immediately undertake the extensive process
for selecting and onboarding a new Processor, and may instead focus on
the selection of the new Administrator and other key governance reforms
necessary under the Proposed CT Plan.
---------------------------------------------------------------------------
\368\ See Article V, Section 5.3 of the Proposed CT Plan.
---------------------------------------------------------------------------
Other than as discussed above, Section 5.3 of the Proposed CT Plan
is substantively similar to the corresponding provisions of the 2021 CT
Plan approved by the Commission.\369\ For the reasons discussed above,
the Commission is approving Article V, Section 5.3 as proposed.
---------------------------------------------------------------------------
\369\ See 2021 Approval Order, supra note 19, 86 FR at 44192,
44216.
---------------------------------------------------------------------------
(d) Transmission of Information to Processors by Members
Article V, Section 5.4 of the Proposed CT Plan sets forth the
manner in which each Member is responsible for promptly collecting and
transmitting to the Processors accurate Quotation Information and
Transaction Reports as set forth in the Processor Services
Agreements.\370\ In particular, this section requires Members to
include the following elements in their Quotation Information: (i)
identification of the Eligible Security, using the listing market's
symbol; (ii) the price bid and offered, together with size; (iii) for
FINRA, the FINRA Participant along with the FINRA Participant's market
participant identification or Member from which the quotation emanates;
(iv) appropriate timestamps; (v) identification of quotations that are
not firm; and (vi) through appropriate codes and messages, withdrawals
and similar matters.\371\ In the case of a national securities
exchange, the Quotation Information must include the reporting
Participant's matching engine publication timestamp.\372\ In the case
of FINRA, the Quotation Information must include the quotation
publication timestamp that FINRA's bidding or offering member reports
to FINRA's quotation facility in accordance with FINRA rules.\373\
---------------------------------------------------------------------------
\370\ See Article V, Section 5.4 of the Proposed CT Plan.
\371\ See Article V, Section 5.4(a)(ii)(A)-(F) of the Proposed
CT Plan.
\372\ See Article V, Section 5.4(a)(iii)(A) of the Proposed CT
Plan.
\373\ See Article V, Section 5.4(a)(iii)(B) of the Proposed CT
Plan. In addition, proposed Section 5.4(a)(iii)(B) provides that if
FINRA's quotation facility provides a proprietary feed of its
quotation information, then the quotation facility will also furnish
the Processors with the time of the quotation as published on the
quotation facility's proprietary feed. FINRA shall convert any
quotation times reported to it to nanoseconds and shall furnish such
times to the Processors in nanoseconds since Epoch. See Article V,
Section 5.4(a)(iii)(B) of the Proposed CT Plan.
---------------------------------------------------------------------------
In addition, Section 5.4 requires Members to report the following
elements to in their Transaction Reports to the Processor as set forth
in the Processor Services Agreement: (i) identification of the Eligible
Security, using the listing market's symbol; (ii) the number of shares
in the transaction; (iii) the price at which the shares were purchased
or sold; (iv) the buy/sell/cross indicator; (v) appropriate timestamps;
(vi) the market of execution; and (vii) through appropriate codes and
messages, late or out-of-sequence trades, corrections, and similar
matters.\374\
---------------------------------------------------------------------------
\374\ See Article V, Section 5.4(b)(i)-(ii) of the Proposed CT
Plan; Notice, supra note 4, 89 FR at 5015.
---------------------------------------------------------------------------
Each Member must also (a) transmit Transaction Reports to the
Processors as soon as practicable, but not later than ten seconds,
after the time of execution, (b) establish and maintain collection and
reporting procedures and facilities reasonably designed to comply with
this requirement, and (c) designate as ``late'' any last sale price not
collected and reported as described above or as to which the Member has
knowledge that the time interval after the time of
[[Page 94947]]
execution is significantly greater than the time period referred to
above.\375\ This section provides that Members will seek to reduce the
time period for reporting last sale prices to the Processors as
conditions warrant.\376\
---------------------------------------------------------------------------
\375\ See Article V, Section 5.4(b)(iv) of the Proposed CT Plan;
Notice, supra note 4, 89 FR at 5015.
\376\ See id.
---------------------------------------------------------------------------
Section 5.4(c) of the Proposed CT Plan sets forth the symbols that
shall be used to denote the applicable Member.\377\
---------------------------------------------------------------------------
\377\ See Article V, Section 5.4(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 5.4 excludes the following types of transactions from being
required to be reported to the Processors: (i) transactions that are
part of a primary distribution by an issuer or of a registered
secondary distribution or of an unregistered secondary distribution;
(ii) transactions made in reliance on Section 4(a)(2) of the Securities
Act of 1933; (iii) transactions in which the buyer and the seller have
agreed to trade at a price unrelated to the current market for the
security (e.g., to enable the seller to make a gift); (iv) the
acquisition of securities by a broker-dealer as principal in
anticipation of making an immediate exchange distribution or exchange
offering on an exchange; (v) purchases of securities pursuant to a
tender offer; (vi) purchases or sales of securities effected upon the
exercise of an option pursuant to the terms thereof or the exercise of
any other right to acquire securities at a pre-established
consideration unrelated to the current market; and (vii) transfers of
securities that are expressly excluded from trade reporting under FINRA
rules.\378\
---------------------------------------------------------------------------
\378\ See Article V, Section 5.4(b)(v)(A)-(G) of the Proposed CT
Plan (as adopted).
---------------------------------------------------------------------------
Furthermore, Section 5.4(d) provides that each Member agrees,
severally and not jointly, to indemnify and hold harmless and defend
the Company, each other Member, the Processors, the Administrator, the
Operating Committee, and each of their respective directors, officers,
employees, agents, and Affiliates (each, a ``Member Indemnified
Party'') from and against any and all loss, liability, claim, damage,
and expense whatsoever incurred or threatened against such Member
Indemnified Party as a result of a system error or disruption at such
Member's Market affecting any Transaction Reports, Quotation
Information, or other information reported to the Processors by such
Member and disseminated by the Processors to Vendors and Subscribers.
This section further provides that this indemnity shall be in addition
to any liability that the indemnifying Member may otherwise have.\379\
---------------------------------------------------------------------------
\379\ See Article V, Section 5.4(d)(i) of the Proposed CT Plan
(as adopted). Section 5.4(d)(ii) of the Proposed CT Plan specifies
the procedures for addressing claims by a Member Indemnified Party.
---------------------------------------------------------------------------
The provisions of Section 5.4 relating to each Member's obligations
to collect and transmit to the Processors accurate and reliable
Quotation Information and Transaction Reports are reasonably designed
to facilitate the collection and dissemination of consolidated equity
market data for NMS stocks for the beneficial use of investors and the
market.\380\ Section 5.4 differs substantively from the corresponding
provisions of the 2021 CT Plan approved by the Commission in that it
(1) replaces the term ``Participant'' with ``Member,'' which difference
is appropriate to correspond with the definitions in the Proposed CT
Plan, and (2) updates, in Section 5.4(c), the symbols used to denote
the applicable Member, which difference is appropriate to help ensure
the accuracy of this information. The Commission received no comments
addressing this provision, which was not required to be modified by the
Amended Governance Order, and the Commission is approving Section 5.4,
as renumbered and proposed.
---------------------------------------------------------------------------
\380\ See 2021 Approval Order, supra note 19, 86 FR at 44193.
---------------------------------------------------------------------------
(e) Operational Issues
Article V, Section 5.5 of the Proposed CT Plan requires each Member
to be responsible for collecting and validating quotes and last sale
reports within its own system prior to transmitting this data to the
Processors.\381\ This section also requires each Member to promptly
notify the Processors whenever a level of trading activity or unusual
market conditions prevent such Member from collecting and transmitting
Transaction Reports or Quotation Information to the Processor, or where
a trading halt or suspension in an Eligible Security is in effect in
its market.\382\ This provision further requires the Member to resume
collecting and transmitting Transaction Reports and Quotation
Information to the Processors as soon as the condition or event is
terminated.\383\ In the event of a system malfunction that prevents a
Member or its members from transmitting Transaction Reports or
Quotation Information to the Processors, the Member is required to
promptly notify the Processors of such event or condition.\384\ Upon
receiving such a notification, Section 5.5 of the Proposed CT Plan
requires the Processors to take appropriate action, including either
closing the quotation or purging the system of the affected
quotations.\385\
---------------------------------------------------------------------------
\381\ See Article V, Section 5.5(a) of the Proposed CT Plan.
Section 5.5(b) of the Proposed CT Plan provides that each Member may
utilize a dedicated Member line into the Processors to transmit
Transaction Reports and Quotation Information to the Processors.
\382\ See Article V, Section 5.5(c) of the Proposed CT Plan.
\383\ See id.
\384\ See id.
\385\ See id.
---------------------------------------------------------------------------
Section 5.5 is identical to the corresponding provision of the 2021
CT Plan approved by the Commission \386\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comments addressing Section 5.5 of the Proposed CT Plan, and the
Commission is approving Section 5.5 as proposed.
---------------------------------------------------------------------------
\386\ See 2021 Approval Order, supra note 19, 86 FR at 44194.
---------------------------------------------------------------------------
7. The Administrator
Article VI of the Proposed CT Plan sets forth provisions relating
to the Administrator.
(a) General Functions of the Administrator
Pursuant to Article VI, Section 6.1, the Company, under the
direction of the Operating Committee, will be required to enter into an
agreement with the Administrator (the ``Administrative Services
Agreement'') obligating the Administrator to perform certain
administrative functions on behalf of the Company, including:
recordkeeping; administering vendor and subscriber contracts;
administering fees, including billing, collection, and auditing of
vendors and subscribers; administering distributions; tax functions of
the Company; the preparation of the Company's audited financial
reports; and support of Company governance.\387\
---------------------------------------------------------------------------
\387\ See Article VI, Section 6.1 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 6.1 of the Proposed CT Plan is identical to the
corresponding provision of the 2021 CT Plan approved by the Commission,
except that the provision now includes ``support of Company
governance'' among the Administrator's functions.\388\ Including this
additional function for the Administrator is reasonable given the
extensive responsibilities of the Administrator for supporting the
operations of the plan. This section was not required to be modified by
the Amended Governance Order. The Commission received no comments
addressing Section 6.1, and for the reasons discussed above, the
[[Page 94948]]
Commission is approving Section 6.1 as proposed.
---------------------------------------------------------------------------
\388\ See 2021 Approval Order, supra note 19, 86 FR at 44194-95.
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(b) Independence of the Administrator
Article VI, Section 6.2 of the Proposed CT Plan requires that the
Administrator selected by the Operating Committee may not be owned or
controlled by a corporate entity that, either directly or via another
subsidiary, offers for sale its own proprietary market data
products.\389\ Section 6.2 of the Proposed CT Plan is identical to the
corresponding provision of the 2021 CT Plan approved by the Commission
\390\ and is consistent with the requirements of the Amended Governance
Order.\391\
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\389\ See Article VI, Section 6.2 of the Proposed CT Plan.
\390\ See 2021 Approval Order, supra note 19, 86 FR at 44194-99,
44217.
\391\ See Amended Governance Order, supra note 23, 88 FR at
61640.
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One commenter supports having an independent administrator, stating
that an independent administrator with a unique balance of experience
and expertise, but without conflict, will be the single most important
factor for the successful transition to a unified consolidated
tape.\392\ Another commenter states that the Proposed CT Plan should
not only exclude SROs from serving as Administrator, but also data
vendors that sell proprietary market data products or consolidate
proprietary market data for sale as their own product.\393\ According
to this commenter, vendors may provide users with an alternative to
consolidated equity market data offered under the Proposed CT
Plan,\394\ compromising the independence of such a vendor.\395\ The
commenter recommends that, Section 6.2 of the Proposed CT Plan should
be modified to read as follows: The Administrator may not be owned or
controlled by a corporate entity that, either directly or via another
subsidiary, offers for sale its own proprietary market data products or
that of single or multiple Participants.\396\
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\392\ See Letter from Mark Schaedel, CEO, DataBP, LLC, at 3-4
(Feb.23.2024) (``dataBP Letter'').
\393\ See Nasdaq Letter, supra note 109, at 7.
\394\ See id.
\395\ See id.
\396\ See id. (emphasis in original).
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The Commission addressed a similar comment in the 2021 Approval
Order, and, as it stated in that order, the Commission did not mandate
in the Governance Order that non-SRO data vendors serve as the new
independent Administrator.\397\ Nor are such entities the only viable
alternative Administrator.\398\ The Commission chose to address one
substantial, inherent conflict of interest when it decided that any
plan Administrator cannot be owned or controlled by a corporate entity
that offers for sale its own proprietary equity market data
products.\399\ The Proposed CT Plan, as proposed and approved, under
the direction of the Operating Committee, can exercise discretion in
the selection of the new Administrator, including ensuring that any
potential conflict of interest does not compromise the independence of
the selected Administrator.\400\ Furthermore, the Operating Committee
of the Proposed CT Plan would not have any incentive to choose as the
Administrator a non-SRO entity that would face a financial conflict of
interest and act as a direct competitor to the SROs' proprietary data
business.\401\ The D.C. Circuit upheld the rationality of this
reasoning.\402\ And, for these same reasons, the Commission again
declines to modify the restrictions on entities that can serve as
Administrator in the manner suggested by the commenter.
---------------------------------------------------------------------------
\397\ See 2021 Approval Order, supra note 19, 86 FR at 44197.
\398\ See id.
\399\ See id.
\400\ See Article IV, Section 4.1(a)(i) of the Proposed CT Plan
(providing, in part, that ``the Operating Committee shall have full
and complete discretion to manage and control the business and
affairs of the Company, to make all decisions affecting the business
and affairs of the Company, and to take all such actions as it deems
necessary or appropriate to accomplish the purposes of the Company,
including . . . selecting, overseeing, specifying the role and
responsibilities of, and evaluating the performance of, the
Administrator''). See also 2021 Approval Order, supra note 19, 86 FR
at 44197.
\401\ See 2021 Approval Order, supra note 19, 86 FR at 44197.
\402\ See Nasdaq v. SEC, supra note 20, 38 F.4th at 1143
(``Although petitioners contend that non-SRO data vendors face `the
exact same conflict' as SROs selling competing data products, the
conflict is not the same because, as the Commission notes, the SROs
have `sufficient voting power' and `incentive' to ensure that any
non-SRO chosen to serve as administrator `would [not] face a
financial conflict of interest and act as a direct competitor to the
SROs' proprietary data business.' '' (quoting 2021 Approval Order,
supra note 19, 86 FR at 44197) (internal citations omitted).
---------------------------------------------------------------------------
Another commenter states that the scope of the independence
requirement might be too narrow.\403\ This commenter states that one or
more exchange groups could seek to establish a new ``independent''
administrator by spinning off or selling to a new corporate entity the
administrator functions, even though all of the employees of such a new
entity would remain the same or nearly the same after the spin-off or
sale.\404\
---------------------------------------------------------------------------
\403\ See SIFMA Letter, supra note 109, at 5. The commenter
states that such a scenario could call into question the
independence of the new Administrator. See id.
\404\ See id.
---------------------------------------------------------------------------
With respect to this concern, an Administrator of the Proposed CT
Plan would not be ``independent'' of a disqualified entity if its
employees were also employees of that disqualified entity. Because the
Administrator and its employees would have access to ``sensitive
information of significant commercial or competitive value,'' \405\
those employees would have a conflict of interest if simultaneously
employed by an entity that offers for sale its own proprietary data
products, which would defeat the purpose of the independence
requirements in the Proposed CT Plan for the Administrator, as well as
the limitations on sharing information under the Confidentiality
Policy.\406\ Therefore, it is appropriate to further protect against
the potential for misuse of sensitive information by modifying Section
6.2 to add an additional requirement: ``The Administrator may not
employ any person who is also employed by a corporate entity that,
either directly or via a subsidiary, offers for sale its own PDP.''
More generally, as discussed above,\407\ the Operating Committee can
also exercise discretion in the selection of the new Administrator to
ensure that any potential conflict of interest does not compromise the
independence of the selected Administrator, and on an ongoing basis,
the Administrator will be required to disclose all material facts
necessary to identify potential conflicts of interest.\408\
---------------------------------------------------------------------------
\405\ Amended Governance Order, supra note 23, 88 FR at 61639.
\406\ See supra Section II.B.5(l) (discussing Confidentiality
Policy of the Proposed CT Plan).
\407\ See supra note 400 and accompanying text.
\408\ See supra notes 313-316 and accompanying text.
---------------------------------------------------------------------------
Other than as modified by the Commission, Section 6.2 of the
Proposed CT Plan is identical to the corresponding provision of the
2021 CT Plan approved by the Commission \409\ and was not required to
be modified by the Amended Governance Order. For the foregoing reasons,
the Commission is approving Article V, Section 6.2 as modified.
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\409\ See 2021 Approval Order, supra note 19, 86 FR at 44217.
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(c) Evaluation of the Administrator
Article VI, Section 6.3 of the Proposed CT Plan sets forth the
provisions for the evaluation of an Administrator.\410\ Section 6.3 is
identical to the corresponding 2021 CT Plan provisions approved by the
Commission \411\ and was not required to be modified by the
[[Page 94949]]
Amended Governance Order. The Commission received no comments
addressing Section 6.3 of the Proposed CT Plan, and the Commission is
approving Article VI, Section 6.3 as proposed.
---------------------------------------------------------------------------
\410\ See Article VI, Section 6.3 of the Proposed CT Plan.
\411\ See 2021 Approval Order, supra note 19, 86 FR at 44198.
---------------------------------------------------------------------------
(d) Process for Selecting New Administrator
Article VI, Section 6.4 of the Proposed CT Plan sets forth the
provisions for the selection of an Administrator.\412\ Section 6.4 of
the Proposed CT Plan is identical to the corresponding provision of the
2021 CT Plan approved by the Commission \413\ and was not required to
be modified by the Amended Governance Order. The Commission received no
comments addressing this provision, and the Commission is approving
Section 6.4 as proposed.
---------------------------------------------------------------------------
\412\ See Article VI, Section 6.4 of the Proposed CT Plan.
\413\ See 2021 Approval Order, supra note 19, 86 FR at 44198-99,
44217.
---------------------------------------------------------------------------
(e) Interim Administrator(s)
One commenter states that the Commission should modify the Proposed
CT Plan to allow the Operating Committee to appoint one of the current
administrators of the Equity Data Plans as interim Administrator until
such time as the Operating Committee selects and onboards a new
independent Administrator that meets the requirements for an
independent administrator under the Amended Governance Order.\414\ The
commenter states that appointment of such an interim Administrator
would allow the Plan to become operative while the Operating Committee
works towards full implementation of all required Plan elements.\415\
This commenter states that selection and onboarding of an independent
Administrator would, according to the proposed schedule, account for
the majority of the 30-month implementation period.\416\ The commenter
is also concerned that the selection and onboarding of a new
Administrator is a potential source of delay, as the process is not
fully within the control of the Operating Committee. Thus, the
commenter states that there is no need for the implementation of other
governance reforms to be tied to the new Administrator.\417\ Another
commenter states that selecting an interim administrator, as
suggested,\418\ is a good idea because, once selected, this interim
administrator could start developing plan policies that are not
dependent on the independent administrator, possibly drawing on the
expertise of members of the Market Data Administration subcommittee of
the Equity Data Plans.\419\ This commenter states that the goal should
be to implement the plan at the earliest possible time, and that
appointing an interim administrator would advance that objective.\420\
---------------------------------------------------------------------------
\414\ See MEMX Letter, supra note 109, at 4, 7-9.
\415\ See id.
\416\ See id. at 6-8.
\417\ See id. at 8.
\418\ See id. at 5-7.
\419\ See Jordan Letter, supra note 84, at 2.
\420\ See id. at 1-2.
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The Commission agrees with commenters \421\ that timely
implementation of the Proposed CT Plan is important and that the
Proposed CT Plan should provide for an option, such as that suggested
by a commenter,\422\ by which key governance reforms, such as those
governing the allocation of SRO votes for action by the Operating
Committee, could be implemented before the proposed 30 months. Interim
Administrator(s) that are already familiar with, and have vast
experience in, the operation of the Equity Data Plans could assist in
having the Proposed CT Plan become operative prior to the selection and
onboarding of an independent Administrator that the SROs have
acknowledged would be a lengthy process.\423\ Although commenters have
suggested the appointment of a single interim administrator, the
ability of the Operating Committee to pick either or both of the
current administrators of the Equity Data Plans as Interim
Administrator(s) may facilitate the timely achievement of the date by
which the Proposed CT Plan will become operative.\424\ The flexibility
to employ either or both of the current administrators of the Equity
Data Plans would permit the Operating Committee, if it so chooses, to
postpone the work involved in transitioning from one administrator to
another until such time as a permanent, independent Administrator has
been selected and thus to postpone this effort until closer to the
Operative Date.
---------------------------------------------------------------------------
\421\ See MEMX Letter, supra note 109, at 5-7; Jordan Letter,
supra note 84, at 2; dataBP Letter, supra note 392, at 3-4.
\422\ See supra note 422 and accompanying text.
\423\ See Notice, supra note 4, 89 FR at 5027-29 (Exhibit F to
the Proposed CT Plan); see also infra section II.B.15(a) (discussing
the implementation timeline for the Proposed CT Plan).
\424\ See Article I, Section 1.1(56) of the Proposed CT Plan (as
modified; defining the term ``Operative Date'' as ``the date that
(i) the Members conduct, through the Company, the Processor and
Administrator functions related to the public dissemination of real-
time consolidated equity market data for Eligible Securities
required by the Commission to be performed by the Members under the
Exchange Act and the rules and regulations thereunder and (ii) the
CQ Plan, CTA Plan, and UTP Plan cease their operations'').
---------------------------------------------------------------------------
Therefore, the Commission is modifying the Proposed CT Plan, to
provide, in new Section 6.5, that the Operating Committee may select
one or more of the current administrators of the CTA Plan, CQ Plan, and
UTP Plan to perform the general functions of the Administrator under
Section 6.1 of the Proposed CT Plan on an interim basis during the
implementation of the Plan, consistent with the timeline set forth in
Article XIV of this Agreement (``Interim Administrator(s)''),
notwithstanding the provisions with respect to the independence of the
Administrator (Section 6.2) and the selection process of the
Administrator (Section 6.4). This modification is appropriate to
enhance efficiencies associated with the completion of actions
necessary for a timely implementation of the Proposed CT Plan.\425\
---------------------------------------------------------------------------
\425\ See 15 U.S.C. 78k-1(c)(1)(B) (to ensure the ``prompt,
accurate, reliable, and fair collection, processing, distribution,
and publication of information with respect to quotations for and
transactions in such securities and the fairness and usefulness of
the form and content of such information.'').
---------------------------------------------------------------------------
8. Regulatory Matters
Article VII of the Proposed CT Plan sets forth provisions governing
regulatory matters.
(a) Regulatory and Operational Halts
Section 7.1 of Article VII addresses regulatory and operational
halts, and it is unchanged from the corresponding provision of the 2021
CT Plan approved by the Commission,\426\ with one exception. That
exception is the addition of new paragraph 7.1(c)(ii)(D), which would
permit notice of a regulatory halt to be disseminated by ``a
notification via an alternate Processor, if available.''
---------------------------------------------------------------------------
\426\ See 2021 Approval Order, supra note 19, 86 FR at 44199-
200, 44217-18.
---------------------------------------------------------------------------
One commenter states that the only acceptable backup for a
processor should be an automated regulatory halt message notification
by an alternate Processor, as proposed in paragraph (D) of Section
7.1(c)(ii), and that, for this reason, paragraphs (A)-(C) of Section
7.1(c)(ii) should be deleted.\427\ This commenter further states that
the current two processors should serve as backups for each other in
the same manner that the NYSE and Nasdaq serve as backups for each
other for Trade Reporting Facility and closing auctions purposes. The
commenter also states that if the Proposed CT Plan were to move to a
single processor prior to future implementation of competing
consolidators, the plan should address
[[Page 94950]]
the single point of failure that would exist.\428\
---------------------------------------------------------------------------
\427\ See SIFMA Letter, supra note 109, at 4-5.
\428\ See id. at 5.
---------------------------------------------------------------------------
While the proposal to disseminate Regulatory Halt notices through
an alternate Processor in the event another Processor is unable to
disseminate the notices is reasonable, the Commission does not share
the commenter's view that this should be the only permitted backup, to
the exclusion of all other alternatives in proposed paragraph
7.2(c)(ii) \429\--namely, notification via a proprietary data product,
a posting on a publicly available Member website, or system status
messages--absent a representation from the SROs that such an alternate
Processor backup functionality has been developed and tested. Absent
such a representation, modifying Section 7.1 as the commenter proposes
would create uncertainty with respect to compliance with requirements
under this section, as well the potential for unnecessary delays in the
implementation of the Proposed CT Plan. For the foregoing reasons, the
Commission is approving Section 7.1 of the Proposed CT Plan as
proposed.
---------------------------------------------------------------------------
\429\ See id. at 4-5.
---------------------------------------------------------------------------
(b) Hours of Operation of the System
Section 7.2 of Article VII of the Proposed CT Plan governs the
hours of operation during which time Quotation Information and
Transaction Reports must be entered by Members and will be disseminated
by the Processor.\430\
---------------------------------------------------------------------------
\430\ See Article VII, Section 7.2 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 7.2 of the Proposed CT Plan differs from the corresponding
provision of the 2021 CT Plan approved by the Commission in two
respects. First, Section 7.2(a) clarifies that, during Regular Hours,
Transaction Reports shall be entered by Members pursuant to that
section ``for executions that occur from 9:30 a.m. until 4:00:00 p.m.
ET'' rather than ``between 9:30 a.m. and 4:00:10 p.m. ET.'' Second,
Section 7.2(b)(i) adds a parenthetical to the provision that, outside
of Regular Hours, reports for transactions in Eligible Securities
executed from 4:00 a.m. up to 9:30:00 a.m. ET ``(or as otherwise
designated by a Member as an execution occurring outside of Regular
Trading Hours)'' must be designated with a certain indicator to denote
their execution outside normal market hours.\431\ These differences are
appropriate to provide greater specificity with respect to the
information to be submitted pursuant to Section 7.2. The Commission is
modifying proposed Section 7.2 to replace the reference to ``Section
7.3'' in paragraph (b)(iv) with ``Section 7.2.'' This modification is
appropriate to correct a typographical error because the reference in
paragraph (b)(iv) of Section 7.2 is to ``this Section,'' which in this
context is Section 7.2 rather than Section 7.3, and because the
Proposed CT Plan does not contain a section numbered ``7.3.'' The
Commission received no comments addressing this provision. For the
reasons discussed above, the Commission is approving Section 7.2 of the
Proposed CT Plan as modified.
---------------------------------------------------------------------------
\431\ See Article VII, Section 7.2(b)(i) of the Proposed CT
Plan. Relatedly, Article VII, Section 7.2(b)(i) of the 2021 CT Plan
read as follows: ``Members that execute transactions in Eligible
Securities outside of Regular Trading Hours, shall report such
transactions as follows: (i) transactions in Eligible Securities
executed between 4:00 a.m. and 9:29:59 a.m. ET and between 4:00:01
p.m. and 8:00 p.m. ET, shall be designated with an appropriate
indicator to denote their execution outside normal market hours.''
See 2021 Approval Order, supra note 19, 86 FR at 44218.
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9. Capital Contributions; Capital Accounts
Article VIII of the Proposed CT Plan sets forth the provisions
related to the establishment and maintenance of capital accounts for
the Members, additional capital contributions to the Company, and the
distribution of revenues of the Company to the Members. Specifically,
Article VIII, Section 8.1 of the Proposed CT Plan requires a separate
capital account to be established by the Company and maintained by the
Administrator for each Member.\432\ In addition, the Proposed CT Plan
specifies the formula for crediting and debiting a Member's capital
account.\433\
---------------------------------------------------------------------------
\432\ See Article VIII, Section 8.1(a) of the Proposed CT Plan.
\433\ See id.
---------------------------------------------------------------------------
Section 8.1(b) of the Proposed CT Plan further provides that the
fair market value of contributed, distributed, or revalued property
shall be agreed to by the Operating Committee or, if there is no such
agreement, by an appraisal.\434\
---------------------------------------------------------------------------
\434\ See Article VIII, Section 8.1(b) of the Proposed CT Plan.
Additionally, Section 8.1(c) of the Proposed CT Plan provides that
the provisions of Section 8.1 and other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to
comply with be interpreted and applied in a manner consistent with
such Treasury Regulations. See id.
---------------------------------------------------------------------------
Section 8.2 of the Proposed CT Plan specifies that no Member will
be obligated or permitted to make any additional contribution to the
capital of the Company except with the approval of the Operating
Committee.\435\
---------------------------------------------------------------------------
\435\ See Article VIII, Section 8.2 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 8.3 of the Proposed CT Plan requires the distributions of
revenues of the Company to the Members at the times and in the
aggregate amounts set forth in Exhibit D to the Proposed CT Plan.\436\
---------------------------------------------------------------------------
\436\ See Article VIII, Section 8.3 of the Proposed CT Plan
(providing, in part, that ``[e]xcept as set forth in this Section
8.3 and Section 11.2, and subject to the provisions of Section 13.1,
Distributions shall be made to the Members at the times and in the
aggregate amounts set forth in Exhibit D. Notwithstanding any
provisions to the contrary contained in this Agreement, the Company
shall not make a Distribution to a Member on account of its interest
in the Company if such Distribution would violate Section 18-607 of
the Delaware Act or other Applicable Law'').
---------------------------------------------------------------------------
Article VIII of the Proposed CT Plan differs from the corresponding
provision of the 2021 CT Plan approved by the Commission \437\ in that
it provides that the capital accounts will be established by the
Company and maintained by the Administrator, whereas in the
corresponding provision of the 2021 CT Plan it was the Company that
both established and maintained such accounts.\438\
---------------------------------------------------------------------------
\437\ See 2021 Approval Order, supra note 19, 86 FR at 44200,
44218-19.
\438\ See id. at 44200, 44218.
---------------------------------------------------------------------------
The Commission received no comments on Article VIII of the Proposed
CT Plan. The function of administering the capital accounts is
reasonably within the scope of the general functions of the
Administrator under Section 6.1 of the Proposed CT Plan.\439\ For this
reason, and as the other provisions in Article VIII are substantively
similar to the corresponding provisions of the 2021 CT Plan approved by
the Commission \440\ and were not required to be modified by the
Amended Governance order, the Commission is approving Article VIII of
the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\439\ See Article VI, Section 6.1 of the Proposed CT Plan
(providing, in part, that ``the Administrator shall perform
administrative functions on behalf of the Company including
recordkeeping; administering Vendor and Subscriber contracts;
administering Fees, including billing, collection, and auditing of
Vendors and Subscribers; administering Distributions; tax functions
of the Company; and the preparation of the Company's audited
financial reports; and support of Company governance'').
\440\ See 2021 Approval Order, supra note 19, 86 FR at 44200,
44218-19.
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10. Allocations
Article IX of the Proposed CT Plan sets forth the provisions
related to the allocation of profits and losses of the Company to
Members. Pursuant to Article XI, Section 9.1, the profits and losses of
the Company must be determined for each fiscal year in a manner
consistent with GAAP.\441\ Article IX, Section 9.2 provides that
[[Page 94951]]
profits and losses of the Company must be allocated among the Members
in accordance with Exhibit D of the Proposed CT Plan.\442\ Section 9.2
also specifies the procedures for certain allocation events in
accordance with federal tax code regulations.\443\
---------------------------------------------------------------------------
\441\ See Article IX, Section 9.1 of the Proposed CT Plan.
\442\ See Article IX, Section 9.2(a) of the Proposed CT Plan.
\443\ See Article IX, Section 9.2(b)-(d) of the Proposed CT
Plan.
---------------------------------------------------------------------------
Exhibit D of the Proposed CT Plan outlines the methodology for
revenue sharing among Members.
Paragraphs (b), (c), and (e) through (i) of Exhibit D set forth the
definitions used for determining the revenue sharing among Members,
including ``Security Income Allocation,'' \444\ ``Volume Percentage,''
\445\ ``Trading Share,'' \446\ ``Trade Rating,'' \447\ ``Quoting
Share,'' \448\ ``Quote Rating,'' \449\ and ``Quote Credits.'' \450\
---------------------------------------------------------------------------
\444\ See Paragraph (b) of Exhibit D to the Proposed CT Plan.
\445\ See Paragraph (c) of Exhibit D to the Proposed CT Plan.
\446\ See Paragraph (e) of Exhibit D to the Proposed CT Plan.
\447\ See Paragraph (f) of Exhibit D to the Proposed CT Plan.
\448\ See Paragraph (g) of Exhibit D to the Proposed CT Plan.
\449\ See Paragraph (h) of Exhibit D to the Proposed CT Plan.
\450\ See Paragraph (i) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
Paragraph (d) of Exhibit D specifies a cap on the Net Distributable
Operating Income of the Proposed CT Plan.\451\
---------------------------------------------------------------------------
\451\ See Paragraph (d) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
Paragraph (j) of Exhibit D specifies the formula for determining
the Net Distributable Operating Income for any calendar year.\452\
---------------------------------------------------------------------------
\452\ See Paragraph (j) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
Paragraph (k) of Exhibit D specifies that once a new Member
implements a Processor-approved electronic interface with the
Processors, the Member will become eligible to receive revenue.\453\
---------------------------------------------------------------------------
\453\ See Paragraph (k) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
Paragraph (l) of Exhibit D specifies the Company will cause the
Administrator to provide Members with written estimates of each
Member's quarterly Net Distributable Operating Income within 45
calendar days of the end of the quarter.\454\
---------------------------------------------------------------------------
\454\ See Paragraph (l) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
Paragraph (m) of Exhibit D specifies that the Company will cause
the Administrator to submit to the Members a quarterly itemized
statement setting forth the basis upon which Net Distributable
Operating Income was calculated.\455\
---------------------------------------------------------------------------
\455\ See Paragraph (m) of Exhibit D to the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter suggests modifying the definition of ``Net
Distributable Operating Income'' under paragraph (j) of Exhibit D to
remove a 6.25% allocation to FINRA.\456\ This commenter states that the
proposed FINRA set-aside is a ``historical artifact'' and
``inconsistent with the overall scheme of revenue distribution,'' which
the commenter states bases revenue sharing on the contribution of each
participant to market transparency.\457\ The commenter states that
``payments to FINRA, like that of all participants, should be based on
the principle of contribution to the market,'' and that the 6.25%
adjustment should be removed from the calculation.\458\
---------------------------------------------------------------------------
\456\ See Nasdaq Letter, supra note 109, at 2, 6.
\457\ Id. at 6.
\458\ Id.
---------------------------------------------------------------------------
In response to the commenter, another commenter opposes removal of
the 6.25% FINRA set-aside from the calculation of ``Net Distributable
Operating Income'' under paragraph (j) of Exhibit D.\459\ This
commenter states that because both the inclusion of OTC Equity Data and
the associated 6.25% revenue allocation were in the 2021 CT Plan
approved by the Commission, and these provisions were not challenged in
the subsequent litigation, the Amended Governance Order requires that
these provisions remain in the Proposed CT Plan.\460\ This commenter
further states that the Market Data Infrastructure Rules (``MDI
Rules'') \461\ will ultimately resolve the treatment of OTC Equity Data
under the Proposed CT Plan,\462\ in part because the final MDI Rules
will require FINRA to identify and build alternative means for
distributing OTC Equity Data to investors.\463\ The commenter states
that, until the MDI Rules are implemented, the most efficient way to
provide investors with this important information is to include OTC
Equity data together with NMS stock data under the applicable NMS
Plan.\464\ Finally, the commenter states that the 6.25% revenue
allocation is an integral part of the overall revenue allocation
formula and reflects the Commission-approved determination that such
revenue is appropriate, and accordingly recommends that the Commission
retain it in Exhibit D.\465\
---------------------------------------------------------------------------
\459\ See Letter from Marcia E. Asquith, Corporate Secretary,
EVP, Board and External Relations, Financial Industry Regulatory
Authority, Inc., dated May 20, 2024 (``FINRA Letter'') at 2-4.
\460\ See id. at 3.
\461\ The ``MDI Rules'' as used in this order, and as relevant
to this order, are Rules 600, 603, and 614 of Regulation NMS. 17 CFR
242.600, 242.603, 242.614. See also Securities Exchange Act Release
No. 90610 (Dec. 9, 2020), 86 FR 18596 (Apr. 9, 2021) (File No. S7-
03-20) (``MDI Rules Release''); Securities Exchange Act Release No.
90610A (May 24, 2021), 86 FR 29195 (June 1, 2021) (File No. S7-03-
20) (technical correction to MDI Rules Release). Several exchanges
filed petitions for review challenging the MDI Rules in the D.C.
Circuit, which were denied on May 24, 2022. See The Nasdaq Stock
Market LLC, et al. v. SEC, No. 21-1100 (D.C. Cir. May 24, 2022).
\462\ See id.
\463\ See id.
\464\ See id.
\465\ See id. at 2, 4.
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As stated in the Amended Governance Order, the provisions of the
2021 Approval Order that were not challenged--including the 6.25% set-
aside for FINRA--continue to be appropriate for the Proposed CT
Plan.\466\ Separately, the Commission agrees that the provisions of the
Commission's MDI Rules will resolve this issue,\467\ and that when the
Proposed CT Plan becomes the effective NMS plan for dissemination of
equity market data under the MDI Rules, the Proposed CT Plan will no
longer include OTC data within the definition of ``core data,'' and no
revenue allocation of plan revenues for OTC data will be necessary or
appropriate.\468\ Moreover, because the provisions of the Proposed CT
Plan related to the allocation of profits and losses of the Company to
the Members, including those relating to the 6.25% revenue allocation
to FINRA, are consistent with the corresponding provision of the 2021
CT Plan,\469\ it is not necessary to modify the Proposed CT Plan as
suggested by the commenter.
---------------------------------------------------------------------------
\466\ See Amended Governance Order, supra note 23, 88 FR at
61631. See also 2021 Approval Order, supra note 19, 86 FR at 44201-
202.
\467\ See 2021 Approval Order, supra note 19, 86 FR at 44201
(citing Market Data Infrastructure, Securities Exchange Act Release
No. 90610 (Dec. 9, 2020), 86 FR 18596 (File No. S7-03-20) (Final
Rule)).
\468\ See id.
\469\ See 2021 Approval Order, supra note 19, 86 FR at 44224.
---------------------------------------------------------------------------
Separately, one commenter disagrees with the provisions in Exhibit
D relating to revenue sharing, stating that the ``entirety of Exhibit D
revenue sharing scheme is nothing more than SROs meeting behind closed
doors in dividing the cake of SIPs/CC revenue.'' \470\ This commenter
states that costs should be minimized because ``putting data in motion
from one place to another incurs no costs.'' \471\ According to this
commenter, quote and trade distribution should be rewarded differently,
and suggests adopting a format paralleling that of the music
industry.\472\
---------------------------------------------------------------------------
\470\ Data Boiler Letter, supra note 208, at 5.
\471\ Id.
\472\ See id.
---------------------------------------------------------------------------
[[Page 94952]]
In response to the comment that the proposed revenue sharing
arrangement is unjustified, and the suggestion that the format for
quote and trade distribution should parallel that of the music
industry,\473\ it is unclear from the comment how revenue sharing in
one industry may be applicable to the Proposed CT Plan. Furthermore,
the SROs as operators of the SIPs are well suited to determine how the
revenues are distributed among the SROs.\474\
---------------------------------------------------------------------------
\473\ See id.
\474\ See Governance Order, supra note 11, 85 FR at 28728.
---------------------------------------------------------------------------
The provisions of the Proposed CT Plan related to the allocation of
profits and losses of the Company to the Members are identical to those
of the 2021 CT Plan approved by the Commission,\475\ and are consistent
with the requirements of the Amended Governance Order.\476\ For the
reasons discussed above, the Commission is approving Article IX as
proposed.
---------------------------------------------------------------------------
\475\ See 2021 Approval Order, supra note 19, 86 FR at 44200-02,
44224-25.
\476\ See id. at 44224.
---------------------------------------------------------------------------
11. Records and Accounting; Reports
Article X of the Proposed CT Plan sets forth the Company's
obligations and policies related to accounting and tax matters. Article
X, Section 10.1 of the Proposed CT Plan specifies that the Operating
Committee shall determine all matters concerning accounting procedures
of the Company and maintain an accounting system that enables the
Company to produce accounting records and information substantially
consistent with GAAP.\477\ Article X, Section 10.2 of the Proposed CT
Plan specifies that the Company is intended to be treated as a
partnership for federal, state, and local income tax purposes.\478\
Pursuant to this section, all tax returns are required to be prepared
in a manner consistent with the Distributions made in accordance with
Exhibit D to the Proposed CT Plan.\479\ Article X, Section 10.3 of the
Proposed CT Plan sets forth provisions regarding the functions and
duties of an entity appointed as the ``Partnership Representative'' of
the Company as required by the federal tax code.\480\ The Partnership
Representative is required to use reasonable efforts to notify each
Member of all significant matters that may come to its attention and to
forward to each Member copies of all significant written communications
it receives in such capacity.\481\ The Partnership Representative must
also consult with the Members before taking any material actions with
respect to tax matters and must not compromise or settle any tax audit
or litigation affecting the Members without the approval of a majority
of Members.\482\
---------------------------------------------------------------------------
\477\ See Article X, Section 10.1(a) of the Proposed CT Plan.
\478\ See Article X, Section 10.2(a) of the Proposed CT Plan.
\479\ See Article X, Section 10.2(b) of the Proposed CT Plan.
\480\ See Article X, Section 10.3(a) of the Proposed CT Plan.
\481\ See Article X, Section 10.3(b) of the Proposed CT Plan.
\482\ See Article X, Section 10.3(c) of the Proposed CT Plan.
---------------------------------------------------------------------------
Sections 10.1-10.3 are identical to the corresponding provisions of
the 2021 CT Plan approved by the Commission,\483\ and was not required
to be modified by the Amended Governance Order. The Commission received
no comments addressing Article X, and the Commission is approving the
provisions of Article X as proposed.
---------------------------------------------------------------------------
\483\ See 2021 Approval Order, supra note 19, 86 FR at 44202.
---------------------------------------------------------------------------
12. Dissolution and Termination
(a) Dissolution of the Company
Article XI, Section 11.1 of the Proposed CT Plan specifies the
events that would trigger the dissolution of the Company, including:
(i) unanimous written consent of the Members to dissolve the Company;
(ii) the sale or other disposition of all or substantially all the
Company's assets outside the ordinary course of business; (iii) an
event which makes it unlawful or impossible for the Company business to
be continued; (iv) the withdrawal of one or more Members such that
there is only one remaining Member; or (v) the entry of a decree of
judicial dissolution under Section 18-802 of the Delaware Act.\484\
---------------------------------------------------------------------------
\484\ See Article XI, Section 11.1 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 11.1 of the Proposed CT Plan is identical to the
corresponding one in the 2021 CT Plan approved by the Commission \485\
and was not required to be modified by the Amended Governance Order.
The Commission received no comments addressing Section 11.1, and the
Commission is approving this provision of the Proposed CT Plan as
proposed.
---------------------------------------------------------------------------
\485\ See 2021 Approval Order, supra note 19, 86 FR at 44202.
---------------------------------------------------------------------------
(b) Liquidation and Distribution
Article XI, Section 11.2 of the Proposed CT Plan sets forth the
procedures for the liquidation and distribution of assets following the
dissolution of the Company. Specifically, Section 11.2 requires the
Members to appoint a liquidating trustee to wind up the affairs of the
Company by (i) selling its assets in an orderly manner (so as to avoid
the loss normally associated with forced sales), and (ii) applying and
distributing the proceeds of such sale, together with other funds held
by the Company: (a) first, to the payment of all debts and liabilities
of the Company; (b) second, to the establishments of any reserves
reasonably necessary to provide for any contingent recourse liabilities
and obligations; (c) third, to the Members in accordance with Exhibit D
of the Proposed CT Plan; and (d) fourth, to the Members as determined
by a majority of Members.\486\
---------------------------------------------------------------------------
\486\ See Article XI, Section 11.2 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 11.2 of the Proposed CT Plan is identical to the
corresponding provision in the 2021 CT Plan approved by the Commission
\487\ and was not required to be modified by the Amended Governance
Order. The Commission received no comments addressing Section 11.2, and
the Commission is approving Article XI, Section 11.2 of the Proposed CT
Plan as proposed.
---------------------------------------------------------------------------
\487\ See 2021 Approval Order, supra note 19, 86 FR at 44202-03.
---------------------------------------------------------------------------
(c) Termination
Article XI, Section 11.3 of the Proposed CT Plan sets forth
termination procedures following the dissolution of the Company.
Specifically, Section 11.3 provides that each Member will receive a
statement prepared by the independent accountants retained on behalf of
the Company that shall set forth (i) the assets and liabilities of the
Company as of the date of the final distribution of Company's assets
under Section 11.2 of the Proposed CT Plan and (ii) the net profit or
net loss for the fiscal period ending on such date, and upon completion
of the dissolution, winding up, liquidation, and distribution of the
liquidation proceeds, the Company will terminate.\488\ Section 11.3 is
identical to the corresponding provision in the 2021 CT Plan approved
by the Commission \489\ and was not required to be modified by the
Amended Governance Order. The Commission received no comments
addressing this provision, and the Commission is approving Article XI,
Section 11.3 as proposed.
---------------------------------------------------------------------------
\488\ See Article XI, Section 11.3 of the Proposed CT Plan.
\489\ See 2021 Approval Order, supra note 19, 86 FR at 44203.
---------------------------------------------------------------------------
13. Exculpation and Indemnification
(a) Exculpation and Indemnification
Article XII, Sections 12.1 and 12.2 of the Proposed CT Plan provide
broad liability, exculpation, and
[[Page 94953]]
indemnification protections for SROs and Voting Representatives.
Specifically, Section 12.1 provides that the liability of each Member
and each individual currently or formerly serving as an SRO Voting
Representative (each, an ``Exculpated Party'') will be limited to the
maximum extent permitted by applicable law or as otherwise expressly
provided in the Proposed CT Plan ``for any loss suffered in connection
with a breach of any fiduciary duty, errors in judgment or other acts
or omissions by such Exculpated Party.'' Section 12.2 provides
indemnification to current or former SROs and Voting Representatives
(``Company Indemnified Party'') for losses from being a Party to a
Proceeding.
The Commission is making a modification to Section 12.1 to delete
``SRO'' from the term ``SRO Voting Representative,'' as used in this
section. This modification is appropriate because the defined term in
the Proposed CT Plan is ``Voting Representative,'' and not ``SRO Voting
Representative.'' \490\ Aside from the one modification to Section
12.1, the provisions in Sections 12.1 and 12.2. are identical to the
corresponding provisions in the 2021 CT Plan approved by the
Commission,\491\ and were not required to be modified by the Amended
Governance Order. The Commission received no comments addressing
Sections 12.1 and 12.2 of the Proposed CT Plan, and the Commission is
approving Sections 12.1 of the Proposed CT Plan as modified, and 12.2
of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\490\ See Article I, Section 1.1(84) of the Proposed CT Plan
(defining ``Voting Representative'').
\491\ See 2021 Approval Order, supra note 19, 86 FR at 44203-04.
---------------------------------------------------------------------------
(b) Advance Payment
Article XII, Section 12.3 of the Proposed CT Plan provides for the
payment of reasonable expenses incurred by a Company Indemnified Party
who is a named defendant or respondent to a Proceeding, except that
such Company Indemnified Party must repay such amount if it is
ultimately determined that he or she is not entitled to
indemnification.\492\ This provision is identical to the corresponding
provision in the 2021 CT Plan approved by the Commission,\493\ and was
not required to be modified by the Amended Governance Order. The
Commission received no comments on this provision, and the Commission
is approving Section 12.3 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\492\ See Article XII, Section 12.3 of the Proposed CT Plan.
\493\ See 2021 Approval Order, supra note 19, 86 FR at 44204-05.
---------------------------------------------------------------------------
(c) Appearance as a Witness
Article XII, Section 12.4 of the Proposed CT Plan provides for the
payment or reimbursement of reasonable out-of-pocket expenses incurred
by a Company Indemnified Party in connection with appearance as a
witness or other participation in a Proceeding at a time when the
Company Indemnified Party is not a named defendant or respondent in the
Proceeding.\494\ This provision is identical to the corresponding
provision in the 2021 CT Plan approved by the Commission,\495\ and was
not required to be modified by the Amended Governance Order. The
Commission received no comments on this provision, and the Commission
is approving Section 12.4 as proposed.
---------------------------------------------------------------------------
\494\ See Article XII, Section 12.4 of the Proposed CT Plan.
\495\ See 2021 Approval Order, supra note 19, 86 FR at 44205.
---------------------------------------------------------------------------
(d) Nonexclusivity of Rights
Article XII, Section 12.5 of the Proposed CT Plan provides that the
right to indemnification and the advancement and payment of expenses
conferred in Article XII shall not be exclusive of any other right a
Company Indemnified Person may have or hereafter acquire.\496\ This
provision is identical to the corresponding provision in the 2021 CT
Plan approved by the Commission,\497\ and was not required to be
modified by the Amended Governance Order. The Commission received no
comments on Section 12.5, and the Commission is approving this
provision as proposed.
---------------------------------------------------------------------------
\496\ See Article XII, Section 12.5 of the Proposed CT Plan.
\497\ See 2021 Approval Order, supra note 19, 86 FR at 44205.
---------------------------------------------------------------------------
14. Miscellaneous Provisions
Article XIII of the Proposed CT Plan sets forth miscellaneous
provisions governing the Proposed CT Plan.
(a) Expenses
Section 13.1 of the Proposed CT Plan governs the payment of
expenses by the Proposed CT Plan and requires that all such expenses be
paid before any allocations may be made to the Members.\498\ Section
13.1 further provides that Members will be responsible for reserves for
contingent liabilities and that each Member shall be responsible for
the costs of any technical enhancements ``made at its request and
solely for its use,'' unless another Member subsequently makes use of
the enhancement.\499\ This provision is identical to the corresponding
provision in the 2021 CT Plan approved by the Commission,\500\ and was
not required to be modified by the Amended Governance Order. The
Commission received no comments on Section 13.1, and the Commission is
approving Section 13.1 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\498\ See Article XIII, Section 13.1 of the Proposed CT Plan.
\499\ See id.
\500\ See 2021 Approval Order, supra note 19, 86 FR at 44205.
---------------------------------------------------------------------------
(b) Entire Agreement
Section 13.2 provides that the Proposed CT Plan will supersede the
existing Equity Data Plans and all other prior agreements with respect
to consolidated equity market data. The provision is identical to the
corresponding provision in the 2021 CT Plan approved by the
Commission,\501\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments on Section 13.2,
and the Commission is approving Section 13.2 of the Proposed CT Plan as
proposed.
---------------------------------------------------------------------------
\501\ See id.
---------------------------------------------------------------------------
(c) Notices and Addresses
Section 13.3 of the Proposed CT Plan provides that all
communications must be written and sets forth the permissible methods
of delivery.\502\ This provision is identical to the corresponding
provision in the 2021 CT Plan approved by the Commission,\503\ and was
not required to be modified by the Amended Governance Order. The
Commission received no comments on Section 13.3, and Commission is
approving Section 13.3 of the Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\502\ See Article XIII, Section 13.3 of the Proposed CT Plan. As
proposed, Section 13.3 also states the effective dates for
communications under this section. See id.
\503\ See 2021 Approval Order, supra note 19, 86 FR at 44206.
---------------------------------------------------------------------------
(d) Governing Law
Section 13.4 of the Proposed CT Plan provides that Delaware law
will be the governing law for the Proposed CT Plan. Specifically, the
Proposed CT Plan states that the Agreement will be ``governed by and
construed in accordance with the Delaware Act and internal laws and
decisions of the State of Delaware, without regard to the conflicts of
laws principles thereof'' but will also be subject to ``any applicable
provisions of the Exchange Act and any
[[Page 94954]]
rules and regulations promulgated thereunder.'' \504\
---------------------------------------------------------------------------
\504\ See Article XIII, Section 13.4 of the Proposed CT Plan.
---------------------------------------------------------------------------
Section 13.4 of the Proposed CT Plan is identical to the
corresponding provision in the 2021 CT Plan approved by the
Commission,\505\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments addressing
Section 13.4, and the Commission is approving Section 13.4 of the
Proposed CT Plan as proposed.
---------------------------------------------------------------------------
\505\ See 2021 Approval Order, supra note 19, 86 FR at 44206.
---------------------------------------------------------------------------
(e) Amendments
Section 13.5 of the Proposed CT Plan governs amendments to the
Proposed CT Plan. Paragraph (a) of Section 13.5 states that the
Proposed CT Plan may be modified when authorized by the Operating
Committee pursuant to Section 4.3, subject to the requirements of
section 11A of the Exchange Act and Rule 608 of Regulation NMS.
Paragraph (b) of Section 13.5 sets forth the process for
Ministerial Amendments, in which the Chair of the Operating Committee
may modify the Proposed CT Plan by filing an amendment with the
Commission unilaterally, so long as the required 48-hours advance
written notice is provided to the Operating Committee. Paragraph (c) of
Section 13.5 defines the term, ``Ministerial Amendment'' to include,
among other things, an amendment to the Proposed CT Plan pertaining to
``incorporating a change (A) that a Governmental Authority requires
relating to the governance or operation of an LLC, (B) that requires
conforming language to the text of this Agreement, and (C) whose
conforming language to the text of this Agreement has been approved by
the affirmative vote of the Operating Committee pursuant to Section 4.3
or upon approval by a majority of Members pursuant to Section 13.5(b),
as applicable.'' \506\
---------------------------------------------------------------------------
\506\ See Article XIII, Section 13.5(c)(v) of the Proposed CT
Plan (emphasis added).
---------------------------------------------------------------------------
The Commission is modifying paragraph (v) of Section 13.5(c) to
delete the language that reads, ``or upon approval by a majority of the
Members pursuant to Section 13.5(b), as applicable.'' \507\ This
modification is appropriate because the language is textually unclear.
Moreover, the Commission's modification is appropriate to conform this
provision with Section 4.3 of the Proposed CT Plan governing action by
the Operating Committee, which provides for voting by SRO group or Non-
Affiliated SRO, rather than by the ``Members'' of the Plan (which would
be each of the individual SROs), as proposed.\508\ And this would be
the case whether the action in question requires the affirmative vote
of two-thirds, or a simple majority of the votes allocated to the
Operating Committee.\509\ As modified, Section 13.5 of the Proposed CT
Plan is identical to the corresponding provision in the 2021 CT Plan
approved by the Commission,\510\ and was not required to be modified by
the Amended Governance Order. The Commission received no comments on
this provision, and the Commission is approving Section 13.5 of the
Proposed CT Plan as modified.
---------------------------------------------------------------------------
\507\ See id. In the 2021 Approval Order, the Commission
modified renumbered paragraph (v) of Section 13.5(c) of the plan to
delete substantively similar language. See 2021 Approval Order,
supra note 19, 86 FR at 44206.
\508\ See Article XIII, Section 13.5(c)(v) of the Proposed CT
Plan.
\509\ See Article IV, Section 4.3 of the Proposed CT Plan.
\510\ See 2021 Approval Order, supra note 19, 86 FR at 44206.
---------------------------------------------------------------------------
(f) Successors
Section 13.6 of the Proposed CT Plan provides that the Proposed CT
Plan shall bind and inure ``to the benefit of the Members and their
respective legal representatives and successors.'' \511\ The provision
is identical to the corresponding provision in the 2021 CT Plan
approved by the Commission,\512\ and was not required to be modified by
the Amended Governance Order. The Commission received no comments on
Section 13.6, and the Commission is approving the provision as
proposed.
---------------------------------------------------------------------------
\511\ See Article XIII, Section 13.6 of the Proposed CT Plan.
\512\ See 2021 Approval Order, supra note 19, 86 FR at 44206.
---------------------------------------------------------------------------
(g) Limitation on Rights of Others
Section 13.7 of the Proposed CT Plan provides that the Proposed CT
Plan shall not be for the benefit of or enforceable by any creditor of
the Proposed CT Plan and shall not create any legal rights, remedies,
or claims.\513\ The provision is identical to the corresponding
provision in the 2021 CT Plan approved by the Commission,\514\ and was
not required to be modified by the Amended Governance Order. The
Commission received no comments on Section 13.7, and the Commission is
approving the provision as proposed.
---------------------------------------------------------------------------
\513\ See Article XIII, Section 13.7 of the Proposed CT Plan.
Section 13.7 further provides that ``except as provided in Section
3.7(b), the Members shall not have any duty or obligation to any
creditor of the Company to make any contribution to the Company or
to issue any call for capital pursuant to this Agreement.'' See id.
\514\ See 2021 Approval Order, supra note 19, 86 FR at 44206.
---------------------------------------------------------------------------
(h) Counterparts
Article XIII, Section 13.8 of the Proposed CT Plan provides that
the Members to the Proposed CT Plan may execute the Proposed CT Plan
individually in ``any number of counterparts,'' no one of which need
contain the signature of all Members.\515\ Section 13.8 further
provides that, as many counterparts as shall together contain all such
signatures shall constitute one and the same instrument.\516\
---------------------------------------------------------------------------
\515\ See Article XIII, Section 13.8 of the Proposed CT Plan.
\516\ See id.
---------------------------------------------------------------------------
Section 13.8 is identical to the corresponding provision in the
2021 CT Plan approved by the Commission,\517\ and was not required to
be modified by the Amended Governance Order. The Commission received no
comments on Section 13.8, and the Commission is approving the provision
as proposed.
---------------------------------------------------------------------------
\517\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
---------------------------------------------------------------------------
(i) Headings
Section 13.9 of the Proposed CT Plan provides that CT Plan headings
are for ``reference purposes only and shall not be deemed to be a part
of this Agreement or to affect the meaning or interpretation of any
provisions of this Agreement.'' \518\ The provision is identical to the
corresponding provision in the 2021 CT Plan approved by the
Commission,\519\ and was not required to be modified by Amended
Governance Order. The Commission received no comments on Section 13.9,
and the Commission is approving the provision as proposed.
---------------------------------------------------------------------------
\518\ See Article XIII, Section 13.9 of the Proposed CT Plan.
\519\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
---------------------------------------------------------------------------
(j) Validity and Severability
Section 13.10 of the Proposed CT Plan provides that any
determination that any provision of the Proposed CT Plan is invalid or
unenforceable shall not affect the validity or enforceability of any
other provisions of the Proposed CT Plan, all of which shall remain in
full force and effect.\520\ Section 13.10 is identical to the
corresponding provision in the 2021 CT Plan approved by the
Commission,\521\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments on Section 13.10,
[[Page 94955]]
and the Commission is approving the provision as proposed.
---------------------------------------------------------------------------
\520\ See Article XIII, Section 13.10 of the Proposed CT Plan.
\521\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
---------------------------------------------------------------------------
(k) Statutory References
Article XIII, Section 13.11 of the Proposed CT Plan provides that
the references in the Proposed CT Plan to a particular statute or
regulation, or a provision thereof, ``shall be deemed to refer to such
statute or regulation, or provision thereof, or to any similar or
superseding statute or regulation, or provision thereof, as is from
time to time in effect.'' \522\ Section 13.11 is identical to the
corresponding provision in the 2021 CT Plan approved by the
Commission,\523\ and was not required to be modified by the Amended
Governance Order. The Commission received no comments on Section 13.11,
and the Commission is approving the provision as proposed.
---------------------------------------------------------------------------
\522\ See Article XIII, Section 13.11 of the Proposed CT Plan.
\523\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
---------------------------------------------------------------------------
(l) Modifications To Be in Writing
Article XIII, Section 13.12 of the Proposed CT Plan provides that
the Proposed CT Plan constitutes the entire understanding of its
parties, and that any amendment, modification, or alteration of the
Proposed CT Plan must in writing and must be adopted in accordance with
the provisions of Section 13.5.\524\ Section 13.12 is identical to the
corresponding provision in the 2021 CT Plan approved by the Commission
\525\ and was not required to be modified by the Amended Governance
Order. The Commission received no comments on Section 13.12, and the
Commission is approving the provision as proposed.
---------------------------------------------------------------------------
\524\ See Article XIII, Section 13.12 of the Proposed CT Plan.
\525\ See 2021 Approval Order, supra note 19, 86 FR at 44207.
---------------------------------------------------------------------------
15. Implementation
Article XIV of the Proposed CT Plan governs the proposed schedule
for implementation of the Proposed CT Plan.
(a) Implementation Timeline
Section 14.1 provides that the steps to implement the Proposed CT
Plan, and the timelines for completing these various steps, are set
forth in Exhibit F.\526\ The proposed timelines would begin when the
Proposed CT Plan is approved by the Commission and that approval is
published on the Commission's website.\527\ Section 14.1 further
provides (1) that the steps to implement the plan have been organized
into multiple workstreams, some of which can be performed in parallel,
and others which have dependencies that need to be completed before
they can begin, and (2) that, in Exhibit F to the Proposed CT Plan, the
Company has identified such dependencies, some of which are outside the
control of the Operating Committee.\528\
---------------------------------------------------------------------------
\526\ See Article XIV, Section 14.1 of the Proposed CT Plan.
\527\ See id.
\528\ See id.
---------------------------------------------------------------------------
Furthermore, as proposed, Section 14.1 provides that, in the event
a workstream listed in Exhibit F takes shorter or, due to factors
outside the Operating Committee's reasonable control, takes longer than
expected, the timelines for contingent steps will be adjusted
accordingly to account for such change.\529\ As proposed in this
section, any lengthening of the timeline would require the affirmative
vote of the Operating Committee, and must be based on a reasonable
determination that the timeline needs to be extended.\530\ Finally, as
proposed, this section provides that, in such instances, the Operating
Committee would be required to include any adjustment in its written
progress report to the Commission in accordance with Section 14.2 of
the Proposed CT Plan.
---------------------------------------------------------------------------
\529\ See id.
\530\ See id.
---------------------------------------------------------------------------
In the OIP, the Commission sought comment on the proposed
implementation timeline, including, among other things, (1) whether any
elements of the proposed timeline should be shortened to ensure that
implementation of the Proposed CT Plan can be achieved within a
reasonable time, (2) whether the proposed implementation schedule's
dependencies--the steps that need to be completed before other steps
can begin--are justified or otherwise reasonable, and (3) whether
certain dependencies could be removed or modified to accelerate
implementation of the Proposed CT Plan.\531\ Finally, the Commission
sought comment on (1) whether the Commission should modify the Proposed
CT Plan to allow the Operating Committee to appoint one or more of the
current Equity Data Plan administrators to serve as interim
Administrator for the Proposed CT Plan pending the selection and
onboarding of a permanent independent Administrator that meets the
Amended Governance Order's requirements for the independent plan
Administrator, (2) the advantages or disadvantages associated with
appointing such an interim Administrator, (3) how an interim
Administrator might affect the implementation schedule for the Proposed
CT Plan, and (4) whether, and, if so, how, the implementation schedule
should be modified, were the Commission to modify the Proposed CT Plan
to permit the appointment of such an interim Administrator.\532\
---------------------------------------------------------------------------
\531\ See OIP, supra note 6, 89 FR at 33413.
\532\ See id.
---------------------------------------------------------------------------
One commenter states that the Commission should consider measures
to address unwarranted delays because the proposed timeline could be
lengthened by a vote of the Operating Committee.\533\ Another commenter
states that the provision allowing the Operating Committee to extend
the proposed timeline is a potential source of delay and an aspect of
the Proposed CT Plan that ``leaves much to be desired.'' \534\ This
commenter states that the Commission should take all necessary steps to
ensure that the Proposed CT Plan is implemented as expeditiously as
possible.\535\
---------------------------------------------------------------------------
\533\ See ICI Letter, supra note 109, at 3-4.
\534\ MEMX Letter, supra note 109, at 5-7.
\535\ See id.
---------------------------------------------------------------------------
The Commission agrees that it is not appropriate for the Operating
Committee of the Proposed CT Plan to be able to unilaterally modify the
timeline for implementation by the affirmative vote of the Operating
Committee, without being required to file a proposed amendment with the
Commission. Such a provision could permit the implementation deadlines
to be delayed indefinitely without a clear mechanism for enforcement of
the implementation schedule. Accordingly, it is appropriate to modify
the Proposed CT Plan to remove from proposed Section 14.1 of the
Proposed CT Plan the ability of the Operating Committee to unilaterally
extend the implementation timeline.\536\ The removal of this provision,
however, would still permit the Operating Committee to file an
amendment to the Plan with the Commission pursuant to Rule 608 of
Regulation NMS or to otherwise seek exemptive relief from the
Commission to extend any of the implementation deadlines.
---------------------------------------------------------------------------
\536\ See Article XIV, Section 14.1 of the Proposed CT Plan (as
approved).
---------------------------------------------------------------------------
Additionally, as discussed below, the Commission is substantially
simplifying the implementation schedule by setting deadlines for the
most significant milestones, rather than for each step of the
implementation schedule, thereby reducing the likelihood that the SROs
would not be able to comply with the implementation schedule in the
event of delays in the completion of any of the over 30 discrete
activities that were set
[[Page 94956]]
forth in the Proposed CT Plan's implementation schedule. This
modification is appropriate because it balances the need to provide a
mechanism for adjusting the established implementation deadlines in the
event of delay with the important goal of facilitating the timely
implementation of the Proposed CT Plan, which is ``critical to reducing
existing redundancies, inefficiencies, and inconsistencies in the
current Equity Data Plans and to modernizing plan governance.'' \537\
---------------------------------------------------------------------------
\537\ See 2021 Approval Order, supra note 19, 86 FR 44145-46
(citing Governance Order, supra note 11, 85 FR at 28703-05, 28711).
---------------------------------------------------------------------------
One commenter supports laying out a detailed transition plan as
proposed, and offers two suggestions for improving the proposed
transition schedule.\538\ First, this commenter supports progressing
Workstream 2 (establishing fees, policies, and data subscriber
agreements) in parallel with selecting and negotiating the contract
with the independent administrator (Workstreams 3 and 4).\539\ Second,
the commenter states that Workstreams 5.3, 5.5, 5.6, and 5.7
(concerning customers transition from the legacy plans to the Proposed
CT Plan) could be completed in fewer than the proposed ten months, and
in as little as six months.\540\ One commenter states that all items in
Workstream 2 (establishing fees, polices, data subscriber agreements)
should not have to be completed as a condition to beginning work on
Workstream 5 (independent administrator commences operations).\541\
---------------------------------------------------------------------------
\538\ See dataBP Letter, supra note 392, at 3-4.
\539\ See id.
\540\ See id.
\541\ See id.
---------------------------------------------------------------------------
One commenter states that the proposed 30-month implementation
period is too long,\542\ and that the Commission should not ``wait for
all reforms to be ready before any could be implemented.'' \543\ This
commenter states that merely setting an earlier deadline or reducing
the timeframe for completing workstreams, however, would be
insufficient given the potential sources of delay described by the
SROs.\544\ According to the commenter, making the Operative Date
contingent on the completion of all workstreams in Exhibit F, as
proposed, would incentivize the three SRO groups to create gridlock in
the voting process and remain responsible for the dissemination of
consolidated market data through the current Equity Data Plans.\545\
This commenter states that because ``the selection and onboarding of
the independent Administrator is responsible for the lion's share of
the 30-month implementation period,'' the Commission should amend the
Proposed CT Plan ``to allow the Operating Committee to select one of
the two current Administrators of the Equity Data Plans as interim
Administrator until such time as the Operating Committee selects and
onboards a new Administrator that meets the Plans requirements for
independence.'' \546\ This amendment, the commenter states, ``would
allow the Plan to become operative while the Operating Committee works
towards full implementation of all required Plan elements.'' \547\
Another commenter states that making the Service Level Agreement
(``SLA'') terms part of the selection process could reduce the time for
contract negotiations with the new Administrator from 4 months to 2
months.\548\
---------------------------------------------------------------------------
\542\ See MEMX Letter, supra note 109, at 6.
\543\ See id. at 6, 9.
\544\ See id. at 6.
\545\ See id. at 9-10.
\546\ Id. at 7-8.
\547\ Id. at 9.
\548\ See SIFMA Letter, supra note 109, at 3.
---------------------------------------------------------------------------
The Commission recognizes the challenges associated with completing
the actions required for implementation of the Proposed CT Plan and the
complexity of the endeavor, as illustrated by Exhibit F to the Proposed
CT Plan. And while setting enforceable deadlines for the implementation
of the Proposed CT Plan is necessary for the timely achievement of the
Operative Date, setting enforceable deadlines for each of the 30
individual tasks specified in Exhibit F is impracticable because the
failure of the Operating Committee to meet the deadline for any of
those tasks--whether or not the specific deadline was critical to the
timely implementation of the Proposed CT Plan--would require the
Operating Committee either to file a proposed amendment with the
Commission to modify the implementation schedule or to seek exemptive
relief from the Commission. Instead, the detailed project-management
information outlined in Exhibit F would be appropriate for, and should
be included in, the written progress reports required by Section 14.2
of the Proposed CT Plan, because including such detail in the written
progress reports would provide transparency to the Commission and to
market participants about the progress of implementation without
requiring that any delay in the completion of a subtask creates the
need for a proposed plan amendment or a request for exemptive relief
from the Commission.
Accordingly, the Commission is not adopting the commenters'
suggestions with respect to modifying or otherwise reconfiguring the
workstreams proposed in Exhibit F. Instead, the Commission is deleting
Exhibit F in its entirety and is replacing the text of Section 14.1
with a series of fixed deadlines for high-level milestones along the
implementation timelines. The Commission recognizes that the SROs have
extensive experience in operating the existing Equity Data Plans, and
that they can draw on that experience to develop internal workstreams
reasonably suited to help ensure the timely completion of the specific
actions needed to implement the Proposed CT Plan within the deadlines
specified in Section 14.1 as modified and approved by the Commission.
The modification is appropriate because it strikes a balance between
helping to ensure that implementation proceeds in a timely manner while
providing for flexibility in the scheduling of individual
implementation tasks.
Accordingly, having considered the implementation schedule in
Section 14.1 and Exhibit F of the Proposed CT Plan, the Commission is
replacing Section 14.1 of the Proposed CT Plan as proposed with a
series of deadlines for specific milestones in the implementation of
the Proposed CT Plan.
First, new paragraph 14.1(a) provides that, no later than one month
after the Effective Date, the Voting Representatives shall be
determined pursuant to Section 4.2 of the Proposed CT Plan.\549\ This
timeframe is the same as proposed by the SROs in Exhibit F, Workstream
1, and therefore does not represent, in and of itself, a substantive
modification of the Proposed CT Plan as proposed.\550\ Moreover, the
SROs, who have already selected their representatives to the operating
committees of the existing Equity Data Plans, and who have extensive
experience in doing so, should be able to select their Voting
Representatives to the Operating Committee within the timeframe
provided.
---------------------------------------------------------------------------
\549\ See Article XIV, Section 14.1(b) of the Proposed CT Plan
(as approved).
\550\ See Exhibit F to the Proposed CT Plan (as proposed).
---------------------------------------------------------------------------
Second, new paragraph 14.1(b) provides that, that no later than
three months after the Effective Date, the Voting Representatives shall
select the members of the Advisory Committee.\551\ This three month
timeframe is the same as proposed by the SROs in Exhibit F,
[[Page 94957]]
Workstream 1.\552\ Moreover, the SROs have extensive experience in
selecting members of the advisory committee of the Equity Data Plans
such that they should be able to finalize all actions to select members
of the Advisory Committee within the timeframe provided.\553\
---------------------------------------------------------------------------
\551\ See Article XIV, Section 14.1(c) of the Proposed CT Plan
(as approved).
\552\ See Exhibit F to the Proposed CT Plan; Notice, supra note
4, 89 FR at 5026-29.
\553\ See, e.g., Section III(e)(ii) of the CTA Plan; Section
IV.E.(b) of the UTP Plan.
---------------------------------------------------------------------------
Third, new paragraph 14.1(c) provides that, no later than 12 months
after the Effective Date, the Operating Committee shall file with the
Commission proposed Fees charged to Vendors and Subscribers for
Transaction Reports and Quotation Information in Eligible
Securities.\554\ This 12-month timeframe is the same as proposed by the
SROs in Exhibit F, Workstream 1.\555\ Moreover, given the importance of
market data fees to both SROs and other market participants, the
determination of Proposed CT Plan fees will be a critical priority for
both SROs and members of the Advisory Committee. As stated in the 2021
Approval Order, ``[a]ssessing fees to subscribers for access to the SIP
data is one of the fundamental responsibilities of the Operating
Committee and one of the issues most consequential to both SROs and
other market participants.'' \556\ Additionally, through its extensive
experience overseeing the Equity Data Plans and the national market
system, the Commission has observed that the SROs have detailed and
substantial pre-existing knowledge and experience with the content and
pricing of the equity data products that are disseminated under the
current centralized SIP model.
---------------------------------------------------------------------------
\554\ See Article XIV, Section 14.1(d) of the Proposed CT Plan
(as approved).
\555\ See Exhibit F to the Proposed CT Plan; Notice, supra note
4, 89 FR at 5026-29.
\556\ 2021 Approval Order, supra note 19, 86 FR at 44148.
---------------------------------------------------------------------------
The Commission received several comments addressing the substance
of the fee amendment required to be filed by the Proposed CT Plan.\557\
One commenter states that the Commission should ensure that the fees
proposed for the Proposed CT Plan are fair and reasonable.\558\ This
commenter states that the Commission should encourage the Proposed CT
Plan to evaluate new or alternative fee models for consolidated equity
market data.\559\ According to this commenter, data costs are currently
charged to retail customers on a per investor basis (based on whether
they are acting in a non-professional or professional capacity) and to
broker-dealers via a myriad of additional fees (e.g., display fees,
non-display fees, access fees, etc.) for use of this exact same
data.\560\ The commenter states that this ``complex and often opaque
pricing model is completely inconsistent with the cost to the SROs to
produce the data (which does not scale on a per investor basis) and is
highly biased towards the retail investor.'' \561\
---------------------------------------------------------------------------
\557\ See Workstream 2 (``New Fees, Policies, and Data
Subscriber Agreements'') of proposed Exhibit F to the Proposed CT
Plan.
\558\ See Fidelity Letter, supra note 80, at 4-5.
\559\ See id.
\560\ See id.
\561\ Id.
---------------------------------------------------------------------------
The Commission received comments expressing concern about the fees
required to be proposed for the Proposed CT Plan, as well as suggesting
that the Commission clarify regulatory standards or encourage
alternative models for such fee-related filings in the Proposed CT
Plan.\562\ With respect to the development of fees for equity market
data to be disseminated by the Proposed CT Plan more broadly, Article
IV, Section 4.1 of the Proposed CT Plan charges the Operating Committee
with ``developing fair and reasonable fees for equity market data,'' as
well as with ``assessing the marketplace for equity data products and
ensuring that CT Plan feeds are priced in a manner that is fair and
reasonable, and designed to ensure the widespread availability of CT
Feeds data to investors and market participants.'' \563\ And fees for
data under the Proposed CT Plan will be established at a later date as
proposed amendments, and any such fees will be assessed against the
statutory and regulatory standards that apply to fees proposed by the
effective national market system plan(s), including Sections
11A(c)(1)(D) of the Exchange Act \564\ and Rule 603(a) under Regulation
NMS.\565\ The proposed fees must be fair and reasonable.\566\ They must
also be filed with the Commission pursuant to Rule 608 \567\ and would
be published for public comment and thereafter must be approved by the
Commission before becoming effective. Therefore, the requirement that
fees be fair and reasonable need not be restated or otherwise clarified
in the Proposed CT Plan.
---------------------------------------------------------------------------
\562\ See id.; Polygon Letter, supra note 82, at 1.
\563\ See Article IV, Section 4.1(a)(iii) and (a)(v) of the
Proposed CT Plan (as approved).
\564\ 15 U.S.C. 78k-1(c)(1)(D).
\565\ 17 CFR 242.603(a).
\566\ 17 CFR 242.603(a)(1).
\567\ 17 CFR 242.608.
---------------------------------------------------------------------------
Fourth, new paragraph Section 14.1(d) would require that, no later
than 30 months after the Effective Date, or no later than 90 days after
the Commission has approved Fees charged to Vendors and Subscribers for
Transaction Reports and Quotation Information in Eligible Securities,
whichever date is later, the Proposed CT Plan shall conduct the
Processor and Administrator functions related to the public
dissemination of real-time consolidated Transaction Reports and
Quotation Information for Eligible Securities. The 30-month timeframe
is the same as proposed by the SROs in Exhibit F, Workstream 1,\568\
and the text of this new paragraph further recognizes that approval of
fees by the Commission is a necessary step toward implementation of the
Proposed CT Plan. Providing a minimum of 90 days after Commission
approval of the required fees is appropriate because the provision
could not serve to shorten the 30-month provision for implementing the
other aspects of the Proposed CT Plan and because, once implementation
of those other aspects is complete, 90 days' notice should be
sufficient notice to market participants of the upcoming change in the
dissemination of consolidated market data. Additionally, the Commission
is modifying the Proposed CT Plan to permit the Operating Committee to
appoint one or more of the current Equity Data Plan administrators to
serve as Interim Administrator(s) pending the selection and onboarding
of the Administrator, which, because the selection process for the
Administrator would take 26 of the 30-months in total required for the
Proposed CT Plan to become operative, should reduce the likelihood that
the process to select and onboard the independent Administrator would
delay the Operative Date.
---------------------------------------------------------------------------
\568\ See Exhibit F to the Proposed CT Plan; Notice, supra note
4, 89 FR at 5026-29.
---------------------------------------------------------------------------
Fifth, new paragraph 14.1(e) would provide that, no later than 30
months after the Effective Date, the Administrator of the Proposed CT
Plan, consistent with the provisions of Section 6.2 and Section 6.4 of
the Proposed CT Plan, shall be selected. This modification, in
conjunction with the modification to the Proposed CT Plan to add new
Section 6.5 (Interim Administrator(s)), is appropriate to facilitate
the full and timely implementation of the Proposed CT Plan by
permitting crucial reforms to the governance of the NMS plans for
consolidated equity market data without delaying the process until the
lengthiest implementation component can be completed.
Several commenters support close Commission oversight of the
Proposed
[[Page 94958]]
CT Plan implementation process.\569\ One commenter states that,
consistent with Rule 608, the Commission needs to have strong oversight
over the implementation process for the Proposed CT Plan because the
SROs have resisted changes to the Equity Data Plans, and the Proposed
CT Plan does not include financial penalties if the SROs'
implementation of the Proposed CT Plan does not proceed as
anticipated.\570\ Another commenter states that the Commission should
assert ``special oversight'' over the process, and urges the Commission
to hold member SROs more accountable.\571\ Another commenter states
that the Commission should focus on robust oversight of the Operating
Committee to ensure that the Proposed CT Plan is implemented as
expeditiously as possible.
---------------------------------------------------------------------------
\569\ See Fidelity Letter, supra note 80, at 4; ICI Letter,
supra note 109, at 3-4; Polygon Letter, supra note 82, at 2; SIFMA
Letter, supra note 109, at 4; MEMX Letter, supra note 109, at 7.
\570\ See Fidelity Letter, supra note 80, at 3-4.
\571\ Polygon Letter, supra note 82, at 2.
---------------------------------------------------------------------------
With respect to the comment suggesting that the Commission should
exercise special or strong oversight over the Proposed CT Plan's
implementation process, as well as the comment stating that the
Proposed CT Plan does not provide for financial penalties in the event
implementation of the plan does not proceed as anticipated, the
modifications discussed above enhance the Commission's oversight over
the implementation process by removing the ability of the Operating
Committee to unilaterally extend the implementation timeline and by
providing enforceable deadlines for the achievement of key milestones
in the process. Additionally, the written progress reports required by
Section 14.2 of the Proposed CT Plan will assist with the Commission's
oversight of the plan and its requirements, including oversight of the
progress made toward completing each of the steps required to implement
the Proposed CT Plan. The written reports will also be available to the
Equity Data Plans' websites, which should provide sufficient
transparency and accountability with respect to implementation progress
of the Proposed CT Plan.
For the foregoing reasons, the Commission is approving Section 14.1
of the Proposed CT Plan as modified.
(b) Written Progress Reports
Section 14.2 of the Proposed CT Plan sets forth requirements for
certain written reports to the Commission.\572\ Specifically, Section
14.2(a) provides that beginning three months after the formation of the
Operating Committee and continuing every three months until the
Operative Date, the Operating Committee will provide written progress
reports to the Commission.\573\ Section 14.2(b) provides that such
written progress reports will contain the actions undertaken to date by
the Operating Committee and a detailed description of the progress made
toward completing each of the steps listed in Exhibit F to the Proposed
CT Plan.\574\ Finally, this section requires that the Operating
Committee make such progress reports available on the CQ Plan and CTA
Plan's and UTP Plan's websites, and on the Proposed CT Plan's website,
when available after the selection of the Administrator.\575\
---------------------------------------------------------------------------
\572\ See Article XIV, Section 14.2 of the Proposed CT Plan.
\573\ See Article XIV, Section 14.2(a) of the Proposed CT Plan.
\574\ See Notice, supra note 4, 89 FR at 5027-29 (Exhibit F of
the Proposed CT Plan).
\575\ See Article XIV, Section 14.2(b) of the Proposed CT Plan.
---------------------------------------------------------------------------
One commenter supports the requirement that the Proposed CT Plan
Operating Committee provide written progress reports to the Commission
every three months, beginning from the formation of the Operating
Committee until the Operative Date.\576\ This commenter also supports
the requirement to publish the required progress reports on plan
websites, including those of the Equity Data Plans.\577\ Another
commenter suggests making clear that progress reports provided to the
Commission under this section are also required to be made publicly
available at the same time as reports are provided to the
Commission.\578\ One commenter states that the Commission should
closely monitor the Operating Committee's progress, including carefully
reviewing the public written progress reports that must be submitted to
the Commission.\579\ Another commenter supports greater transparency
during implementation of the Proposed CT Plan.\580\ One commenter
states that Section 14.2 should be revised to clarify that posting of
progress reports on the Equity Data Plans' websites must occur prior to
the selection of the independent administrator, rather than after a new
administrator is selected, as proposed, so as to avoid unnecessary
delay and ensure that this provision is consistent with the Amended
Governance Order.\581\
---------------------------------------------------------------------------
\576\ See Fidelity Letter, supra note 80, at 4.
\577\ See id.
\578\ See SIFMA Letter, supra note 109, at 3.
\579\ See ICI Letter, supra note 109, at 3-4.
\580\ See Polygon Letter, supra note 82, at 2.
\581\ See ICI Letter, supra note 109, at 3, n.12.
---------------------------------------------------------------------------
The Commission agrees that ensuring transparency with respect to
the progress made to implement the Proposed CT Plan will be helpful to
market participants because such reports provide market participants
visibility into the actions undertaken and the progress made toward
completing each of the actions required for implementation of the
Proposed CT Plan.\582\ For the reasons set out in the 2021 Approval
Order, the required frequency of the progress reports, one report every
three months, should be sufficient to identify for the Commission any
significant delays in implementation without imposing unnecessary
burdens on efforts to implement the Proposed CT Plan.\583\
---------------------------------------------------------------------------
\582\ See 2021 Approval Order, supra note 19, 86 FR at 44149
(``The requirement to provide progress reports in writing to the
Commission on a quarterly basis and to make them publicly available
is designed to help ensure that affected market participants are
informed about the status of the steps that are taken to implement
the CT Plan within the prescribed time periods. Providing periodic
updates to the Commission should also facilitate holding the
Operating Committee accountable for its progress in completing the
interim steps towards satisfying the longer-range requirements.'').
\583\ See id. (``The Commission believes that this requirement
should not be overly burdensome to the Operating Committee or
distract from its performance of the specified actions required by
the CT Plan, because the quarterly reports would essentially reflect
the analysis the Operating Committee would need to undertake in any
event for its diligent oversight of the implementation process.'').
---------------------------------------------------------------------------
The Commission agrees with commenters, however, that Section 14.2
should be clearer with respect to requirements governing the
publication of progress reports.\584\ The Commission is therefore
modifying Section 14.2 to clarify that publication of the required
progress reports must be promptly made on the CTA Plan, the CQ Plan,
and the UTP Plan websites ``until such time as the Plan's website
becomes available.'' This modification is appropriate to provide
greater clarity with respect to requirements for publication of the
required progress reports, including those concerning their timing.
Requiring that such progress reports be made promptly available to the
public on plan websites, as modified, is appropriate to help ensure
that affected market participants are timely informed regarding the
filing of such reports.
---------------------------------------------------------------------------
\584\ See ICI Letter, supra note 109, at 3, n.12.
---------------------------------------------------------------------------
The Commission agrees that close monitoring of progress towards the
implementation of the Proposed CT Plan will be important.\585\ The
[[Page 94959]]
requirement to provide progress reports in writing to the Commission on
a quarterly basis and to make them publicly available is designed to
not only help ensure that affected market participants are informed
about the status of the steps that are taken to implement the Proposed
CT Plan within the prescribed time periods, but also to provide the
Commission with periodic updates, which should facilitate holding the
Operating Committee accountable for its progress in completing the
interim steps towards satisfying the longer-range requirements. As
discussed above, the required frequency of the progress reports should
be sufficient to identify for the Commission any significant delays in
implementation without imposing unnecessary burdens on efforts to
implement the Proposed CT Plan.\586\ Thus, the required quarterly
progress reports and the involvement of the Operating Committee, as
well as of members of the Advisory Committee, should be sufficient to
help ensure timely implementation of the Proposed CT Plan.
---------------------------------------------------------------------------
\585\ See id. at 3-4.
\586\ See 2021 Approval Order, supra note 19, 86 FR at 44149
(``The Commission believes that this requirement should not be
overly burdensome to the Operating Committee or distract from its
performance of the specified actions required by the CT Plan,
because the quarterly reports would essentially reflect the analysis
the Operating Committee would need to undertake in any event for its
diligent oversight of the implementation process.'').
---------------------------------------------------------------------------
Finally, the Commission is modifying Section 14.2(b) to replace the
phrase ``steps listed in Exhibit F'' with the phrase ``steps required
to implement the Plan.'' This modification is appropriate to conform
Section 14.2(b) with Commission modifications to Section XIV of the
Proposed CT Plan governing its implementation.
For the foregoing reasons, the Commission is approving Section 14.2
as modified.
(c) Transition From CQ Plan, CTA Plan, and UTP Plan
Article XIV, Section 14.3 of the Proposed CT Plan addresses the
transition from the current Equity Data Plans to the Proposed CT Plan.
Section 14.3(a) provides that until the Operative Date, the Members
will continue to operate pursuant to the CQ Plan, CTA Plan, and UTP
Plan with respect to the public dissemination of real-time consolidated
equity market data for Eligible Securities rather than the Proposed CT
Plan.\587\ And Section 14.3(b) provides that, as of the Operative Date,
the Members shall conduct, through the Company, the Processor and
Administrator functions related to the public dissemination of real-
time consolidated equity market data for Eligible Securities required
by the Commission to be performed by the Members under the Exchange
Act.\588\ Finally, paragraph (b) of Section 14.3 further provides that
the Members must file an amendment to the CQ Plan, CTA Plan, and UTP
Plan to cease their operation as of the Operative Date.\589\
---------------------------------------------------------------------------
\587\ See Article XIV, Section 14.3(a) of the Proposed CT Plan.
\588\ See Article XIV, Section 14.3(b) of the Proposed CT Plan.
\589\ See id.
---------------------------------------------------------------------------
Section 14.3 is substantively similar to the corresponding
provisions of the 2021 CT Plan approved by the Commission,\590\ with
the exception of the added requirement that, as of the Operative Date,
the Members shall file an amendment to the CQ Plan, the CTA Plan, and
the UTP Plan to cease those plans' operations. This addition is
appropriate as it clarifies the steps to be taken to complete the
transition from the existing Equity Data Plans to the Proposed CT Plan.
The Commission is also modifying the text of paragraph 14.3(b) to add
the words ``and the rules and regulations thereunder'' to the end of
the phrase regarding the functions ``required by the Commission to be
performed by the Members under the Exchange Act.'' This modification is
appropriate because the SROs are also subject to certain requirements
with respect to NMS plans, including the Proposed CT Plan under the
rules and regulations adopted by the Commission under the Exchange Act.
The Commission received no comments addressing Section 14.3, and the
Commission is approving Section 14.3 of the Proposed CT Plan as
modified.
---------------------------------------------------------------------------
\590\ See 2021 Approval Order, supra note 19, 86 FR at 44140.
---------------------------------------------------------------------------
(d) Implementation of the MDI Rules
Rule 614(e)(1) of the MDI Rules directed the participants of the
effective national market system plan(s) for NMS stocks to file an
amendment pursuant to Rule 608 of Regulation NMS to conform the
effective national market system plan(s) for NMS stocks to reflect the
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the national securities exchange and national securities
association participants to competing consolidators and self-
aggregators.\591\ The MDI Rules also required that the amendment to the
effective national market system plan(s) required under Rule 614(e)(1)
``must include the fees proposed by the plan(s) for data underlying
consolidated market data.'' \592\
---------------------------------------------------------------------------
\591\ 17 CFR 242.614(e)(1); see also MDI Rules Release, supra
note 461, 86 FR at 18699.
\592\ MDI Rules Release, supra note 461, 86 FR at 18699.
---------------------------------------------------------------------------
On November 5, 2021, the SROs filed separate amendments of the
Equity Data Plans pursuant to these requirements, and the Commission on
September 22, 2022, disapproved the proposed amendments, finding, in
the case of the amendments relating to the expanded definition of
``core data'' and the introduction of competing consolidators, that the
amendments did not conform the Equity Data Plans to reflect the
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the SROs to competing consolidators and self-
aggregators,\593\ and, in the case of the associated fee amendments,
that the amendments did not demonstrate that the proposed fees were
fair, reasonable, and not unreasonably discriminatory.\594\
---------------------------------------------------------------------------
\593\ See Consolidated Tape Association; Order Disapproving the
Thirty-Seventh Substantive Amendment to the Second Restatement of
the CTA Plan and the Twenty-Eighth Substantive Amendment to the
Restated CQ Plan, Securities Exchange Act Release No. 95850 (Sept.
21, 2022), 87 FR 58560 (Sept. 27, 2022) (File No. SR-CTA/CQ-2021-
02); Joint Industry Plan; Order Disapproving the Fifty-First
Amendment to the Joint Self-Regulatory Organization Plan Governing
the Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis, Securities
Exchange Act Release No. 95848 (Sept. 21, 2022), 87 FR 58544 (Sept.
27, 2022) (File No. S7-24-89).
\594\ See Consolidated Tape Association; Order Disapproving the
Twenty-Fifth Charges Amendment to the Second Restatement of the CTA
Plan and Sixteenth Charges Amendment to the Restated CQ Plan,
Securities Exchange Act Release No. 95851 (Sept. 21, 2022), 87 FR
58613 (Sept. 27, 2022) (File No. SR-CTA/CQ-2021-03); Joint Industry
Plan; Order Disapproving the Fifty-Second Amendment to the Joint
Self-Regulatory Organization Plan Governing the Collection,
Consolidation and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on Exchanges on an
Unlisted Trading Privileges Basis, Securities Exchange Act Release
No. 95849 (Sept. 21, 2022), 87 FR 58592 (Sept. 27, 2022) (File No.
S7-24-89).
---------------------------------------------------------------------------
One commenter states that the Proposed CT Plan should be amended to
require that the Proposed CT Plan assume responsibility for all core
data, as defined in Rule 600(b)(21) of Regulation NMS, and not only the
subset of core data that is currently made available by the Equity Data
Pans.\595\ This commenter states that the ``Amended [Governance] Order
and the infrastructure rule appear to require that the Plan include
provisions that are consistent with the revised definition of `core
data' in Rule 600(b)(21) of
[[Page 94960]]
Regulation NMS,'' \596\ which would include data elements in addition
to transaction reports and quotation information.\597\ This commenter
further states that, ``by contrast, Section 4.1 of the [Proposed CT]
Plan replaces the broad reference to `core data' in the Amended
[Governance] Order with a significantly narrower reference'' to the
Operating Committee's responsibilities with respect to Transaction
Reports and Quotation Information in Eligible Security, which does not
include all elements of ``core data'' as defined in Rule 600(b)(21) and
is ``flatly inconsistent with the Amended Order and the infrastructure
rule.'' \598\
---------------------------------------------------------------------------
\595\ See MEMX Letter, supra note 109, at 15-20.
\596\ Id. at 16-17 (emphasis in original).
\597\ See id. at 17.
\598\ Id.
---------------------------------------------------------------------------
One commenter states that the Commission should clarify in this
order its expectations with respect to establishing a credible plan for
implementing the MDI Rules.\599\ Another commenter states that the
Commission should require the SROs in the Proposed CT Plan to address
other non-fee aspects prescribed in the MDI Rules, as this would
address the current uncertainty as to when the current Operating
Committee will submit revised proposals for the Commission's
approval.\600\
---------------------------------------------------------------------------
\599\ See SIFMA Letter, supra note 109, at 3-4.
\600\ See ICI Letter, supra note 109, at 4.
---------------------------------------------------------------------------
Several commenters suggest that the Commission address, whether in
the Proposed CT Plan or in the order approving it, the fee proposals to
be filed with the Commission under the MDI Rules.\601\ One commenter
states that the Commission should require the SROs to act on the fees
for data to be provided under the MDI Rules because, without approval
of such fee filing, a competitive market for consolidated market data
cannot begin.\602\ One commenter suggests that the Commission clarify,
in the order approving the Proposed CT Plan, its expectations with
respect to the timing for the SROs to propose fees for enhanced core
equity market data to be distributed under the MDI Rules.\603\ Another
commenter states that the Commission should require the SROs to re-file
revised plan amendments setting the fees for the expanded core data
elements to address the current uncertainty as to when the current
Operating Committee will submit revised proposals.\604\
---------------------------------------------------------------------------
\601\ See Fidelity Letter, supra note 80, at 5-6; SIFMA Letter,
supra note 109, at 3-4; ICI Letter, supra note 109, at 4.
\602\ See Fidelity Letter, supra note 80, at 5-6.
\603\ See SIFMA Letter, supra note 109, at 3-4.
\604\ See ICI Letter, supra note 109, at 4.
---------------------------------------------------------------------------
Another commenter seeks clarification with respect to whether the
fees under the Proposed CT Plan would be for the equity market data
currently distributed under the Equity Market Data Plans or for the
enhanced core data to be distributed under the Commission's MDI
Rules.\605\
---------------------------------------------------------------------------
\605\ See SIFMA Letter, supra note 109, at 3.
---------------------------------------------------------------------------
The Commission recognizes that the full implementation of the
revised governance structure of the Proposed CT Plan and of the MDI
Rules must be appropriately sequenced and that an important step toward
full implementation of these initiatives should be the implementation
of the new governance structure of the Proposed CT Plan. The immediate
implementation of the MDI Rules through the Proposed CT Plan would be
impracticable, because it would require simultaneous implementation of
both a new governance structure and the provisions of the MDI Rules,
and the immediate implementation of the MDI Rules through the existing
Equity Data Plans does not make sense, given that those plans are to be
phased out of operation in favor of the Proposed CT Plan. Therefore,
the Commission is not modifying the Proposed CT Plan to require the
dissemination of ``core data'' as defined in the MDI Rules.
The SROs, however, remain under the obligation imposed by Rule
614(e) of Regulation NMS to file an amendment ``[c]onforming the
effective national market system plan(s) for NMS stocks to reflect
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the national securities exchange and national securities
association participants to competing consolidators and self-
aggregators.'' \606\ Although, as described above,\607\ the SROs
previously filed proposed amendments to the Equity Data Plans under
Rule 614(e), the Commission disapproved those proposed amendments,
finding that the proposed amendments ``do not comply with Rule
614(e)(1) because they do not conform the Plans to reflect the
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the SROs to competing consolidators and self-
aggregators.'' \608\ Because the previously filed and disapproved
amendments were ``inconsistent with the MDI Rules, specifically Rule
614(e),'' \609\ the participants to the effective national market
system plan(s) will need to develop and file new proposed amendments
pursuant to Rule 608,\610\ and--given that the approved CT Plan will,
when fully implemented, replace the Equity Data Plans--it is the
Commission's expectation that the SROs will file these proposed
amendments to the approved CT Plan. The proposed amendments would also
need to include the fees proposed for data underlying consolidated
market data.\611\
---------------------------------------------------------------------------
\606\ 17 CFR 242.614(e)(1).
\607\ See supra note 593 and accompanying text.
\608\ Securities Exchange Act Release No. 95848, supra note 593,
87 FR at 58545; Securities Exchange Act Release No. 95850, supra
note 593, 87 FR at 58561.
\609\ Id.
\610\ See Regulation NMS Amendments, supra note 159, 89 FR
81625.
\611\ See MDI Rules Release, supra note 461, 86 FR at 18699
(``The first key milestone [in the implementation of the MDI Rules]
will be the amendment to the effective national market system
plan(s) required under Rule 614(e), which must include the fees
proposed by the plan(s) for data underlying consolidated market
data.''). On Nov. 5, 2021, the SROs filed proposed fee amendments
pursuant to these requirements, but the Commission on Sept. 22,
2022, disapproved the amendments because they did not demonstrate
that the proposed fees were fair, reasonable, and not unreasonably
discriminatory. See Consolidated Tape Association; Order
Disapproving the Twenty-Fifth Charges Amendment to the Second
Restatement of the CTA Plan and Sixteenth Charges Amendment to the
Restated CQ Plan, Securities Exchange Act Release No. 95851 (Sept.
21, 2022), 87 FR 58613 (Sept. 27, 2022) (File No. SR-CTA/CQ-2021-
03); Joint Industry Plan; Order Disapproving the Fifty-Second
Amendment to the Joint Self-Regulatory Organization Plan Governing
the Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis, Securities
Exchange Act Release No. 95849 (Sept. 21, 2022), 87 FR 58592 (Sept.
27, 2022) (File No. S7-24-89).
---------------------------------------------------------------------------
(e) Consideration of Other Actions
One commenter states that the Commission should consider ways of
expediting implementation of the MDI Rules, including through the use
of exchange proprietary data feeds.\612\ Specifically, this commenter
states that the Commission (or the SROs on their initiative) could
allow market data vendors, who would register with the Commission, to
use exchange proprietary market data feeds to generate consolidated
market data pursuant to the MDI Rules on a temporary basis until the
fee arrangements and related infrastructure for the Proposed CT Plan
are finalized. Otherwise, this commenter states that market
participants would have to wait over two and a half years before the
Commission's MDI Rules are implemented, even though the technical
ability to actualize those rules already exists.\613\ This commenter
further states that a top concern when implementing
[[Page 94961]]
the Commission's MDI Rules should be addressing certain onboarding
paperwork and reporting processes.\614\ This commenter states that end
users of consolidated market data should be required to contract with
the competing consolidator of their choice, rather than with the Plan
Administrator.\615\ To compensate the SROs for the loss of such
downstream fee revenues, the commenter states that it would support a
potential revenue sharing agreement, such as one whereby SROs would
receive a portion of the competing consolidator's revenue.\616\ The
commenter further states that that consolidated market data should be
sold to competing consolidators free and clear of downstream fees, such
as device fees or non-display fees. Otherwise competing consolidators
would be reduced to ``mere fee collectors'' for the plan, with little
incentive for operating as such.\617\
---------------------------------------------------------------------------
\612\ See Databento Letter, supra note 365, at 3.
\613\ See id.
\614\ See id. at 2.
\615\ See id.
\616\ Id. at 2.
\617\ Id.
---------------------------------------------------------------------------
One commenter suggests rejecting the Proposed CT Plan and
revisiting the MDI Rules.\618\ This commenter states that the MDI Rules
and the decentralized consolidator model ``undermined the latency issue
and skewed towards the interests of subscribers and proprietary
products'' because users of SIPs or competing consolidators have an
extra hop latency disadvantage that would affect demand of the new
single consolidated tape.\619\ The commenter states that due to
conflicting interests in connection with the sale of proprietary
products, it is not in the exchanges' interest to ensure that the
consolidated tape feeds are delivered timely, without latency, and that
they have no interest in ensuring that the data sent to the SIP, or
eventually competing consolidator, is published in sync with their
proprietary products.\620\ According to this commenter, ``[w]ithout a
secured and synchronized start line,'' competing consolidators will
never be a reasonable compromise, if not a close substitute, to compete
with proprietary products.\621\ This commenter states that the
Commission should facilitate the establishment of the NMS in accordance
with and in furtherance of Congress's objectives.\622\ To that end,
this commenter suggests that the Commission: (1) disapprove the
Proposed CT Plan and ``ditch regulatory price control through MDIR and/
or the CT Plan;'' (2) mandate that the availability of market data
across SIPs and competing consolidators and proprietary data fees be
secured and synchronized in accordance with an atomic clock; (3)
require market and data redistributors to maintain a connectivity
disparity ratio between the fastest proprietary products and the
slowest mass market product (<2.5 to 4 times) to ensure consolidated
market data evolves along with the ecosystem; (4) affirm that data
ownership rights belong to content creators; (5) prohibit market
centers from offering any proprietary products ``that the maximum
capacity cannot be concurrently used by at least 20% of all market
participants,'' and require that the offering of proprietary products
must be ``accompanied by at least one mass market product,'' such as
the SIPs or competing consolidator, that is ``available and affordable
by 80% of all market participants;'' (6) ensure that the hierarchical
pricing of proprietary products be in proportion with the performance
improvement over mass market products, and that proprietary product
pricing be transparent and publicly disclosed; and (7) introduce price
gouging rules in times of market volatility.\623\
---------------------------------------------------------------------------
\618\ See Data Boiler Letter, supra note 208, at 8.
\619\ Id. at 2-8.
\620\ See id.
\621\ Id.
\622\ See id. at 6-8.
\623\ Data Boiler Letter, supra note 208, at 6-8.
---------------------------------------------------------------------------
With respect to the comment recommending disapproval of the
Proposed CT Plan,\624\ the purpose of the Proposed CT Plan is to
facilitate the collection and dissemination of core data so that the
public has ready access to a comprehensive, accurate, and reliable
source of information for the prices and volume of any NMS stock at any
time during the trading day. With the modifications approved by the
Commission, as set forth in this order, the Proposed CT Plan is
reasonably designed to achieve these goals. Therefore, disapproval of
the Proposed CT Plan would not ensure the prompt, accurate, reliable,
and fair collection processing, distribution, or the publication of
information with respect to NMS securities in the public interest.
---------------------------------------------------------------------------
\624\ Id. at 6-8.
---------------------------------------------------------------------------
With respect to comments stating that the Proposed CT Plan seems to
perpetuate the status quo of the Equity Data Plans,\625\ and as the
Commission stated in the Governance Order, addressing issues with the
current governance structure of the Equity Data Plans is ``an important
first step in responding to concerns about the consolidated data
feed.'' \626\ The Commission recognizes that the inadequacies in the
governance model of the Equity Data Plans that the Proposed CT Plan is
designed to address may not be the sole cause of broader concerns about
the consolidated feed.\627\ As the Commission stated in the Governance
Order, however, the governance structure of the Equity Data Plans
contributes significantly to the broader concerns about the
consolidated data feed.\628\ Thus, contrary to the commenter's
statements,\629\ changing the governance structure through which the
SROs oversee the operations of the SIPs, as provided under the Proposed
CT Plan, is appropriate to create a governance structure that will
reduce obstacles to ongoing improvement of the consolidated market data
feeds in ways that the current governance structure of the Equity Data
Plans has not.\630\
---------------------------------------------------------------------------
\625\ See Polygon Letter, supra note 82, at 1.
\626\ Governance Order, supra note 11, 85 FR at 28707 (citing to
Securities Exchange Act Release No. 87906 (Jan. 8, 2020), 85 FR
2164, 2173 (Jan. 14, 2020) (File No. 4-757) (emphasis in original;
citations omitted)).
\627\ See Governance Order, supra note 11, 85 FR at 28707.
\628\ See id.
\629\ See Polygon Letter, supra note 82, at 1.
\630\ See Governance Order, supra note 11, 85 FR at 28707.
---------------------------------------------------------------------------
III. Conclusion
For the reasons discussed above, the Commission finds that the
Proposed CT Plan, as modified, is consistent with the requirements of
section 11A of the Exchange Act,\631\ and Rule 608 thereunder,\632\
that the NMS plan is necessary or 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 otherwise in furtherance of the purposes of
the Exchange Act.
---------------------------------------------------------------------------
\631\ 15 U.S.C. 78k-1.
\632\ 17 CFR 242.608.
---------------------------------------------------------------------------
It is therefore ordered that, pursuant to section 11A of the
Exchange Act,\633\ and the rules and regulations thereunder, the
Proposed CT Plan (File No. 4-757), as modified, be and it hereby is
approved and declared effective, and the Participants are authorized to
act jointly to implement the Proposed CT Plan as approved as a means of
facilitating a national market system.
---------------------------------------------------------------------------
\633\ 15 U.S.C. 78k-1.
[[Page 94962]]
---------------------------------------------------------------------------
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
Attachment A
LIMITED LIABILITY COMPANY AGREEMENT OF CT PLAN LLC, a Delaware Limited
Liability Company
(As modified by the Commission; additions are italicized; deletions are
[bracketed].)
(1) This LIMITED LIABILITY COMPANY AGREEMENT (this ``Agreement'')
dated as of the [] day of [], [] is made and
entered into by and among the parties identified in Exhibit A, as
Exhibit A may be amended from time to time (the ``Members''), which are
the members of CT Plan LLC, a Delaware limited liability company (the
``Company''). The Members shall constitute the ``members'' (as that
term is defined in the Delaware Act) of the Company.
RECITALS
(a) On September 1, 2023, the Commission ordered the Members to act
jointly in developing and filing with the Commission by October 23,
2023, a proposed new single national market system (``NMS'') plan to
govern the public dissemination of real-time consolidated equity market
data for NMS stocks. See Amended Order Directing the Exchanges and the
Financial Industry Regulatory Authority to Submit a New National Market
System Plan Regarding Consolidated Equity Market Data, Release No. 34-
98271 (September 1, 2023), 88 FR 61630 (Sept. 7, 2023) (File No. 4-757)
(the ``Amended Order''). This Agreement is being filed with the
Commission, as directed in the Amended Order.
(b) As the Members have already formed the Company as a limited
liability company pursuant to the Delaware Act by filing a certificate
of formation (the ``Certificate'') with the Delaware Secretary of
State, this Agreement will become effective on the date (the
``Effective Date'') when approved by the Commission pursuant to Rule
608 of Regulation NMS as an NMS plan governing the public dissemination
of real-time consolidated market data for Eligible Securities (the
``Plan'').
(c) It is understood and agreed that, in performing their
obligations and duties under this Agreement, the Members are performing
and discharging functions and responsibilities related to the operation
of the national market system for and on behalf of the Members in their
capacities as self-regulatory organizations, as required under the
Section 11A of the Exchange Act, and pursuant to Rule 603(b) of
Regulation NMS thereunder. It is further understood and agreed that
this Agreement and the operations of the Company shall be subject to
ongoing oversight by the Commission. No provision of this Agreement
shall be construed to limit or diminish the obligations and duties of
the Members as self-regulatory organizations under the federal
securities laws and the regulations thereunder.
Article I.
DEFINITIONS
Section 1.1 Definitions.
As used throughout this Agreement and the Exhibits:
(1) ``Administrator'' means the Person selected by the Company to
perform the administrative functions under Article VI of this
Agreement[described in this Agreement pursuant to the Administrative
Services Agreement. The Person selected as the Administrator will not
be owned or controlled by a corporate entity that, either directly or
via another subsidiary, offers for sale its own proprietary market data
product for NMS stocks].
(2) ``Advisory Committee'' means the committee formed in accordance
with Section 4.7 of this Agreement.
(3) ``Affiliate'' means, as to any Person, any other Person that,
directly or indirectly, Controls, is Controlled by, or is under common
Control with such Person. Affiliate or Affiliated, when used as an
adjective, shall have a correlative meaning.
[(3)](4) ``Agent'' means, for purposes of Exhibit C, agents of the
Operating Committee, a Member, the Administrator, the Interim
Administrator(s), and the Processors, including, but not limited to,
attorneys, auditors, advisors, accountants, contractors or
subcontractors.
[(4)](5) ``Applicable Law'' means all applicable provisions of (a)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, decrees, ordinances, codes, proclamations,
declarations or orders of any Governmental Authority; (b) any consents
or approvals of any Governmental Authority; and (c) any orders,
decisions, advisory or interpretative opinions, injunctions, judgments,
awards, decrees of, or agreements with, any Governmental Authority.
[(5)](6) ``Best Bid and Offer'' has the meaning ascribed to the
term ``best bid and best offer'' by Rule 600(b)(8) of Regulation NMS.
[(6)](7) ``Capital Contributions'' means any cash, cash
equivalents, or other property that a Member contributes to the Company
with respect to its Membership Interest.
[(7)](8) ``Chair'' shall mean the individual elected pursuant to
Section 4.4(e).
[(8)](9) ``Code'' means the Internal Revenue Code of 1986, as
amended.
[(9)](10) ``Commission'' or ``SEC'' means the U.S. Securities and
Exchange Commission.
[(10)](11) ``Company Indemnified Party'' means a Person, and any
other Person of whom such Person is the legal representative, that is
or was a Member or a[n SRO] Voting Representative.
[(11)](12) ``Confidential Information'' means, except to the extent
covered by the definitions for Restricted Information, Highly
Confidential Information, or Public Information: (i) any non-public
data or information designated as Confidential by the Operating
Committee pursuant to Section 4.3; (ii) any document generated by a
Member and designated by that Member as Confidential; and (iii) the
individual views and statements of Covered Persons and SEC staff
disclosed during a meeting of the Operating Committee or any
subcommittees thereunder.
[(12)](13) ``Control'' means, with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether
through the ownership of voting securities (or other ownership
interest), by contract or otherwise.
[(13)](14) ``Covered Persons'' means representatives of the Members
(including the [SRO ]Voting Representative, alternate Voting
Representative, and Member Observers), members of the Advisory
Committee, SRO Applicants, SRO Applicant Observers, the Administrator,
the Interim Administrator(s), and the Processors; Affiliates,
employees, and Agents of the Operating Committee, a Member, the
Administrator, the Interim Administrator(s), and the Processors; and
any third parties invited to attend meetings of the Operating Committee
or subcommittees. Covered Persons do not include staff of the SEC.
[(14)](15) ``CQ Plan'' means the Restated CQ Plan.
[(15)](16) ``CT Feeds'' means the CT Quote Data Feed(s) and the CT
Trade Data Feed(s).
[(16)](17) ``CT Quote Data Feed(s)'' means the service(s) that
provides Vendors and Subscribers with (i) National Best Bids and Offers
and their sizes and the Members' identifiers
[[Page 94963]]
providing the National Best Bids and Offers; (ii) each Member's Best
Bids and Offers and their sizes and the Member's identifier; and (iii)
in the case of FINRA, the identifier of the FINRA Participant(s) that
constitute(s) FINRA's Best Bids and Offers, in each case for Eligible
Securities.
[(17)](18) ``CT Trade Data Feed(s)'' means the service(s) that
provides Vendors and Subscribers with Transaction Reports for Eligible
Securities.
[(18)](19) ``CTA Plan'' means the Second Restatement of the CTA
Plan.
[(19)](20) ``Current'' means, with respect to Transaction Reports
or Quotation Information, such Transaction Reports or Quotation
Information during the fifteen (15) minute period immediately following
the initial transmission thereof by the Processors.
[(20)](21) ``Delaware Act'' means the Delaware Limited Liability
Company Act, Title 6, Chapter 18, Sec. Sec. 18-101, et seq., and any
successor statute, as amended.
[(21)](22) ``Distribution'' means a distribution to the Members of
revenues of the Company under this Agreement pursuant to Section 8.3
and Exhibit D of the Agreement.
[(22)](23) ``Eligible Security'' means (i) any equity security, as
defined in Section 3(a)(11) of the Exchange Act, or (ii) a security
that trades like an equity security, in each case that is listed on a
national securities exchange.
[(23)](24) ``ET'' means Eastern Time.
[(24)](25) ``Exchange Act'' means the Securities Exchange Act of
1934, as amended.
[(25)](26) ``Executive Session'' means a meeting of the Operating
Committee pursuant to Section 4.4(g), which includes [SRO ]Voting
Representatives, Member Observers, SEC Staff, and other persons as
deemed appropriate by a majority vote of the [SRO ]Voting
Representatives.
[(26)](27) ``Extraordinary Market Activity'' means a disruption or
malfunction of any electronic quotation, communication, reporting, or
execution system operated by, or linked to, the Processors or a Trading
Center or a member of such Trading Center that has a severe and
continuing negative impact, on a market-wide basis, on quoting, order,
or trading activity or on the availability of market information
necessary to maintain a fair and orderly market. For purposes of this
definition, a severe and continuing negative impact on quoting, order,
or trading activity includes (i) a series of quotes, orders, or
transactions at prices substantially unrelated to the current market
for the security or securities; (ii) duplicative or erroneous quoting,
order, trade reporting, or other related message traffic between one or
more Trading Centers or their members; or (iii) the unavailability of
quoting, order, transaction information, or regulatory messages for a
sustained period.
[(27)](28) ``Fees'' means fees charged to Vendors and Subscribers
for Transaction Reports and Quotation Information in Eligible
Securities.
[(28)](29) ``Final Decision of the Operating Committee'' means an
action or inaction of the Operating Committee as a result of the vote
of the Operating Committee, but will not include the individual votes
of a Voting Representative.
[(29)](30) ``FINRA'' means the Financial Industry Regulatory
Authority, Inc.
[(30)](31) ``FINRA Participant'' means a FINRA member that utilizes
the facilities of FINRA pursuant to applicable FINRA rules.
[(31)](32) ``Fiscal Year'' means the fiscal year of the Company
adopted pursuant to Section 10.1(a) of this Agreement.
[(32)](33) ``GAAP'' means United States generally accepted
accounting principles in effect from time to time, consistently
applied.
[(33)](34) ``Governmental Authority'' means (a) the U.S. federal
government or government of any state of the U.S., (b) any
instrumentality or agency of any such government, (c) any other
individual, entity or organization authorized by law to perform any
executive, legislative, judicial, regulatory, administrative, military
or police functions of any such government, or (d) any
intergovernmental organization of U.S. entities, but ``Governmental
Authority'' excludes any self-regulatory organization registered with
the Commission.
[(34)](35) ``Highly Confidential Information'' means any highly
sensitive Member-specific, customer-specific, individual-specific, or
otherwise sensitive information relating to the Operating Committee,
Members, Vendors, Subscribers, or customers that is not otherwise
Restricted Information. Highly Confidential Information includes: the
Company's contract negotiations with the Processors, or Administrator
or Interim Administrator(s); personnel matters that affect the
employees of SROs or the Company; information concerning the
intellectual property of Members or customers; and any document subject
to the Attorney-Client Privilege, Work Product Doctrine, or any other
[applicable ]privilege or immunity recognized under Applicable Law.
[(35)](36) ``Limit Up Limit Down'' means the Plan to Address
Extraordinary Market Volatility pursuant to Rule 608 of Regulation NMS
under the Exchange Act.
[(36)](37) ``Losses'' means losses, judgments, penalties (including
excise and similar taxes and punitive damages), fines, settlements, and
reasonable expenses (including reasonable attorneys' fees) actually
incurred by such Company Indemnified Party as a Party to a Proceeding.
[(37)](38) ``Market'' means (i) in respect of FINRA or a national
securities association, the facilities through which FINRA Participants
display quotations and report transactions in Eligible Securities to
FINRA and (ii) in respect of each national securities exchange, the
marketplace for Eligible Securities that such exchange operates.
[(38)](39) ``Market-Wide Circuit Breaker'' means a halt in trading
in all stocks in all Markets under the rules of a Primary Listing
Market.
[(39)](40) ``Material SIP Latency'' means a delay of quotation or
last sale price information in one or more securities between the time
data is received by the Processors and the time the Processors
disseminate the data, which delay the Primary Listing Market
determines, in consultation with, and in accordance with, publicly
disclosed guidelines established by the Operating Committee, to be (a)
material and (b) unlikely to be resolved in the near future.
[(40)](41) ``Member Observer'' means any employee of a Member or
any attorney to a Member (other than a Voting Representative) that a
Member determines is necessary in connection with such Member's
compliance with its obligations under Rule 608(c) of Regulation NMS to
attend Operating Committee and subcommittee meetings, provided that the
designation of the Member Observer is consistent with the prohibition
in Section 4.11(b)(i).
[(41)](42) ``Membership Fee'' means the fee to be paid by a new
Member pursuant to Section 3.2.
[(42)](43) ``Membership Interest'' means an interest in the Company
owned by a Member.
[(43)](44) ``Nasdaq'' means The Nasdaq Stock Market LLC.
[(44)](45) ``National Best Bid and Offer'' has the meaning ascribed
to the term ``national best bid and national best offer'' by Rule
600(b)(43) of Regulation NMS.
[(45)](46) ``National securities association'' means a securities
[[Page 94964]]
association that is registered under Section 15A of the Exchange Act.
[(46)](47) ``National securities exchange'' means a securities
exchange that is registered under Section 6 of the Exchange Act.
[(47)](48) ``Network A Security'' means an Eligible Security for
which NYSE is the Primary Listing Market.
[(48)](49) ``Network B Security'' means an Eligible Security for
which a national securities exchange other than NYSE or Nasdaq is the
Primary Listing Market.
[(49)](50) ``Network C Security'' means an Eligible Security for
which Nasdaq is the Primary Listing Market.
[(50)](51) ``Non-Affiliated SRO'' means a Member that is not
affiliated with any other Member.
[(51)](52) ``NYSE'' means the New York Stock Exchange LLC.
[(52)](53) ``Officer'' means each individual designated as an
officer of the Company pursuant to Section 4.8.
[(53)](54) ``Operating Committee'' means the committee established
under Article IV of this Agreement, each member of which shall be
deemed a ``manager'' (as defined in the Delaware Act) and shall be
referred to herein as a Voting Representative.
[(54)](55) ``Operational Halt'' means a halt in trading in one or
more securities only on a Member's Market declared by such Member and
is not a Regulatory Halt.
[(55)](56) ``Operative Date'' means the date that (i) the Members
conduct, through the Company, the Processor and Administrator functions
related to the public dissemination of real-time consolidated equity
market data for Eligible Securities required by the Commission to be
performed by the Members under the Exchange Act and the rules and
regulations thereunder and (ii) the CQ Plan, CTA Plan, and UTP Plan
cease their operations.
[(56)](57) ``Party to a Proceeding'' means a Company Indemnified
Party that is, was, or is threatened to be made, a party to a
Proceeding, or is involved in a Proceeding, by reason of the fact that
such Company Indemnified Party is or was a Member, or a[n SRO] Voting
Representative.
[(57)](58) ``PDP'' means a Member or non-Member's proprietary
market data product that includes Transaction Reports and Quotation
Information data in Eligible Securities from a Member's Market or a
Trading Center, and if from a Member, is filed with the Commission.
[(58)](59) ``Person'' means an individual, corporation,
partnership, joint venture, limited liability company, Governmental
Authority, unincorporated organization, trust, association, or other
entity.
[(59)](60) ``Primary Listing Market'' means the national securities
exchange on which an Eligible Security is listed. If an Eligible
Security is listed on more than one national securities exchange,
Primary Listing Market means the exchange on which the security has
been listed the longest.
[(60)](61) ``Proceeding'' means any threatened, pending or
completed suit, proceeding, or other action, whether civil, criminal,
administrative, or arbitrative, or any appeal in such action or any
inquiry or investigation that could lead to such an action.
[(61)](62) ``Processor(s)'' means the entity(ies) selected by the
Company to perform the processing functions described in this Agreement
and pursuant to the Processor Services Agreement(s), including the
operation of the System.
[(62)](63) ``Public Information'' means: (i) any information that
is not either Restricted Information or Highly Confidential Information
or that has not been designated as Confidential Information; (ii) any
Confidential Information that has been approved by the Operating
Committee for release to the public; (iii) the duly approved minutes of
the Operating Committee with detail sufficient to inform the public on
matters under discussion and the views expressed thereon (without
attribution); (iv) Vendor, Subscriber and performance metrics; (v)
Processor transmission metrics; and (vi) any information that is
otherwise publicly available, except for information made public as a
result of a violation of the Company's Confidentiality Policy or
Applicable Law. Public Information includes, but is not limited to, any
topic discussed during a meeting of the Operating Committee, an outcome
of a topic discussed, or a Final Decision of the Operating Committee.
[(63)](64) ``Regulatory Halt'' means a halt declared by the Primary
Listing Market in trading in one or more securities on all Trading
Centers for regulatory purposes, including for the dissemination of
material news, news pending, suspensions, or where otherwise necessary
to maintain a fair and orderly market. A Regulatory Halt includes a
trading pause triggered by Limit Up Limit Down, a halt based on
Extraordinary Market Activity, a trading halt triggered by a Market-
Wide Circuit Breaker, and a SIP Halt.
[(64)](65) ``Restricted Information'' means highly sensitive
customer-specific financial information, customer-specific audit
information, other customer financial information, and personal
identifiable information.
[(65)](66) ``Quotation Information'' means all bids, offers,
displayed quotation sizes, market center identifiers and, in the case
of FINRA, the identifier of the FINRA Participant that entered the
quotation, all withdrawals, and all other information pertaining to
quotations in Eligible Securities required to be collected and made
available to the Processors pursuant to this Agreement.
[(66)](67) ``Regular Trading Hours'' has the meaning provided in
Rule 600(b)(68) of Regulation NMS. Regular Trading Hours can end
earlier than 4:00 p.m. ET in the case of an early scheduled close.
[(67)](68) ``Retail Representative'' means an individual who (1)
represents the interests of retail investors, (2) has experience
working with or on behalf of retail investors, (3) has the requisite
background and professional experience to understand the interests of
retail investors, the work of the Operating Committee of the Company,
and the role of market data in the U.S. equity market, and (4) is not
affiliated with a Member or broker-dealer.
[(68)](69) ``Self-regulatory organization'' or ``SRO'' has the
meaning provided in Section 3(a)(26) of the Exchange Act.
[(69)](70) ``SIP Halt'' means a Regulatory Halt to trading in one
or more securities that a Primary Listing Market declares in the event
of a SIP Outage or Material SIP Latency.
[(70)](71) ``SIP Halt Resume Time'' means the time that the Primary
Listing Market determines as the end of a SIP Halt.
[(71)](72) ``SIP Outage'' means a situation in which a Processor
has ceased, or anticipates being unable, to provide updated and/or
accurate quotation or last sale price information in one or more
securities for a material period that exceeds the time thresholds for
an orderly failover to backup facilities established by mutual
agreement among the Processors, the Primary Listing Market for the
affected securities, and the Operating Committee unless the Primary
Listing Market, in consultation with the affected Processor and the
Operating Committee, determines that resumption of accurate data is
expected in the near future.
[(72)](73) ``SRO Applicant'' means (1) any Person that is not a
Member and for which the Commission has published a Form 1 to be
registered as a national securities exchange or national securities
association to operate a Market, or (2) a national securities exchange
that is not a Member and for
[[Page 94965]]
which the Commission has published a proposed rules change to operate a
Market.
[(73)](74) ``SRO Group'' means a group of Members that are
Affiliates.
[(74)](75) ``Subscriber'' means a Person that receives Current
Transaction Reports or Quotation Information from the Processors or a
Vendor and that itself is not a Vendor.
[(75)](76) ``System'' means all data processing equipment,
software, communications facilities, and other technology and
facilities, utilized by the Company or the Processors in connection
with the collection, consolidation, and dissemination of Transaction
Reports, Quotation Information, and other information concerning
Eligible Securities.
[(76)](77) ``Taxes'' means taxes, levies, imposts, charges, and
duties (including withholding tax, stamp, and transaction duties)
imposed by any taxing authority together with any related interest,
penalties, fines, and expenses in connection with them.
[(77)](78) ``Trading Center'' has the same meaning as that term is
defined in Rule 600(b)(82) of Regulation NMS.
[(78)](79) ``Transaction Reports'' means reports required to be
collected and made available pursuant to this Agreement containing the
stock symbol, price, and size of the transaction executed, the Market
in which the transaction was executed, and related information,
including a buy/sell/cross indicator, trade modifiers, and any other
required information reflecting completed transactions in Eligible
Securities.
[(79)](80) ``Transfer'' means to directly sell, transfer, assign,
pledge, encumber, hypothecate, or similarly dispose of, either
voluntarily or involuntarily, by operation of law or otherwise, or to
enter into any contract, option, or other arrangement or understanding
with respect to the sale, transfer, assignment, pledge, encumbrance,
hypothecation, or similar disposition of any Membership Interests owned
by a Person or any interest (including a beneficial interest) in any
Membership Interests owned by a Person. ``Transfer'' when used as a
noun shall have a correlative meaning.
[(80)](81) ``UTP Plan'' means the Joint Self-Regulatory
Organization Plan Governing the Collection, Consolidation and
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges
Basis.
[(81)](82) ``Vendor'' means a Person that the Administrator has
approved to re-distribute Current Transaction Reports or Quotation
Information to the Person's employees or to others.
[(82)](83) ``Voting Representative'' means an individual designated
by each SRO Group and each Non-Affiliated SRO pursuant to Section
4.2(a) to vote on behalf of such SRO Group or such Non-Affiliated SRO.
Section 1.2 Interpretation.
For purposes of this Agreement: (a) the words ``include,''
``includes,'' and ``including'' shall be deemed to be followed by the
words ``without limitation''; (b) the word ``or'' is not exclusive; and
(c) the words ``herein,'' ``hereof,'' ``hereby,'' ``hereto,'' and
``hereunder'' refer to this Agreement as a whole. The definitions given
for any defined terms in this Agreement shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine,
feminine, and neuter forms. Unless the context otherwise requires,
references herein: (x) to Articles, Sections, and Exhibits mean the
Articles and Sections of, and Exhibits attached to, this Agreement; (y)
to an agreement, instrument, or other document mean such agreement,
instrument, or other document as amended, supplemented, and modified
from time to time to the extent permitted by the provisions thereof;
and (z) to a statute mean such statute as amended from time to time and
includes any successor legislation thereto and any rules and
regulations promulgated thereunder. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting an instrument or causing any
instrument to be drafted. The Exhibits referred to herein shall be
construed with, and as an integral part of, this Agreement to the same
extent as if they were set forth verbatim herein.
Article II.
ORGANIZATION
Section 2.1 Formation.
(a) The Members formed the Company as a limited liability company
on [], [] pursuant to the Delaware Act by filing a
certificate of formation (the ``Certificate'') with the Delaware
Secretary of State.
(b) This Agreement shall constitute the ``limited liability company
agreement'' (as that term is used in the Delaware Act) of the Company.
The rights, powers, duties, obligations, and liabilities of the Members
shall be determined pursuant to the Delaware Act and this Agreement. To
the extent that the rights, powers, duties, obligations, and
liabilities of any Member are different by reason of any provision of
this Agreement than they would be under the Delaware Act in the absence
of such provision, this Agreement shall, to the extent permitted by the
Delaware Act, control.
Section 2.2 Name.
The name of the Company is ``CT Plan LLC'' and all Company business
shall be conducted in that name or such other name or names as the
Operating Committee may designate; provided, that the name shall always
contain the words ``Limited Liability Company'' or the abbreviation
``L.L.C.'' or the designation ``LLC.''
Section 2.3 Registered Office; Registered Agent; Principal Office;
Other Offices.
(a) The registered office of the Company required by the Delaware
Act to be maintained in the State of Delaware shall be the office of
the initial registered agent named in the Certificate or such other
office (which need not be a place of business of the Company) as the
Operating Committee may designate from time to time in the manner
provided by the Delaware Act and Applicable Law.
(b) The registered agent for service of process of the Company in
the State of Delaware shall be the initial registered agent named in
the Certificate or such other Person or Persons as the Operating
Committee may designate from time to time in the manner provided by the
Delaware Act and Applicable Law.
(c) The principal office of the Company shall be located at such
place as the Operating Committee may designate from time to time, which
need not be in the State of Delaware, and the Company shall maintain
its books and records there. The Company shall give prompt notice to
each of the Members of any change to the principal office of the
Company.
(d) The Company may have such other offices as the Operating
Committee may designate from time to time.
Section 2.4 Purpose; Powers.
(a) The purposes of the Company are to engage in the following
activities on behalf of the Members:
(i) the collection, consolidation, and dissemination of Transaction
Reports, Quotation Information, and such other information concerning
Eligible Securities as the Members shall agree as provided herein;
(ii) contracting for the distribution of such information;
(iii) contracting for and maintaining facilities to support any
activities
[[Page 94966]]
permitted in this Agreement and guidelines adopted hereunder, including
the operation and administration of the System;
(iv) providing for those other matters set forth in this Agreement
and in all guidelines adopted hereunder;
(v) operating the System to comply with Applicable Laws; and
(vi) engaging in any other business or activity that now or
hereafter may be necessary, incidental, proper, advisable, or
convenient to accomplish any of the foregoing purposes and that is not
prohibited by the Delaware Act, the Exchange Act, or other Applicable
Law.
(b) The Company shall have all the powers necessary or convenient
to carry out the purposes for which it is formed, including the powers
granted by the Delaware Act.
(c) It is expressly understood that each Member shall be
responsible for the collection of Transaction Reports and Quotation
Information within its Market and that nothing in this Agreement shall
be deemed to govern or apply to the manner in which each Member does
so.
Section 2.5 Term.
The term of the Company commenced as of the date the Certificate
was filed with the Secretary of State of the State of Delaware, and
shall continue in existence perpetually until the Company is dissolved
in accordance with the provisions of the Certificate or this Agreement.
Notwithstanding the foregoing, this Agreement shall not become
effective until the Effective Date.
Section 2.6 No State-Law Partnership.
The Members intend that the Company not be a partnership (including
a limited partnership) or joint venture, and that no Member be a
partner or joint venturer of any other Member by virtue of this
Agreement for any purposes other than as set forth in Sections 10.2 and
10.3, and neither this Agreement nor any other document entered into by
the Company or any Member relating to the subject matter of this
Agreement shall be construed to suggest otherwise.
Article III.
MEMBERSHIP
Section 3.1 Members.
The Members of the Company shall consist of the Persons identified
in Exhibit A, as updated from time to time to reflect the admission of
new Members pursuant to this Agreement.
Section 3.2 New Members.
(a) Any national securities association or national securities
exchange whose market, facilities, or members, as applicable, trades
Eligible Securities may become a Member by (i) providing written notice
to the Company, (ii) executing a joinder to this Agreement, at which
time Exhibit A shall be amended to reflect the addition of such
association or exchange as a Member, (iii) paying a Membership Fee to
the Company as determined pursuant to Section 3.2(b), and (iv)
executing a joinder to any other agreements to which all of the other
Members have been made party in connection with being a Member.
Membership Fees paid shall be added to the general revenues of the
Company.
(b) The Membership Fee shall be based upon the following factors:
(i) the portion of costs previously paid by the Company (or by the
Members prior to the formation of the Company) for the development,
expansion, and maintenance of the System which, under GAAP, would have
been treated as capital expenditures and would have been amortized over
the five years preceding the admission of the new Member (and for this
purpose all such capital expenditures shall be deemed to have a five-
year amortizable life); and
(ii) an assessment of costs incurred and to be incurred by the
Company for modifying the System or any part thereof to accommodate the
new Member, which are not otherwise required to be paid or reimbursed
by the new Member.
(c) Participants of the CQ Plan, CTA Plan, and UTP Plan will not be
required to pay the Membership Fee.
Section 3.3 Transfer of Membership Interests.
Except as set forth in Section 3.4, a Member shall not have the
right to Transfer (whether in whole or in part) its Membership Interest
in the Company.
Section 3.4 Withdrawal from Membership.
(a) Any Member may voluntarily withdraw from the Company at any
time on not less than 30 days' prior written notice (the ``Withdrawal
Date''), by (i) providing such notice of such withdrawal to the
Company, (ii) causing the Company to file with the Commission an
amendment to effectuate the withdrawal and (iii) Transferring such
Member's Membership Interest to the Company.
(b) A Member shall automatically be withdrawn from the Company upon
such Member no longer being a registered national securities
association or registered national securities exchange. Such Member's
Membership Interest will automatically transfer to the Company. The
Company shall file with the Commission an amendment to effectuate the
withdrawal.
(c) A withdrawal of a Member shall not be effective until approved
by the Commission after filing an amendment to the Agreement in
accordance with Section 13.5.
(d) From and after the Withdrawal Date of such Member:
(i) Such Member shall remain liable for any obligations under this
Agreement of such Member (including indemnification obligations)
arising prior to the Withdrawal Date (but such Member shall have no
further obligations under this Agreement or to any of the other Members
arising after the Withdrawal Date);
(ii) Such Member shall be entitled to receive a portion of the Net
Distributable Operating Income (if any) in accordance with Exhibit D
attributable to the period prior to the Withdrawal Date of such Member;
(iii) Such Member shall cease to have the right to have its
Transaction Reports, Quotation Information, or other information
disseminated over the System; and
(iv) Profits and losses of the Company shall cease to be allocated
to the Capital Account of such Member.
Section 3.5 Member Bankruptcy.
In the event a Member becomes subject to one or more of the events
of bankruptcy enumerated in Section 18-304 of the Delaware Act, that
event by itself shall not cause a withdrawal of such Member from the
Company so long as such Member continues to be a national securities
association or national securities exchange.
Section 3.6 Undertaking by All Members.
Following the [Operative]Effective Date, each Member shall be
required, pursuant to Rule 608(c) of Regulation NMS, to comply with the
provisions hereof and enforce compliance by its members with the
provisions hereof.
Section 3.7 Obligations and Liability of Members.
(a) Except as otherwise provided in this Agreement or Applicable
Law, no Member shall be obligated to contribute capital or make loans
to the Company.
(b) Except as provided in this Agreement or Applicable Law, no
Member shall have any liability whatsoever in its capacity as a Member,
[[Page 94967]]
whether to the Company, to any of the Members, to the creditors of the
Company or to any other Person, for the debts, liabilities, commitments
or any other obligations of the Company or for any losses of the
Company. Notwithstanding the foregoing, to the extent that amounts have
not been paid to the Processors or Administrator under the terms of the
Processor Services Agreements and Administrative Services Agreement,
respectively, or this Agreement, as and when due, (i) each Member shall
be obligated to return to the Company its pro rata share of any moneys
distributed to such Member in the one year period prior to such default
in payment (such pro rata share to be based upon such Member's
proportionate receipt of the aggregate distributions made to all
Members in such one year period) until an aggregate amount equal to the
amount of any such defaulted payments has been re-contributed to the
Company and (ii) the Company shall promptly pay such amount to the
Processors or Administrator, as applicable.
(c) In accordance with the Delaware Act, a member of a limited
liability company may, under certain circumstances, be required to
return amounts previously distributed to such member. It is the intent
of the Members that no distribution to any Member pursuant to this
Agreement shall be deemed a return of money or other property paid or
distributed in violation of the Delaware Act. The payment of any such
money or distribution of any such property to a Member shall be deemed
to be a compromise within the meaning of the Delaware Act, and the
Member receiving any such money or property shall not be required to
return any such money or property to any Person; provided, however,
that a Member shall be required to return to the Company any money or
property distributed to it in clear and manifest accounting or similar
error or as otherwise provided in Section 3.7(b). However, if any court
of competent jurisdiction holds that, notwithstanding the provisions of
this Agreement, any Member is obligated to make any such payment, such
obligation shall be the obligation of such Member and not of the
Operating Committee.
(d) No Member (unless duly authorized by the Operating Committee)
has the authority or power to represent, act for, sign for or bind the
Company or to make any expenditure on behalf of the Company; provided,
however, that the Tax Matters Partner may represent, act for, sign for
or bind the Company as permitted under Sections 10.2 and 10.3 of this
Agreement.
(e) To the fullest extent permitted by law, no Member shall, in its
capacity as a Member, owe any duty (fiduciary or otherwise) to the
Company or to any other Member other than the duties expressly set
forth in this Agreement.
Article IV.
MANAGEMENT OF THE COMPANY
Section 4.1 Operating Committee.
[(f)](a) Except for situations in which the approval of the Members
is required by this Agreement, the Company shall be managed by the
Operating Committee. Unless otherwise expressly provided to the
contrary in this Agreement, no Member shall have authority to act for,
or to assume any obligation or responsibility on behalf of, the
Company, without the prior approval of the Operating Committee. Without
limiting the generality of the foregoing and except as otherwise
expressly provided in this Agreement, the Operating Committee shall
have full and complete discretion to manage and control the business
and affairs of the Company, to make all decisions affecting the
business and affairs of the Company, and to take all such actions as it
deems necessary or appropriate to accomplish the purposes of the
Company, including the following:
(i) proposing amendments to this Agreement or implementing other
policies and procedures as necessary to ensure prompt, accurate,
reliable, and fair collection, processing, distribution, and
publication of information with respect to Transaction Reports and
Quotation Information in Eligible Securities and the fairness and
usefulness of the form and content of that information;
(ii) selecting, overseeing, specifying the role and
responsibilities of, and evaluating the performance of, the
Administrator, the Processors, an auditor, and other professional
service providers, provided that any expenditures for professional
services that are paid for from the Company's revenues must be for
activities consistent with the terms of this Agreement and must be
authorized by the Operating Committee;
(iii) developing and maintaining fair and reasonable Fees and
consistent terms for the distribution, transmission, and aggregation of
Transaction Reports and Quotation Information in Eligible Securities;
(iv) reviewing the performance of the Processors and ensuring the
public reporting of Processors' performance and other metrics and
information about the Processors;
(v) assessing the marketplace for equity market data products and
ensuring that the CT Feeds are priced in a manner that is fair and
reasonable, and designed to ensure the widespread availability of CT
Feeds data to investors and market participants;
(vi) designing a fair and reasonable revenue allocation formula for
allocating plan revenues to be applied by the Administrator, and
overseeing, reviewing, and revising that formula as needed;
(vii) interpreting the Agreement and its provisions; and
(viii) carrying out such other specific responsibilities as
provided under this Agreement.
[(g)](b) The Operating Committee may delegate all or part of its
administrative functions under this Agreement, excluding those
administrative functions to be performed by the Administrator pursuant
to Section 6.1, to a subcommittee, to one or more of the Members, or to
other Persons (including the Administrator), and any Person to which
administrative functions are so delegated shall perform the same as
agent for the Company, in the name of the Company. For the avoidance of
doubt, no delegation to a subcommittee shall contravene Section 4.3 and
no subcommittee shall take actions requiring approval of the Operating
Committee pursuant to Section 4.3 unless such approval shall have been
obtained. Any authority delegated hereunder is subject to the
provisions of Section 4.3 hereof.
[(h)](c) It is expressly agreed and understood that neither the
Company nor the Operating Committee shall have authority in any respect
of any Member's proprietary systems. Neither the Company nor the
Operating Committee shall have any authority over the collection and
dissemination of quotation or transaction information in Eligible
Securities in any Member's Market, or, in the case of FINRA, from FINRA
Participants.
Section 4.2 Composition and Selection of Operating Committee.
(a) Voting Representatives. The Operating Committee shall include
one Voting Representative designated by each SRO Group and each Non-
Affiliated SRO to vote on behalf of such SRO Group or such Non-
Affiliated SRO. Each SRO Group and each Non-Affiliated SRO may
designate an alternate individual or individuals who shall be
authorized to vote on behalf of such SRO Group or such Non-Affiliated
SRO, respectively, in the absence of the designated Voting
Representative.
[[Page 94968]]
(b) An SRO Applicant will be permitted to appoint one individual to
attend (subject to Section 4.4(i)) regularly scheduled Operating
Committee meetings in the capacity of a non-voting observer (each, an
``SRO Applicant Observer''). Each SRO Applicant may designate an
alternate individual or individuals who shall be authorized to act as
the SRO Applicant Observer on behalf of the SRO Applicant in the
absence of the designated SRO Applicant Observer. If the SRO
Applicant's Form 1 petition or Section 19(b)(1) filing is withdrawn,
returned, or is otherwise not actively pending with the Commission for
any reason, then the SRO Applicant will no longer be eligible to have
an SRO Applicant Observer attend Operating Committee meetings.
(c) Notwithstanding anything to the contrary herein, (i) a national
securities exchange that has ceased operations as a Market (or has yet
to commence operation as a Market) and that is a Non-Affiliated SRO
will not be permitted to designate a Voting Representative and (ii) an
SRO Group in which all national securities exchanges have ceased
operations as a Market (or have yet to commence operation as a Market)
will not be permitted to designate a Voting Representative. Such SRO
Group or Non-Affiliated SRO may attend the Operating Committee as an
observer but may not attend the Executive Session of the Operating
Committee. In the event such an SRO Group or Non-Affiliated SRO does
not commence operation as a Market for six months after first attending
an Operating Committee meeting, such SRO Group or Non-Affiliated SRO
may no longer attend the Operating Committee until it commences/re-
commences operation as a Market.
Section 4.3 Action of Operating Committee.
(a) Each Voting Representative shall be authorized to cast one vote
on behalf of the SRO Group or Non-Affiliated SRO that he or she
represents, provided, however, that each Voting Representative
representing an SRO Group or Non-Affiliated SRO whose combined market
center(s) have consolidated equity market share of more than fifteen
(15) percent during four of the six calendar months preceding an
Operating Committee vote shall be authorized to cast two votes. For
purposes of this Section 4.3(a), ``consolidated equity market share''
means the average daily dollar equity trading volume of Eligible
Securities of an SRO Group or Non-Affiliated SRO as a percentage of the
average daily dollar equity trading volume of all of the SRO Groups and
Non-Affiliated SROs, as reported under this Agreement or under the CQ,
CTA, and UTP Plans. For the avoidance of doubt, FINRA shall not be
considered to operate a market center within the meaning of this
Section 4.3(a) solely by virtue of facilitating quoting on the FINRA
Alternative Display Facility or trade reporting of Eligible Securities
through the FINRA/Nasdaq Trade Reporting Facility Carteret, the FINRA/
Nasdaq Trade Reporting Facility Chicago, the FINRA/NYSE Trade Reporting
Facility, or any other trade reporting facility that FINRA may operate
from time to time in affiliation with a registered national securities
exchange to provide a mechanism for FINRA Participants to report
transactions in Eligible Securities effected otherwise than on an
exchange.
(b) All actions of the Operating Committee will require an
affirmative vote of not less than (2/3rd) two-thirds of all votes
allocated in the manner described in Section 4.3(a) to Voting
Representatives who are eligible to vote on such action.
(c) Notwithstanding Section 4.3(b), the following actions will
require only a majority vote of the Operating Committee:
(i) the election of the Chair and other Officers of the Plan;
(ii) the selection of members of the Advisory Committee pursuant to
Section 4.7;
[(ii)](iii) the decision to enter Executive Session pursuant to
Section 4.4(g), except for matters considered pursuant to Section
4.4(g)(i)(E);
[(iii)](iv) the decision to discuss a matter in a legal
subcommittee pursuant to Section 4.8(d); and
[(iv)](v) decisions concerning the operation of the Company as an
LLC as specified in Section 10.3 and Section 11.2.
Section 4.4 Meetings of the Operating Committee.
(a) Subject to Section 4.4(g), meetings of the Operating Committee
may be attended by each Voting Representative, Member Observers, SRO
Applicant Observers, Advisory Committee members, SEC staff, and other
persons as deemed appropriate by the Operating Committee. Meetings
shall be held at such times and locations as shall from time to time be
determined by the Operating Committee. Member Observers shall be
entitled to attend and participate in any discussion at any such
meeting, unless attendance or participation would be inconsistent with
the provisions of Section 4.11(b), but shall not be entitled to vote on
any matter.
(b) Special meetings of the Operating Committee may be called by
the Chair on at least 24 hours' notice to each Voting Representative
and all persons eligible to attend Operating Committee meetings.
(c) Any action requiring a vote can be taken at a meeting only if a
quorum of all Voting Representatives is present. A quorum is equal to
the minimum votes necessary to obtain approval under Section 4.3(b),
i.e., Voting Representatives reflecting 2/3rd of Operating Committee
votes eligible to vote on such action.
(i) Any Voting Representative recused from voting on a particular
action (i) mandatorily pursuant to Section 4.10(b) or (ii) upon a
Voting Representative's voluntary recusal, shall not be considered in
the numerator or denominator of the calculations in paragraph (c) for
determining whether a quorum is present.
(ii) A Voting Representative is considered present at a meeting
only if such Voting Representative is either in physical attendance at
the meeting or participating by conference telephone or other
electronic means that enables each Voting Representative to hear and be
heard by all others present at the meeting.
(d) A summary of any action sought to be resolved at a meeting
shall be sent to each Voting Representative entitled to vote on such
matter at least one week prior to the meeting via electronic mail,
portal notification, or regular U.S. or private mail (or if one week is
not practicable, then with as much time as may be reasonably
practicable under the circumstances); provided, however, that this
requirement to provide a summary of any action prior to a meeting may
be waived by the vote of the percentage of the Committee required to
vote on any particular matter, under Section 4.3 above.
(e) Beginning with the first quarterly meeting of the Operating
Committee following the [Operative]Effective Date, the Chair of the
Operating Committee shall be elected for a one-year term from the
constituent Voting Representatives (and an election for the Chair shall
be held every year). Subject to the requirements of Section 4.3 hereof,
the Chair shall have the authority to enter into contracts on behalf of
the Company and otherwise bind the Company, but only as directed by the
Operating Committee. The Chair shall designate a Person to act as
Secretary to record the minutes of each meeting. The location of
meetings shall be in a location capable of holding the number of
[[Page 94969]]
attendees of such meetings, or such other locations as may from time to
time be determined by the Operating Committee.
(i) To elect a Chair, the Operating Committee will elicit
nominations for those individuals to be considered for Chair.
(ii) In the event that no nominated Person is elected by an
affirmative vote of the Operating Committee pursuant to Section 4.3(c),
the Person(s) with the lowest number of votes will be eliminated from
consideration. The Operating Committee will repeat this process until a
Person is elected by affirmative vote of the Operating Committee
pursuant to Section 4.3. In the event two candidates remain and neither
is elected by an affirmative vote of the Operating Committee pursuant
to Section 4.3(c), the Person receiving the most votes from Voting
Representatives will be elected.
(f) Meetings may be held by conference telephone or other
electronic means that enables each Voting Representative to hear and be
heard by all others present at the meeting.
(g) Voting Representatives, Member Observers, SEC Staff, and other
persons as deemed appropriate by a majority vote of the Voting
Representatives may meet in Executive Session of the Operating
Committee to discuss an item of business that falls within the topics
identified in subsection (i) below and for which it is appropriate to
exclude the Advisory Committee. A request to create an Executive
Session must be included on the written agenda for an Operating
Committee meeting, along with the clearly stated rationale as to why
such item to be discussed would be appropriate for Executive Session.
The creation of an Executive Session will be by a majority vote of
Voting Representatives with votes allocated pursuant to Section
4.3(a)(1). The Executive Session shall only discuss the topic for which
it was created and shall be disbanded upon fully discussing the topic.
(i) Items for discussion within an Executive Session [should]shall
be limited to the following topics[ as]:
(A) Any topic that requires discussion of Highly Confidential
Information;
(B) Vendor or Subscriber Audit Findings;
(C) Litigation matters;
(D) Responses to regulators with respect to inquiries,
examinations, or findings; and
(E) Other discrete matters approved by the Operating Committee.
(ii) The mere fact that a topic is controversial or a matter of
dispute does not, by itself, make a topic appropriate for Executive
Session. The minutes for an Executive Session shall include the reason
for including any item in Executive Session.
(iii) Requests to discuss a topic in Executive Session must be
included on the written agenda for the Operating Committee meeting,
along with the clearly stated rationale for each topic as to why such
discussion is appropriate for Executive Session. Such rationale may be
that the topic to be discussed falls within the list provided in
subparagraph (g)(i).
Section 4.5 Certain Transactions.
The fact that a Member or any of its Affiliates is directly or
indirectly interested in or connected with any Person employed by the
Company to render or perform a service, or from which or to whom the
Company may buy or sell any property, shall not prohibit the Company
from employing or dealing with such Person.
Section 4.6 Company Opportunities.
(a) Each Member, its Affiliates, and each of their respective
equity holders, controlling persons and employees may have business
interests and engage in business activities in addition to those
relating to the Company. Neither the Company nor any Member shall have
any rights by virtue of this Agreement in any business ventures of any
such Person.
(b) Each Member expressly acknowledges that (i) the other Members
are permitted to have, and may presently or in the future have,
investments or other business relationships with Persons engaged in the
business of the Company other than through the Company (an ``Other
Business''), (ii) the other Members have and may develop strategic
relationships with businesses that are and may be competitive or
complementary with the Company, (iii) the other Members shall not be
obligated to recommend or take any action that prefers the interests of
the Company or any Member over its own interests, (iv) none of the
other Members will be prohibited by virtue of their ownership of equity
in the Company or service on the Operating Committee (or body
performing similar duties) from pursuing and engaging in any such
activities, (v) none of the other Members will be obligated to inform
or present to the Company any such opportunity, relationship, or
investment, (vi) such Member will not acquire or be entitled to any
interest or participation in any Other Business as a result of the
participation therein of any of the other Members, and (vii) the
involvement of another Member in any Other Business in and of itself
will not constitute a conflict of interest by such Person with respect
to the Company or any of the Members.
Section 4.7 Advisory Committee.
(a) Formation. Notwithstanding any other provision of this Plan, an
Advisory Committee to the Plan shall be formed and shall function in
accordance with the provisions set forth in this section.
(b) Composition. [Members of the Advisory Committee shall be
selected for two year terms as follows:
(i) Operating Committee Selections. By affirmative vote of a
majority of the Members entitled to vote, t]The Operating Committee
shall, by majority vote, select at least one representative from each
of the following categories to be members of the Advisory Committee:
(A) an institutional investor; (B) a broker-dealer with a predominantly
retail investor customer base; (C) a broker-dealer with a predominantly
institutional investor customer base; (D) a securities market data
vendor that is not affiliated or associated with a Member, broker-
dealer, or investment adviser with third-party clients; (E) an issuer
of NMS stock that is not affiliated or associated with a Member,
broker-dealer, or investment adviser with third-party clients; and (F)
a Retail Representative. The Operating Committee shall not select any
person employed by or affiliated with any Member or its affiliates or
facilities.
[(ii) Member Selections. Each Member shall have the right to select
one member of the Advisory Committee. A Member shall not select any
person employed by or affiliated with any Member or its affiliates or
facilities.]
(c) Term: Members of the Advisory Committee shall be selected for
two-year terms.
(d) Function. Members of the Advisory Committee shall have the
right to submit their views to the Operating Committee on Plan matters,
prior to a decision by the Operating Committee on such matters. Such
matters shall include, but not be limited to, any new or modified
product, fee, contract, or pilot program that is offered or used
pursuant to the Plan.
[(d)](e) Not Members of the Company. For the sake of clarity,
members of the Advisory Committee are not Members of the Company.
Section 4.8 Subcommittees.
(a) Subject to Section 4.1, the Operating Committee shall have the
power and right, but not the obligation, to create and disband
subcommittees of the Operating Committee and to
[[Page 94970]]
determine the duties, responsibilities, powers, and composition of such
subcommittees. Subcommittee chairs will be selected by the Operating
Committee from Voting Representatives. Notwithstanding the foregoing,
the Operating Committee may not delegate to a subcommittee those
administrative functions to be performed by the Administrator.
(b) Except as provided in Section 4.8(d), the Secretary or designee
shall prepare minutes of all subcommittee meetings and such minutes
will be made available to the Operating Committee and members of the
Advisory Committee.
(c) Voting Representatives, the Advisory Committee, Member
Observers, SEC Staff, and other persons as deemed appropriate by the
Operating Committee may attend meetings of any subcommittees.
(d) Notwithstanding paragraph (c), Voting Representatives, Member
Observers, and other persons as deemed appropriate by majority vote of
the Voting Representatives may meet in a subcommittee to discuss an
item that exclusively affects the Members with respect to: (1)
litigation matters or responses to regulators with respect to
inquiries, examinations, or findings; and (2) other discrete legal
matters approved by the Operating Committee. The Secretary shall
prepare the minutes of such subcommittee's meetings, and such minutes
shall include, (i) attendance at the meeting; (ii) the subject matter
of each item discussed; (iii) sufficient non-privileged information to
identify the rationale for referring the matter to the legal
subcommittee, and (iv) the privilege or privileges claimed with respect
to that item. Such minutes will be made available only to the Voting
Representatives, Member Observers, and other persons deemed appropriate
by a majority vote of the Operating Committee.
Section 4.9 Officers.
(a) Except as provided in Section 4.4(e), the Operating Committee
may (but need not), from time to time, designate and appoint one or
more persons as an Officer of the Company. Other than the Chair, no
Officer need be a Voting Representative. Any Officers so designated
shall have such authority and perform such duties as the Operating
Committee may, from time to time, delegate to them. Any such delegation
may be revoked at any time by the Operating Committee. The Operating
Committee may assign titles to particular Officers. Each Officer shall
hold office until such Officer's successor shall be duly designated or
until such Officer's death, resignation, or removal as provided in this
Agreement. Any number of offices may be held by the same individual.
Officers shall not be entitled to receive salary or other compensation,
unless approved by the Operating Committee.
(b) Any Officer may resign at any time. Such resignation shall be
made in writing and shall take effect at the time specified in the
notice, or if no time be specified, at the time of its receipt by the
Operating Committee. The acceptance of a resignation shall not be
necessary to make it effective.
(c) Any Officer may be removed at any time upon the majority vote
of the [Members]Operating Committee.
Section 4.10 Commission Access to Information and Records.
Nothing in this Agreement shall be interpreted to limit or impede
the rights of the Commission or SEC staff to access information and
records of the Company or any of the Members (including their
employees) pursuant to U.S. federal securities laws and the rules and
regulations promulgated thereunder.
Section 4.11 Disclosure of Potential Conflicts of Interest; Recusal.
(a) Disclosure Requirements. The Members (including any Member
Observers), the Processors, the Administrator, members of the Advisory
Committee, and each service provider or subcontractor engaged in
Company business (including the audit of Subscribers' data usage) that
has access to Restricted or Highly Confidential information (for
purposes of this section, ``Disclosing Parties'') shall complete the
applicable questionnaire to provide the required disclosures set forth
in subsection (c) below to disclose all material facts necessary to
identify potential conflicts of interest. The Operating Committee, a
Member, Processors, or Administrator may not use a service provider or
subcontractor on Company business unless that service provider or
subcontractor has agreed in writing to provide the disclosures required
by this section and has submitted completed disclosures to the
Administrator prior to starting work. If state laws, rules, or
regulations, or applicable professional ethics rules or standards of
conduct, would act to restrict or prohibit a Disclosing Party from
making any particular required disclosure, a Disclosing Party shall
refer to such law, rule, regulation, or professional ethics rule or
standard and include in response to that disclosure the basis for its
inability to provide a complete response. This does not relieve the
Disclosing Party from disclosing any information it is not restricted
from providing.
(i) A potential conflict of interest may exist when personal,
business, financial, or employment relationships could be perceived by
a reasonable objective observer to affect the ability of a person to be
impartial.
(ii) Updates to Disclosures. Following a material change in the
information disclosed pursuant to Section 4.11(a), a Disclosing Party
shall promptly update its disclosures. Additionally, a Disclosing Party
shall update annually any inaccurate information prior to the Operating
Committee's first quarterly meeting of a calendar year.
(iii) Public Dissemination of Disclosures. The Disclosing Parties
shall provide the Administrator with its disclosures and any required
updates. The Administrator shall ensure that the disclosures are
promptly posted to the Company's website.
(iv) The Company will arrange for Disclosing Parties that are not
Members or members of the Advisory Committee to comply with the
required disclosures and recusals under this Section 4.11 and Exhibit B
in their respective agreements with either the Company, a Member, the
Administrator, or the Processors.
(b) Recusal.
(i) A Disclosing Party that is a Member may not appoint as its
Voting Representative, alternate Voting Representative, or a Member
Observer a person that is responsible for or involved with the
procurement for, or development, modeling, pricing, licensing
(including all functions related to monitoring or ensuring a
subscriber's compliance with the terms of the license contained in its
data subscription agreement and all functions relating to the auditing
of subscriber data usage and payment), or sale of PDP offered to
customers of the CT Feeds if the person has a financial interest
(including compensation) that is tied directly to the Disclosing
Party's market data business or the procurement of market data and if
that compensation would cause a reasonable objective observer to expect
the compensation to affect the impartiality of the representative.
(ii) A Disclosing Party (including its representative(s),
employees, and agents) will be recused from participating in Company
activities if it has not submitted a required disclosure form or the
Operating Committee votes that its disclosure form is materially
deficient. The recusal will be in effect until the Disclosing Party
submits a sufficiently complete disclosure form to the Administrator.
[[Page 94971]]
(iii) A Disclosing Party, including its representative(s), and its
Affiliates and their representative(s), are recused from voting on
matters in which it or its Affiliate (i) is seeking a position or
contract with the Company or (ii) have a position or contract with the
Company and whose performance is being evaluated by the Company.
(iv) All recusals, including a person's determination of whether to
voluntarily recuse himself or herself, shall be reflected in the
meeting minutes.
(c) Required Disclosures. As part of the disclosure regime, the
Members, the Processors, the Administrator, members of the Advisory
Committee, and service providers and subcontractors must respond to
questions that are tailored to elicit responses that disclose the
potential conflicts of interest as set forth in Exhibit B.
Section 4.12 Confidentiality Policy.
All Covered Persons are subject to the Confidentiality Policy set
forth in Exhibit C to the Plan. The Company will arrange for Covered
Persons that are not Voting Representatives, Member Observers, or
members of the Advisory Committee to comply with the Confidentiality
Policy under their respective agreements with either the Company, a
Member, the Administrator, or the Processors.
Article V.
THE PROCESSORS; INFORMATION; INDEMNIFICATION
Section 5.1 General Functions of the Processors.
Subject to the general direction of the Operating Committee, as
more fully set forth in the agreement to be entered into between the
Company and the Processors (the ``Processor Services Agreements''), the
Company shall require the Processors to perform certain processing
functions on behalf of the Company. Among other things, the Company
shall require the Processors to collect from the Members, and
consolidate and disseminate to Vendors and Subscribers, Transaction
Reports and Quotation Information in Eligible Securities in a manner
designed to assure the prompt, accurate, and reliable collection,
processing, and dissemination of information with respect to all
Eligible Securities in a fair and non-discriminatory manner.
Section 5.2 Evaluation of the Processors.
The Processors' performance of their functions under the Processor
Services Agreements shall be subject to review at any time as
determined by a vote of the Operating Committee pursuant to Section
4.3; provided, however, that a review shall be conducted at least once
every two calendar years but not more frequently than once each
calendar year (unless the Processors have materially defaulted in their
obligations under the Processor Services Agreements and such default
has not been cured within the applicable cure period set forth in the
Processor Services Agreements, in which event such limitation shall not
apply). The Operating Committee may review the Processors at staggered
intervals.
Section 5.3 Process for Selecting New Processors.
(a) No later than upon the termination or withdrawal of a Processor
or the expiration of a Processor Services Agreement with a Processor,
the Operating Committee shall establish procedures for selecting a new
Processor (the ``Processor Selection Procedures''). The Operating
Committee, as part of the process of establishing Processor Selection
Procedures, may solicit and consider the timely comment of any entity
affected by the operation of this Agreement. The Operating Committee
will not need to establish Processor Selection Procedures if the
Operating Committee initially selects the CQ Plan and CTA Plan's
processor and the UTP Plan's processor to provide the same services to
the Company that are currently provided under the CQ Plan, CTA Plan,
and UTP Plan.
(b) The Processor Selection Procedures shall be established by the
affirmative vote of the Operating Committee pursuant to Section 4.3,
and shall set forth, at a minimum:
(i) the entity that will:
(A) draft the Operating Committee's request for proposal for bids
on a new Processor;
(B) assist the Operating Committee in evaluating bids for the new
Processor; and
(C) otherwise provide assistance and guidance to the Operating
Committee in the selection process;
(ii) the minimum technical and operational requirements to be
fulfilled by the Processor;
(iii) the criteria to be considered in selecting the Processor; and
(iv) the entities (other than Voting Representatives) that are
eligible to comment on the selection of the Processor.
Section 5.4 Transmission of Information to Processors by Members.
(a) Quotation Information.
(i) Each Member shall, during the time it is open for trading, be
responsible for promptly collecting and transmitting to the Processors
accurate Quotation Information in Eligible Securities through any means
set forth in the Processor Services Agreements to ensure that the
Company complies with its obligations under the Processor Services
Agreements.
(ii) Quotation Information shall include:
(A) identification of the Eligible Security, using the Listing
Market's symbol;
(B) the price bid and offered, together with size;
(C) for FINRA, the FINRA Participant along with the FINRA
Participant's market participant identification or Member from which
the quotation emanates;
(D) appropriate timestamps;
(E) identification of quotations that are not firm; and
(F) through appropriate codes and messages, withdrawals and similar
matters.
(iii) In addition, Quotation Information shall include:
(A) in the case of a national securities exchange, the reporting
Member's matching engine publication timestamp; or
(B) in the case of FINRA, the quotation publication timestamp that
FINRA's bidding or offering member reports to FINRA's quotation
facility in accordance with FINRA rules. In addition, if FINRA's
quotation facility provides a proprietary feed of its quotation
information, then the quotation facility shall also furnish the
Processors with the time of the quotation as published on the quotation
facility's proprietary feed. FINRA shall convert any quotation times
reported to it to nanoseconds and shall furnish such times to the
Processors in nanoseconds since Epoch.
(b) Transaction Reports.
(i) Each Member shall, during the time it is open for trading, be
responsible for promptly transmitting to the Processor Transaction
Reports in Eligible Securities executed in its Market by means set
forth in the Processor Services Agreements.
(ii) Transaction Reports shall include:
(A) identification of the Eligible Security, using the Listing
Market's symbol;
(B) the number of shares in the transaction;
(C) the price at which the shares were purchased or sold;
(D) the buy/sell/cross indicator;
(E) appropriate timestamps;
(F) the Market of execution; and
(G) through appropriate codes and messages, late or out-of-sequence
trades, corrections, and similar matters.
[[Page 94972]]
(iii) In addition, Transaction Reports shall include the time of
the transaction as identified in the Member's matching engine
publication timestamp. However, in the case of FINRA, the time of the
transaction shall be the time of execution that a FINRA member reports
to a FINRA trade reporting facility in accordance with FINRA rules. In
addition, if the FINRA trade reporting facility provides a proprietary
feed of trades reported by the trade reporting facility to the
Processor, then the FINRA trade reporting facility shall also furnish
the Processors with the time of the transmission as published on the
facility's proprietary feed. The FINRA trade reporting facility shall
convert times that its members report to it to nanoseconds and shall
furnish such times to the Processors in nanoseconds since Epoch.
(iv) Each Member shall (a) transmit all Transaction Reports in
Eligible Securities to the Processors as soon as practicable, but not
later than 10 seconds, after the time of execution, (b) establish and
maintain collection and reporting procedures and facilities reasonably
designed to comply with this requirement, and (c) designate as ``late''
any last sale price not collected and reported in accordance with the
above-referenced procedures or as to which the Member has knowledge
that the time interval after the time of execution is significantly
greater than the time period referred to above. The Members shall seek
to reduce the time period for reporting last sale prices to the
Processors as conditions warrant.
(v) The following types of transactions are not required to be
reported to the Processors pursuant to this Agreement:
(A) transactions that are part of a primary distribution by an
issuer or of a registered secondary distribution or of an unregistered
secondary distribution;
(B) transactions made in reliance on Section 4(a)(2) of the
Securities Act of 1933;
(C) transactions in which the buyer and the seller have agreed to
trade at a price unrelated to the current market for the security
(e.g., to enable the seller to make a gift);
(D) the acquisition of securities by a broker-dealer as principal
in anticipation of making an immediate exchange distribution or
exchange offering on an exchange;
(E) purchases of securities pursuant to a tender offer;
(F) purchases or sales of securities effected upon the exercise of
an option pursuant to the terms thereof or the exercise of any other
right to acquire securities at a pre-established consideration
unrelated to the current market; and
(G) transfers of securities that are expressly excluded from trade
reporting under FINRA rules.
(c) The following symbols shall be used to denote the applicable
Member:
------------------------------------------------------------------------
Code Member
------------------------------------------------------------------------
A................................... NYSE American LLC.
B................................... Nasdaq BX, Inc.
C................................... NYSE National, Inc.
D................................... Financial Industry Regulatory
Authority, Inc.
H................................... MIAX Pearl Exchange, LLC.
I................................... Nasdaq ISE, LLC.
J................................... Cboe EDGA Exchange, Inc.
K................................... Cboe EDGX Exchange, Inc.
L................................... Long-Term Stock Exchange Inc.
M................................... NYSE Chicago, Inc.
N................................... New York Stock Exchange LLC.
P................................... NYSE Arca, Inc.
Q................................... The Nasdaq Stock Market LLC.
U................................... MEMX LLC.
V................................... Investors Exchange LLC.
W................................... Cboe Exchange, Inc.
X................................... Nasdaq PHLX LLC.
Y................................... Cboe BYX Exchange, Inc.
Z................................... Cboe BZX Exchange, Inc.
------------------------------------------------------------------------
(d) Indemnification.
(i) Each Member agrees, severally and not jointly, to indemnify and
hold harmless and defend the Company, each other Member, the
Processors, the Administrator, the Operating Committee, and each of
their respective directors, officers, employees, agents, and Affiliates
(each, an ``Member Indemnified Party'') from and against any and all
loss, liability, claim, damage, and expense whatsoever incurred or
threatened against such Member Indemnified Party as a result of a
system error or disruption at such Member's Market affecting any
Transaction Reports, Quotation Information, or other information
reported to the Processors by such Member and disseminated by the
Processors to Vendors and Subscribers. This indemnity shall be in
addition to any liability that the indemnifying Member may otherwise
have.
(ii) Promptly after receipt by a Member Indemnified Party of notice
of the commencement of any action, such Member Indemnified Party will,
if it intends to make a claim in respect thereof against an
indemnifying Member, notify the indemnifying Member in writing of the
commencement thereof; provided, however, that the failure to so notify
the indemnifying Member will only relieve the indemnifying Member from
any liability which it may have to any Member Indemnified Party to the
extent such indemnifying Member is actually prejudiced by such failure.
In case any such action is brought against any Member Indemnified Party
and it promptly notifies an indemnifying Member of the commencement
thereof, the indemnifying Member will be entitled to participate in,
and, to the extent that it elects (jointly with any other indemnifying
Member similarly notified), to assume and control the defense thereof
with counsel chosen by it. After notice from the indemnifying Member of
its election to assume the defense thereof, the indemnifying Member
will not be liable to such Indemnified Party for any legal or other
expenses subsequently incurred by such Member Indemnified Party in
connection with the defense thereof but the Member Indemnified Party
may, at its own expense, participate in such defense by counsel chosen
by it without, however, impairing the indemnifying Member's control of
the defense. If the indemnifying Member has assumed the defense in
accordance with the terms hereof, the indemnifying Member may enter
into a settlement or consent to any judgment without the prior written
consent of the Member Indemnified Party if (i) such settlement or
judgment involves monetary damages only, all of which will be fully
paid by the indemnifying Member and without admission of fault or
culpability on behalf of any Member Indemnified Party, and (ii) a term
of the settlement or judgment is that the Person or Persons asserting
such claim unconditionally and irrevocably release all Member
Indemnified Parties from all liability with respect to such claim;
otherwise, the consent of the Member Indemnified Party shall be
required in order to enter into any settlement of, or consent to the
entry of a judgment with respect to, any claim (which consent shall not
be unreasonably withheld, delayed, or conditioned).
Section 5.5 Operational Issues.
(a) Each Member shall be responsible for collecting and validating
quotes and last sale reports within its own system prior to
transmitting this data to the Processors.
(b) Each Member may utilize a dedicated Member line into the
Processors to transmit Transaction Reports and Quotation Information to
the Processors.
(c) Whenever a Member determines that a level of trading activity
or other unusual market conditions prevent it from collecting and
transmitting Transaction Reports or Quotation Information to the
Processor, or where
[[Page 94973]]
a trading halt or suspension in an Eligible Security is in effect in
its Market, the Member shall promptly notify the Processors of such
condition or event and shall resume collecting and transmitting
Transaction Reports and Quotation Information to it as soon as the
condition or event is terminated. In the event of a system malfunction
resulting in the inability of a Member or its members to transmit
Transaction Reports or Quotation Information to the Processors, the
Member shall promptly notify the Processors of such event or condition.
Upon receiving such notification, the Processors shall take appropriate
action, including either closing the quotation or purging the system of
the affected quotations.
Article VI.
THE ADMINISTRATOR
Section 6.1 General Functions of the Administrator.
Subject to the general direction of the Operating Committee, as
more fully set forth in the agreement entered into between the Company
and the Administrator (the ``Administrative Services Agreement''), the
Administrator shall perform administrative functions on behalf of the
Company including recordkeeping; administering Vendor and Subscriber
contracts; administering Fees, including billing, collection, and
auditing of Vendors and Subscribers; administering Distributions; tax
functions of the Company; the preparation of the Company's audited
financial reports; and support of Company governance.
Section 6.2 Independence of the Administrator.
The Administrator may not be owned or controlled by a corporate
entity that, either directly or via another subsidiary, offers for sale
its own PDP. The Administrator may not employ any person who is also
employed by a corporate entity that, either directly or via a
subsidiary, offers for sale its own PDP.
Section 6.3 Evaluation of the Administrator.
The Administrator's performance of its functions under the
Administrative Services Agreement shall be subject to review at any
time as determined by an affirmative vote of the Operating Committee
pursuant to Section 4.3; provided, however, that a review shall be
conducted at least once every two calendar years but not more
frequently than once each calendar year (unless the Administrator has
materially defaulted in its obligations under the Administrative
Services Agreement and such default has not been cured within the
applicable cure period set forth in the Administrative Services
Agreement, in which event such limitation shall not apply). The
Operating Committee shall appoint a subcommittee or other Persons to
conduct the review. The Company shall require the reviewer to provide
the Operating Committee with a written report of its findings and to
make recommendations (if necessary), including with respect to the
continuing operation of the Administrator. The Administrator shall be
required to assist and participate in such review. The Operating
Committee shall notify the Commission of any recommendations it may
approve as a result of the review of the Administrator and shall supply
the Commission with a copy of any reports that may be prepared in
connection therewith.
Section 6.4 Process for Selecting New Administrator.
Prior to the Operative Date, upon the termination or withdrawal of
the Administrator, or upon the expiration of the Administrative
Services Agreement, the Operating Committee shall establish procedures
for selecting a new Administrator (the ``Administrator Selection
Procedures''). The Operating Committee, as part of the process of
establishing Administrator Selection Procedures, may solicit and
consider the timely comment of any entity affected by the operation of
this Agreement. The Administrator Selection Procedures shall be
established by the Operating Committee pursuant to Section 4.3, and
shall set forth, at a minimum:
(a) the entity that will:
(i) draft the Operating Committee's request for proposal for bids
on a new Administrator;
(ii) assist the Operating Committee in evaluating bids for the new
Administrator; and
(iii) otherwise provide assistance and guidance to the Operating
Committee in the selection process.
(b) the minimum technical and operational requirements to be
fulfilled by the Administrator;
(c) the criteria to be considered in selecting the Administrator;
and
(d) the entities (other than Voting Representatives) that are
eligible to comment on the selection of the Administrator.
Section 6.5 Interim Administrator(s).
Notwithstanding the provisions of Sections 6.2 and 6.4 of this
Agreement, the Operating Committee may select one or more of the
current administrators of the CTA Plan, CQ Plan, and UTP Plan to
perform the general functions of the Administrator under Section 6.1 of
the Plan on an interim basis during the implementation of the Plan,
consistent with the timeline set forth in Article XIV of this Agreement
(``Interim Administrator(s)'').
Article VII.
REGULATORY MATTERS
Section 7.1 Regulatory and Operational Halts.
(a) Operational Halts. A Member shall notify the Processors if it
has concerns about its ability to collect and transmit quotes, orders,
or last sale prices, or where it has declared an Operational Halt or
suspension of trading in one or more Eligible Securities, pursuant to
the procedures adopted by the Operating Committee.
(b) Regulatory Halts.
(i) The Primary Listing Market may declare a Regulatory Halt in
trading for any security for which it is the Primary Listing Market:
(A) as provided for in the rules of the Primary Listing Market;
(B) if it determines there is a SIP Outage, Material SIP Latency,
or Extraordinary Market Activity; or
(C) in the event of national, regional, or localized disruption
that necessitates a Regulatory Halt to maintain a fair and orderly
market.
(ii) In making a determination to declare a Regulatory Halt under
subparagraph (b)(i), the Primary Listing Market will consider the
totality of information available concerning the severity of the issue,
its likely duration, and potential impact on Member Firms and other
market participants and will make a good-faith determination that the
criteria of subparagraph (b)(i) have been satisfied and that a
Regulatory Halt is appropriate. The Primary Listing Market will
consult, if feasible, with the affected Trading Center(s), the other
Members, or the Processors, as applicable, regarding the scope of the
issue and what steps are being taken to address the issue. Once a
Regulatory Halt under subparagraph (b)(i) has been declared, the
Primary Listing Market will continue to evaluate the circumstances to
determine when trading may resume in accordance with the rules of the
Primary Listing Market.
(c) Initiating a Regulatory Halt.
(i) The start time of a Regulatory Halt is when the Primary Listing
Market declares the halt, regardless of whether an issue with
communications impacts the dissemination of the notice.
(ii) If a Processor is unable to disseminate notice of a Regulatory
Halt
[[Page 94974]]
or the Primary Listing Market is not open for trading, the Primary
Listing Market will take reasonable steps to provide notice of a
Regulatory Halt, which shall include both the type and start time of
the Regulatory Halt, by dissemination through:
(A) PDP;
(B) posting on a publicly-available Member website;
(C) system status messages; or
(D) a notification via an alternate Processor, if available.
(iii) Except in exigent circumstances, the Primary Listing Market
will not declare a Regulatory Halt retroactive to a time earlier than
the notice of such halt.
(iv) Resumption of Trading After Regulatory Halts Other Than SIP
Halts. The Primary Listing Market will declare a resumption of trading
when it makes a good-faith determination that trading may resume in a
fair and orderly manner and in accordance with its rules.
(v) For a Regulatory Halt that is initiated by another Member that
is a Primary Listing Market, a Member may resume trading after the
Member receives notification from the Primary Listing Market that the
Regulatory Halt has been terminated.
(d) Resumption of Trading After SIP Halt.
(i) The Primary Listing Market will determine the SIP Halt Resume
Time. In making such determination, the Primary Listing Market will
make a good-faith determination and consider the totality of
information to determine whether resuming trading would promote a fair
and orderly market, including input from the Processors, the other
Members, or the operator of the system in question (as well as any
Trading Center(s) to which such system is linked), regarding
operational readiness to resume trading. The Primary Listing Market
retains discretion to delay the SIP Halt Resume Time if it believes
trading will not resume in a fair and orderly manner.
(ii) The Primary Listing Market will terminate a SIP Halt with a
notification that specifies a SIP Halt Resume Time. The Primary Listing
Market shall provide a minimum notice of a SIP Halt Resume Time, as
specified by the rules of the Primary Listing Market, during which
period market participants may enter quotes and orders in the affected
securities. During Regular Trading Hours, the last SIP Halt Resume Time
before the end of Regular Trading Hours shall be an amount of time as
specified by the rules of the Primary Listing Market. The Primary
Listing Market may stagger the SIP Halt Resume Times for multiple
symbols in order to reopen in a fair and orderly manner.
(iii) During Regular Trading Hours, if the Primary Listing Market
does not open a security within the amount of time as specified by the
rules of the Primary Listing Market after the SIP Halt Resume Time, a
Member may resume trading in that security. Outside Regular Trading
Hours, a Member may resume trading immediately after the SIP Halt
Resume Time.
(e) Member to Halt Trading During Regulatory Halt. A Member will
halt trading for any security traded on its Market if the Primary
Listing Market declares a Regulatory Halt for the security.
(f) Communications. Whenever, in the exercise of its regulatory
functions, the Primary Listing Market for an Eligible Security
determines it is appropriate to initiate a Regulatory Halt, the Primary
Listing Market will notify all other Members and the affected
Processors of such Regulatory Halt as well as provide notice that a
Regulatory Halt has been lifted using such protocols and other
emergency procedures as may be mutually agreed to between the Members
and the Primary Listing Market. The affected Processors shall
disseminate to Members notice of the Regulatory Halt (as well as notice
of the lifting of a Regulatory Halt) (i) through the CT Feeds or (ii)
any other means the affected Processors, in its sole discretion,
considers appropriate. Each Member shall be required to continuously
monitor these communication protocols established by the Operating
Committee and the Processors during market hours, and the failure of a
Member to do so shall not prevent the Primary Listing Market from
initiating a Regulatory Halt in accordance with the procedures
specified herein.
Section 7.2 Hours of Operation of the System.
(a) Quotation Information shall be entered, as applicable, by
Members as to all Eligible Securities in which they make a market
during Regular Trading Hours on all days the Processors are in
operation. Transaction Reports shall be entered for executions that
occur from 9:30 a.m. until 4:00:00 p.m. ET by Members as to all
Eligible Securities in which they execute transactions during Regular
Trading Hours on all days the Processors are in operation.
(b) Members that execute transactions in Eligible Securities
outside of Regular Trading Hours, shall report such transactions as
follows:
(i) transactions in Eligible Securities executed from 4:00 a.m. up
to 9:30:00 a.m. ET (or as otherwise designated by a Member as an
execution occurring outside of Regular Trading Hours) and after 4:00:00
p.m. until 8:00 p.m. ET, shall be designated with an appropriate
indicator to denote their execution outside normal market hours;
(ii) transactions in Eligible Securities executed after 8:00 p.m.
and before 12:00 a.m. (midnight) shall be reported to the Processors
between the hours of 4:00 a.m. and 8:00 p.m. ET on the next business
day (T+1), and shall be designated ``as/of'' trades to denote their
execution on a prior day, and be accompanied by the time of execution;
(iii) transactions in Eligible Securities executed between 12:00
a.m. (midnight) and 4:00 a.m. ET shall be transmitted to the Processors
between 4:00 a.m. and 9:30 a.m. ET, on trade date, shall be designated
with an appropriate indicator to denote their execution outside normal
market hours, and shall be accompanied by the time of execution; and
(iv) transactions reported pursuant to this Section [7.3]7.2 shall
be included in the calculation of total trade volume for purposes of
determining Net Distributable Operating Revenue, but shall not be
included in the calculation of the daily high, low, or last sale.
(c) Late trades shall be reported in accordance with the rules of
the Member in whose Market the transaction occurred and can be reported
between the hours of 4:00 a.m. and 8:00 p.m. ET.
(d) The Processors shall collect, process and disseminate Quotation
Information in Eligible Securities at other times between 4:00 a.m. and
9:30 a.m. ET, and after 4:00 p.m. ET, when any Member or FINRA
Participant is open for trading, until 8:00 p.m. ET (the ``Additional
Period''); provided, however, that the National Best Bid and Offer
quotation will not be disseminated before 4:00 a.m. or after 8:00 p.m.
ET. Members that enter Quotation Information or submit Transaction
Reports to the Processors during the Additional Period shall do so for
all Eligible Securities in which they enter quotations.
Article VIII.
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
Section 8.1 Capital Accounts.
(a) A separate capital account (``Capital Account'') shall be
established by the Company and maintained by the Administrator for each
Member in accordance with section 704(b) of the Code and Treasury
Regulation section 1.704-1(b)(2)(iv). There shall be
[[Page 94975]]
credited to each Member's Capital Account (i) the Capital Contributions
(at fair market value in the case of contributed property) made by such
Member (which shall be deemed to be zero for the initial Members), (ii)
allocations of Company profits and gain (or items thereof) to such
Member pursuant to Section 9.2 and (iii) any recaptured tax credits, or
portion thereof, to the extent such increase to the tax basis of a
Member's interest in the Company may be allowed pursuant to the Code.
Each Member's Capital Account shall be decreased by (x) the amount of
distributions (at fair market value in the case of property distributed
in kind) to such Member, (y) allocations of Company losses to such
Member (including expenditures which can neither by capitalized nor
deducted for tax purposes, organization and syndication expenses not
subject to amortization and loss on sale or disposition of the
Company's assets, whether or not disallowed under sections 267 or 707
of the Code) pursuant to Section 9.2 and (z) any tax credits, or
portion thereof, as may be required to be charged to the tax basis of a
Membership Interest pursuant to the Code. Capital Accounts shall not be
adjusted to reflect a Member's share of liabilities under section 752
of the Code.
(b) The fair market value of contributed, distributed, or revalued
property shall be agreed to by the Operating Committee or, if there is
no such agreement, by an appraisal.
(c) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended
to comply with Treasury Regulation section 1.704-1(b) promulgated under
section 704(b) of the Code, and shall be interpreted and applied in a
manner consistent with such Treasury Regulations.
Section 8.2 Additional Capital Contributions.
Except with the approval of the Operating Committee or as otherwise
provided in this Section 8.2, no Member shall be obligated or permitted
to make any additional contribution to the capital of the Company. The
Members agree to make additional Capital Contributions from time to
time as appropriate in respect of reasonable administrative and other
reasonable expenses of the Company.
Section 8.3 Distributions.
Except as set forth in this Section 8.3 and Section 11.2, and
subject to the provisions of Section 13.1, Distributions shall be made
to the Members at the times and in the aggregate amounts set forth in
Exhibit D. Notwithstanding any provisions to the contrary contained in
this Agreement, the Company shall not make a Distribution to a Member
on account of its interest in the Company if such Distribution would
violate Section 18-607 of the Delaware Act or other Applicable Law.
Distributions may be made in cash or, if determined by the Operating
Committee, in-kind. The Operating Committee may reserve amounts for
anticipated expenses or contingent liabilities of the Company. In the
event that additional Capital Contributions are called for, and any
Member fails to provide the full amount of such additional Capital
Contributions as set forth in the relevant resolution of the Operating
Committee, any Distributions to be made to such defaulting Member shall
be reduced by the amount of any required but unpaid Capital
Contribution due from such Member.
Article IX.
ALLOCATIONS
Section 9.1 Calculation of Profits and Losses.
To the fullest extent permitted by Applicable Law, the profits and
losses of the Company shall be determined for each fiscal year in a
manner consistent with GAAP.
Section 9.2 Allocation of Profits and Losses.
(a) Except as otherwise set forth in this Section 9.2, for Capital
Account purposes, all items of income, gain, loss, and deduction shall
be allocated among the Members in accordance with Exhibit D.
(b) For federal, state and local income tax purposes, items of
income, gain, loss, deduction, and credit shall be allocated to the
Members in accordance with the allocations of the corresponding items
for Capital Account purposes under this Section 9.2, except that items
with respect to which there is a difference between tax and book basis
will be allocated in accordance with Section 704(c) of the Code, the
Treasury Regulations thereunder and Treasury Regulations Section 1.704-
1(b)(4)(i).
(c) Notwithstanding any provision set forth in this Section 9.2, no
item of deduction or loss shall be allocated to a Member to the extent
the allocation would cause a negative balance in such Member's Capital
Account (after taking into account the adjustments, allocations and
distributions described in Treasury Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6)) that exceeds the amount that such
Member would be required to reimburse the Company pursuant to this
Agreement or Applicable Law.
(d) In the event any Member unexpectedly receives any adjustments,
allocations, or distributions described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6), items of the Company's
income and gain shall be specially allocated to such Member in an
amount and manner sufficient to eliminate as quickly as possible any
deficit balance in its Capital Account created by such adjustments,
allocations or distributions in excess of that permitted under Section
9.2(c). Any special allocations of items of income or gain pursuant to
this Section 9.2(d) shall be taken into account in computing subsequent
allocations pursuant to this Section 9.2 so that the net amount of any
items so allocated and all other items allocated to each Member
pursuant to this Section 9.2 shall, to the extent possible, be equal to
the net amount that would have been allocated to each such Member
pursuant to the provisions of this Section 9.2 if such unexpected
adjustments, allocations or distributions had not occurred.
Article X.
RECORDS AND ACCOUNTING; REPORTS
Section 10.1 Accounting.
(a) The Operating Committee shall maintain a system of accounting
which enables the Company to produce accounting records and information
substantially consistent with GAAP. The Fiscal Year of the Company
shall be the calendar year unless Applicable Law requires a different
Fiscal Year.
(b) All matters concerning accounting procedures shall be
determined by the Operating Committee.
Section 10.2 Tax Status; Returns.
(a) It is the intent of this Company and the Members that this
Company shall be treated as a partnership for federal, state and local
income tax purposes. Neither the Company nor any Member shall make an
election for the Company to be classified as other than a partnership
pursuant to Treasury Regulations Section 301.7701-3 or otherwise.
(b) The Company shall cause federal, state, and local income tax
returns for the Company to be prepared and timely filed with the
appropriate authorities and shall arrange for the timely delivery to
the Members of such information as is necessary for such Members to
prepare their federal, state and local tax returns. All tax returns
shall be prepared in a manner consistent with
[[Page 94976]]
the Distributions made in accordance with Exhibit D.
Section 10.3 Partnership Representative.
(a) The Operating Committee shall appoint an entity as the
``Partnership Representative'' of the Company for purposes of Section
6223 of the Code and the Treasury Regulations promulgated thereunder,
and all federal, state, and local Tax audits and litigation shall be
conducted under the direction of the Partnership Representative.
(b) The Partnership Representative shall use reasonable efforts to
inform each Member of all significant matters that may come to its
attention by giving notice thereof and to forward to each Member copies
of all significant written communications it may receive in such
capacity. The Partnership Representative shall consult with the Members
before taking any material actions with respect to tax matters,
including actions relating to (i) an IRS examination of the Company
commenced under Section 6231(a) of the Code, (ii) a request for
administrative adjustment filed by the Company under Section 6227 of
the Code, (iii) the filing of a petition for readjustment under Section
6234 of the Code with respect to a final notice of partnership
adjustment, (iv) the appeal of an adverse judicial decision, and (v)
the compromise, settlement, or dismissal of any such proceedings.
(c) The Partnership Representative shall not compromise or settle
any tax audit or litigation affecting the Members without the approval
of a majority of Members. Any material proposed action, inaction, or
election to be taken by the Partnership Representative, including the
election under Section 6226(a)(1) of the Code, shall require the prior
approval of a majority of Members.
Article XI.
DISSOLUTION AND TERMINATION
Section 11.1 Dissolution of Company.
The Company shall dissolve, and its assets and business shall be
wound up, upon the occurrence of any of the following events:
(a) Unanimous written consent of the Members to dissolve the
Company;
(b) The sale or other disposition of all or substantially all the
Company's assets outside the ordinary course of business;
(c) An event which makes it unlawful or impossible for the Company
business to be continued;
(d) The withdrawal of one or more Members such that there is only
one remaining Member; or
(e) The entry of a decree of judicial dissolution under Sec. 18-
802 of the Delaware Act.
Section 11.2 Liquidation and Distribution.
Following the occurrence of an event described in Section 11.1, the
Members shall appoint a liquidating trustee who shall wind up the
affairs of the Company by (i) selling its assets in an orderly manner
(so as to avoid the loss normally associated with forced sales), and
(ii) applying and distributing the proceeds of such sale, together with
other funds held by the Company: (a) first, to the payment of all debts
and liabilities of the Company; (b) second, to the establishments of
any reserves reasonably necessary to provide for any contingent
recourse liabilities and obligations; (c) third, to the Members in
accordance with Exhibit D; and (d) fourth, to the Members as determined
by a majority of Members.
Section 11.3 Termination.
Each of the Members shall be furnished with a statement prepared by
the independent accountants retained on behalf of the Company, which
shall set forth the assets and liabilities of the Company as of the
date of the final distribution of Company's assets under Section 11.2
and the net profit or net loss for the fiscal period ending on such
date. Upon compliance with the distribution plan set forth in Section
11.2, the Members shall cease to be such, and the liquidating trustee
shall execute, acknowledge, and cause to be filed a certificate of
cancellation of the Company. Upon completion of the dissolution,
winding up, liquidation, and distribution of the liquidation proceeds,
the Company shall terminate.
Article XII.
EXCULPATION AND INDEMNIFICATION
Section 12.1 Exculpation.
Each Member, by and for itself, each of its Affiliates and each of
its and their respective equity holders, directors, officers,
controlling persons, partners, employees, successors and assigns,
hereby acknowledges and agrees that it is the intent of the Company and
each Member that the liability of each Member and each individual
currently or formerly serving as a[n SRO] Voting Representative (each,
an ``Exculpated Party'') be limited to the maximum extent permitted by
Applicable Law or as otherwise expressly provided herein. In accordance
with the foregoing, the Members hereby acknowledge and agree that:
(a) To the maximum extent permitted by Applicable Law or as
otherwise expressly provided herein, no present or former Exculpated
Party or any of such Exculpated Party's Affiliates, heirs, successors,
assigns, agents or representatives shall be liable to the Company or
any Member for any loss suffered in connection with a breach of any
fiduciary duty, errors in judgment or other acts or omissions by such
Exculpated Party; provided, however, that this provision shall not
eliminate or limit the liability of such Exculpated Party for (i) acts
or omissions which involve gross negligence, willful misconduct or a
knowing violation of law, or (ii) as provided in Section 5.4(d) hereof,
losses resulting from such Exculpated Party's Transaction Reports,
Quotation Information or other information reported to the Processors
by such Exculpated Party (collectively ``Non-Exculpated Items''). Any
Exculpated Party may consult with counsel and accountants in respect of
Company affairs, and provided such Person acts in good faith reliance
upon the advice or opinion of such counsel or accountants, such Person
shall not be liable for any loss suffered in reliance thereon.
(b) Notwithstanding anything to the contrary contained herein,
whenever in this Agreement or any other agreement contemplated herein
or otherwise, an Exculpated Party is permitted or required to take any
action or to make a decision in its ``sole discretion'' or
``discretion'' or that it deems ``necessary,'' or ``necessary or
appropriate'' or under a grant of similar authority or latitude, the
Exculpated Party may, insofar as Applicable Law permits, make such
decision in its sole discretion (regardless of whether there is a
reference to ``sole discretion'' or ``discretion''). The Exculpated
Party (i) shall be entitled to consider such interests and factors as
it desires (including its own interests), (ii) shall have no duty or
obligation (fiduciary or otherwise) to give any consideration to any
interest of or factors affecting the Company or the Members, and (iii)
shall not be subject to any other or different standards imposed by
this Agreement, or any other agreement contemplated hereby, under any
Applicable Law or in equity.
Section 12.2 Right to Indemnification.
(a) Subject to the limitations and conditions provided in this
Article XII and to the fullest extent permitted by Applicable Law, the
Company shall indemnify each Company Indemnified Party for Losses as a
result of the Company Indemnified Party being a
[[Page 94977]]
Party to a Proceeding. Notwithstanding the foregoing, no such
indemnification shall be available in the event the Company is a
claimant against the Company Indemnified Party.
(b) Indemnification under this Article XII shall continue as to a
Company Indemnified Party who has ceased to serve in the capacity that
initially entitled such Company Indemnified Party to indemnity
hereunder; provided, however, that the Company shall not be obligated
to indemnify a Company Indemnified Party for the Company Indemnified
Party's Non-Exculpated Items.
(c) The rights granted pursuant to this Article XII shall be deemed
contract rights, and no amendment, modification, or repeal of this
Article XII shall have the effect of limiting or denying any such
rights with respect to actions taken or Proceedings arising prior to
any amendment, modification, or repeal. It is expressly acknowledged
that the indemnification provided in this Article XII could involve
indemnification for negligence or under theories of strict liability.
(d) The Company shall be the primary obligor in respect of any
Company Indemnified Party's claim for indemnification, for advancement
of expenses, or for providing insurance, subject to this Article XII.
The obligation, if any, of any Member or its Affiliates to indemnify,
to advance expenses to, or provide insurance for any Company
Indemnified Party shall be secondary to the obligations of the Company
under this Article XII (and the Company's insurance providers shall
have no right to contribution or subrogation with respect to the
insurance plans of such Member or its Affiliates).
Section 12.3 Advance Payment.
Reasonable expenses incurred by a Company Indemnified Party who is
a named defendant or respondent to a Proceeding shall be paid by the
Company in advance of the final disposition of the Proceeding upon
receipt of an undertaking by or on behalf of such Company Indemnified
Party to repay such amount if it shall ultimately be determined that he
or she is not entitled to be indemnified by the Company.
Section 12.4 Appearance as a Witness.
Notwithstanding any other provision of this Article XII, the
Company shall pay or reimburse reasonable out-of-pocket expenses
incurred by a Company Indemnified Party in connection with his
appearance as a witness or other participation in a Proceeding at a
time when he is not a named defendant or respondent in the Proceeding.
Section 12.5 Nonexclusivity of Rights.
The right to indemnification and the advancement and payment of
expenses conferred in this Article XII shall not be exclusive of any
other right which any Company Indemnified Person may have or hereafter
acquire under any law (common or statutory), provision of the
Certificate or this Agreement or otherwise.
Article XIII.
MISCELLANEOUS
Section 13.1 Expenses.
The Company shall pay all current expenses, including any Taxes
payable by the Company, whether for its own account or otherwise
required by law (including any costs of complying with applicable tax
obligations), third-party service provider fees, and all administrative
and processing expenses and fees, as well as any other amounts owing to
the Processors under the Processor Services Agreements, to the
Administrator under the Administrative Services Agreement, or to the
Processors, Administrator, or FINRA under Exhibit D to this Agreement,
before any allocations may be made to the Members. Appropriate
reserves, as unanimously determined by the Members, may be charged to
the Capital Account of the Members for (i) contingent liabilities, if
any, as of the date any such contingent liabilities become known to the
Operating Committee, or (ii) amounts needed to pay the Company's
operating expenses, including administrative and processing expenses
and fees, before any allocations are made to the Member. Each Member
shall bear the cost of implementation of any technical enhancements to
the System made at its request and solely for its use, subject to
reapportionment should any other Member subsequently make use of the
enhancement, or the development thereof.
Section 13.2 Entire Agreement.
Upon the Operative Date, this Agreement supersedes the CQ Plan, the
CTA Plan, and the UTP Plan and all other prior agreements among the
Members with respect to the subject matter hereof. This instrument
contains the entire agreement with respect to such subject matter.
Section 13.3 Notices and Addresses.
Unless otherwise specified herein, all notices, consents,
approvals, reports, designations, requests, waivers, elections, and
other communications (collectively, ``Notices'') authorized or required
to be given pursuant to this Agreement shall be in writing and may be
delivered by certified or registered mail, postage prepaid, by hand, by
any private overnight courier service, or notification through the
Company's web portal. Such Notices shall be mailed or delivered to the
Members at the addresses set forth on Exhibit A or such other address
as a Member may notify the other Members of in writing. Any Notices to
be sent to the Company shall be delivered to the principal place of
business of the Company or at such other address as the Operating
Committee may specify in a notice sent to all of the Members. Notices
shall be effective (i) if mailed, on the date three days after the date
of mailing, (ii) if hand delivered or delivered by private courier, on
the date of delivery, or (iii) if sent by through the Company's web
portal, on the date sent; provided, however, that notices of a change
of address shall be effective only upon receipt.
Section 13.4 Governing Law.
This Agreement shall be governed by and construed in accordance
with the Delaware Act and internal laws and decisions of the State of
Delaware, without regard to the conflicts of laws principles thereof;
provided, however, that the rights and obligations of the Members, the
Processors and the Administrator, and of Vendors, Subscribers, and
other Persons contracting with the Company in respect of the matters
covered by this Agreement, shall at all times also be subject to any
applicable provisions of the Exchange Act and any rules and regulations
promulgated thereunder. For the avoidance of doubt, nothing in this
Agreement waives any protection or limitation of liability afforded any
of the Members or any of their Affiliates by common law, including the
doctrines of self-regulatory organization immunity and federal
preemption.
Section 13.5 Amendments.
(a) Except as this Agreement otherwise provides, this Agreement may
be modified from time to time when authorized by the Operating
Committee pursuant to Section 4.3, subject to the approval of the
Commission or when such modification otherwise becomes effective
pursuant to Section 11A of the Exchange Act and Rule 608 of Regulation
NMS.
(b) In the case of a Ministerial Amendment, the Chair of the
Company's Operating Committee may modify this Agreement by submitting
to
[[Page 94978]]
the Commission an appropriate amendment that sets forth the
modification; provided, however, that 48-hours advance notice of the
amendment to the Operating Committee in writing is required. Such an
amendment shall become effective upon filing with the Commission in
accordance with Section 11A of the Exchange Act and Rule 608 of
Regulation NMS.
(c) ``Ministerial Amendment'' means an amendment to this Agreement
that pertains solely to any one or more of the following:
(i) admitting a new Member to the Company;
(ii) changing the name or address of a Member;
(iii) incorporating a change that the Commission has implemented by
rule and that requires no conforming language to the text of this
Agreement;
(iv) incorporating a change (A) that the Commission has implemented
by rule, (B) that requires conforming language to the text of this
Agreement, and (C) whose conforming language to the text of this
Agreement has been approved by the affirmative vote of the Operating
Committee pursuant to Section 4.3;
(v) incorporating a change (A) that a Governmental Authority
requires relating to the governance or operation of an LLC, (B) that
requires conforming language to the text of this Agreement, and (C)
whose conforming language to the text of this Agreement has been
approved by the affirmative vote of the Operating Committee pursuant to
Section 4.3[ or upon approval by a majority of Members pursuant to
Section 13.5(b), as applicable]; or
(vi) incorporating a purely technical change, such as correcting an
error or an inaccurate reference to a statutory provision, or removing
language that has become obsolete.
Section 13.6 Successors.
This Agreement shall be binding upon and inure to the benefit of
the Members and their respective legal representatives and successors.
Section 13.7 Limitation on Rights of Others.
None of the provisions of this Agreement shall be for the benefit
of or enforceable by any creditor of the Company. Furthermore, except
as provided in Section 3.7(b), the Members shall not have any duty or
obligation to any creditor of the Company to make any contribution to
the Company or to issue any call for capital pursuant to this
Agreement. Nothing in this Agreement shall be deemed to create any
legal or equitable right, remedy or claim in any Person not a party
hereto (other than any Person indemnified under Article XII).
Section 13.8 Counterparts.
This Agreement may be executed by the Members in any number of
counterparts, no one of which need contain the signature of all
Members. As many such counterparts as shall together contain all such
signatures shall constitute one and the same instrument.
Section 13.9 Headings.
The section and other headings contained in this Agreement are for
reference purposes only and shall not be deemed to be a part of this
Agreement or to affect the meaning or interpretation of any provisions
of this Agreement.
Section 13.10 Validity and Severability.
If any provision of this Agreement shall be held invalid or
unenforceable, that shall not affect the validity or enforceability of
any other provisions of this Agreement, all of which shall remain in
full force and effect.
Section 13.11 Statutory References.
Each reference in this Agreement to a particular statute or
regulation, or a provision thereof, shall be deemed to refer to such
statute or regulation, or provision thereof, or to any similar or
superseding statute or regulation, or provision thereof, as is from
time to time in effect.
Section 13.12 Modifications To Be in Writing.
This Agreement constitutes the entire understanding of the parties
hereto with respect to the subject matter hereof, and no amendment,
modification or alteration shall be binding unless the same is in
writing and adopted in accordance with the provisions of Section 13.5.
Article XIV.
IMPLEMENTATION
Section 14.1 Implementation Timeline.
[The steps to implement the Plan and timelines for completing these
various steps are set forth in Exhibit F. The timeline shall begin when
the Plan is approved by the Commission, and such approval is published
on the Commission's website. The steps to implement the Plan have been
organized into multiple workstreams, some of which can be performed in
parallel, and others have dependencies that need to be completed before
they can begin. In the Exhibit F, the Company has identified such
dependencies, some of which are outside the control of the Operating
Committee. In the event a workstream listed in Exhibit F takes shorter
or, due to factors outside the Operating Committee's reasonable
control, takes longer than expected, the timelines for contingent steps
shall be adjusted accordingly to account for such change. Any
lengthening of the timeline must be made by an affirmative vote of the
Operating Committee pursuant to Section 4.3(b) and must be based on a
reasonable determination that the timeline needs to be extended. In
such instances, the Operating Committee will include the adjustment in
its written progress report to the Commission in accordance with
Section 14.2.]
(a) No later than one month after the Effective Date, the Voting
Representatives shall be determined pursuant to Section 4.2 of this
Agreement.
(b) No later than three months after the Effective Date, the Voting
Representatives shall select the members of the Advisory Committee.
(c) No later than 12 months after the Effective Date, the Operating
Committee shall file with the Commission proposed Fees charged to
Vendors and Subscribers for Transaction Reports and Quotation
Information in Eligible Securities.
(d) No later than 30 months after the Effective Date, or no later
than 90 days after the Commission has approved Fees charged to Vendors
and Subscribers for Transaction Reports and Quotation Information in
Eligible Securities, whichever date is later, the Plan shall conduct
the Processor and Administrator functions related to the public
dissemination of real-time consolidated Transaction Reports and
Quotation Information for Eligible Securities.
(e) No later than 30 months after the Effective Date, the entity
performing the role of Administrator of the Plan shall meet the
requirements of Section 6.2 of this Agreement and shall have been
selected pursuant to the process in Section 6.4 of this Agreement.
Section 14.2 Written Progress Reports to Commission.
(a) Beginning three months after the formation of the Operating
Committee and continuing every three months until the Operative Date,
the Operating Committee will provide written progress reports to the
Commission every three months.
[[Page 94979]]
(b) The written progress reports will contain the actions
undertaken to date by the Operating Committee and a detailed
description of the progress made toward completing each of the steps
[listed in Exhibit F]required to implement the Plan. The Operating
Committee will promptly make such progress reports available on the CQ
Plan and CTA Plan's and UTP Plan's websites until such time as[, and
on] the Plan's website becomes available[, when available after the
selection of the Administrator].
Section 14.3 Transition From CQ Plan, CTA Plan, and UTP Plan.
(a) Until the Operative Date, the Members will continue to operate
pursuant to the CQ Plan, CTA Plan, and UTP Plan with respect to the
public dissemination of real-time consolidated equity market data for
Eligible Securities rather than this Agreement.
(b) As of the Operative Date, the Members shall conduct, through
the Company, the Processor and Administrator functions related to the
public dissemination of real-time consolidated equity market data for
Eligible Securities required by the Commission to be performed by the
Members under the Exchange Act and the rules and regulations
thereunder. The Members shall file an amendment to the CQ Plan, CTA
Plan, and UTP Plan to cease their operation as of the Operative Date.
IN WITNESS WHEREOF, the undersigned Members have executed this
Agreement as of the day and year first above written.
EXHIBIT A
Members of CT Plan LLC
Member Name and Address
Cboe BYX Exchange, Inc., 400 South LaSalle Street, Chicago, Illinois
60605
Cboe BZX Exchange, Inc., 400 South LaSalle Street, Chicago, Illinois
60605
Cboe EDGA Exchange, Inc., 400 South LaSalle Street, Chicago, Illinois
60605
Cboe EDGX Exchange, Inc., 400 South LaSalle Street, Chicago, Illinois
60605
Cboe Exchange, Inc., 400 South LaSalle Street, Chicago, Illinois 60605
Financial Industry Regulatory Authority, Inc., 1700 K Street NW,
Washington, D.C. 20006
Investors Exchange LLC, 3 World Trade Center 58th Floor, New York, New
York 10007
Long-Term Stock Exchange, Inc., 101 Greenwich Street, 15th Floor, New
York, New York 10014
MEMX LLC, 382 NE 191st Street, Suite 92178, Miami, FL 33179
MIAX PEARL, LLC, 7 Roszel Road, Suite 1A, Princeton, New Jersey 08540
Nasdaq BX, Inc., One Liberty Plaza, 165 Broadway, New York, New York
10006
Nasdaq ISE, LLC, One Liberty Plaza, 165 Broadway, New York, New York
10006
Nasdaq PHLX LLC, FMC Tower, Level 8, 2929 Walnut Street, Philadelphia,
Pennsylvania 19104
The Nasdaq Stock Market LLC, One Liberty Plaza, 165 Broadway, New York,
NY 10006
New York Stock Exchange LLC, 11 Wall Street, New York, New York 10005
NYSE American LLC, 11 Wall Street, New York, New York 10005
NYSE Arca, Inc., 11 Wall Street, New York, New York 10005
NYSE Chicago, Inc., 11 Wall Street, New York, New York 10005
NYSE National, Inc., 11 Wall Street, New York, NY 10005
EXHIBIT B
Disclosures
(a) The Members must respond to the following questions and
instructions:
(i) Is the Member for profit or not-for-profit? If the Member is
for profit, is it publicly or privately owned? If privately owned, list
any owner with an interest of 5% or more of the Member, where to the
Member's knowledge, such owner, or any affiliate controlling,
controlled by, or under common control with the owner, subscribes,
directly or through a third-party vendor, to CT Feeds and/or Member
PDP.
(ii) Does the Member offer PDP? If yes, list each product, describe
its content, and provide a link to where fees for each product are
disclosed.
(iii) Provide the names of the Voting Representative, any alternate
Voting Representatives designated by the Member, and any Member
Observers. Also provide a narrative description of such persons' roles
within the Member organization, including the title of each individual
as well as any direct responsibilities related to the development,
dissemination, sales, or marketing of the Member's PDP, and the nature
of those responsibilities sufficient for the public to identify the
nature of any potential conflict of interest that could be perceived by
a reasonable objective observer as having an effect on the operation of
the Company. If such persons work in or with the Member's PDP business,
describe such persons' roles and describe how that business and such
persons' Company responsibilities impacts their compensation. In
addition, describe how such persons' responsibilities with the PDP
business may present a conflict of interest with their responsibilities
to the Company.
(iv) Does the Member, its Voting Representative, its alternate
Voting Representative, or its Member Observers or any affiliate have
additional relationships or material economic interests that could be
perceived by a reasonable objective observer to present a potential
conflict of interest with their responsibilities to the Company? If so,
provide a detailed narrative discussion of all material facts necessary
to identify the potential conflicts of interest and the effects they
may have on the Company.
(b) The Processors must respond to the following questions and
instructions:
(i) Is the Processor an affiliate of or affiliated with any Member?
If yes, disclose the Member(s) and describe the nature of the
affiliation. Include an entity-level organizational chart depicting the
Processor and its affiliates.
(ii) Provide a narrative description of the functions directly
performed by senior staff, the manager employed by the Processor to
provide Processor services to the Company, and the staff that reports
to that manager.
(iii) Does the Processor provide any services for any Member's PDP,
other NMS Plans, or creation of consolidated equity data information
for its own use? If Yes, disclose the services the Processor performs
and identify which NMS Plans. Does the Processor have any profit or
loss responsibility for a Member's PDP or any other professional
involvement with persons the Processor knows are engaged in a Member's
PDP business? If so, describe.
(iv) List the policies and procedures established to safeguard
Restricted Information, Highly Confidential Information, and
Confidential Information that is applicable to the Processor.
(v) Does the Processor, or its representatives, have additional
relationships or material economic interests that could be perceived by
a reasonable objective observer to present a potential conflict of
interest with the representatives' responsibilities to the Company? If
so, provide a detailed narrative discussion of all material facts
necessary to identify the potential conflicts of interest and the
effects they may have on the Company.
(c) The Administrator must respond to the following questions and
instructions:
(i) Provide a narrative description of the functions directly
performed by senior staff, the administrative services
[[Page 94980]]
manager, and the staff that reports to that manager.
(ii) Does the Administrator provide any services for any Member's
PDP? If yes, what services? Does the Administrator have any profit or
loss responsibility, or licensing responsibility, for a Member's PDP or
any other professional involvement with persons the Administrator knows
are engaged in the Member's PDP business? If so, describe.
(iii) List the policies and procedures established to safeguard
Restricted Information, Highly Confidential Information, and
Confidential Information that is applicable to the Administrator.
(iv) Does the Administrator, or its representatives, have
additional relationships or material economic interests that could be
perceived by a reasonable objective observer to present a potential
conflict of interest with the representatives' responsibilities to the
Company? If so, provide a detailed narrative discussion of all material
facts necessary to identify the potential conflicts of interest and the
effects they may have on the Company.
(d) The members of the Advisory Committee must respond to the
following questions and instructions:
(i) Provide the member of the Advisory Committee's title and a
brief description of the member of the Advisory Committee's role within
the firm as well as any direct responsibilities related to the
procurement of PDP or CT Feeds or the development, dissemination,
sales, or marketing of PDP, and the nature of those responsibilities
sufficient for the public to identify the nature of any potential
conflict of interest that could be perceived by a reasonable objective
observer as having an effect on the operation of the Company. If such
representatives work in or with their employer's market data business,
describe such member of the Advisory Committee's roles and describe how
that business impacts their compensation. In addition, describe how
such representatives' responsibilities with the market data business
may present a conflict of interest with their responsibilities to the
Company.
(ii) Does the member of the Advisory Committee have
responsibilities related to the firm's use or procurement of market
data?
(iii) Does the member of the Advisory Committee have
responsibilities related to the firm's trading or brokerage services?
(iv) Does the member of the Advisory Committee's firm use the CT
Feeds? Does the member of the Advisory Committee's firm use a Member's
PDP?
(v) Does the member of the Advisory Committee's firm offer PDP? If
yes, list each product, described its content, and provide information
about the fees for each product.
(vi) Does the member of the Advisory Committee's firm have an
ownership interest of 5% or more in one or more Members? If yes, list
the Member(s).
(vii) Does the member of the Advisory Committee actively
participate in any litigation against the CQ Plan, CTA Plan, UTP Plan,
or the Company?
(viii) Does the member of the Advisory Committee or the member of
the Advisory Committee's firm have additional relationships or material
economic interests that could be perceived by a reasonable objective
observer to present a potential conflict of interest with their
responsibilities to the Company. If so, provide a detailed narrative
discussion of all material facts necessary to identify the potential
conflicts of interest and the effects they may have on the Company.
(e) Each service provider or subcontractor that has agreed in
writing to provide required disclosures and be treated as a Disclosing
Party shall respond to the following questions and instructions:
(i) Is the service provider or subcontractor affiliated with a
Member, Processor, Administrator, or employer of a member of the
Advisory Committee? If yes, disclose with whom the person is affiliated
and describe the nature of the affiliation.
(ii) If the service provider's or subcontractor's compensation is
on a commission basis or is tied to specific metrics, provide a
detailed narrative summary of how compensation is determined for
performing work on behalf of the Company.
(iii) Is the service provider or subcontractor subject to policies
and procedures (including information barriers) concerning the
protection of confidential information that includes affiliates? If so,
describe. If not, explain their absence.
(iv) Does the service provider or subcontractor, or its
representative, have additional relationships or material economic
interests that could be perceived by a reasonable objective observer to
present a potential conflict of interest with its responsibilities to
the Company? If so, provide a detailed narrative discussion of all
material facts necessary to identify the potential conflicts of
interest and the effects they may have on the Company.
(f) The responses to these questions will be posted on the
Company's website. If a Disclosing Party has any material changes in
its responses, the Disclosing Party must promptly update its
disclosures. Additionally, the Disclosing Parties must update the
disclosures on an annual basis to reflect any changes. This annual
update must be made before the first quarterly session meeting of each
calendar year, which is generally held in mid-February.
EXHIBIT C
Confidentiality Policy
(a) Purpose and Scope.
(i) The purpose of this Confidentiality Policy is to provide
guidance to the Operating Committee, and all subcommittees thereof,
regarding the confidentiality of any data or information (in physical
or electronic form) generated by, accessed by, or transmitted to the
Operating Committee or any subcommittee, as well as discussions
occurring at a meeting of the Operating Committee or any subcommittee.
(ii) This Policy applies to all Covered Persons. All Covered
Persons must adhere to the principles set out in this Policy and all
Covered Persons that are natural persons may not receive Company data
and information until they affirm in writing that they have read this
Policy and undertake to abide by its terms.
(iii) Covered Persons may not disclose Restricted, Highly
Confidential, or Confidential information except as consistent with
this Policy and directed by the Operating Committee.
(iv) The Administrator and Processors will establish written
confidential information policies that provide for the protection of
information under their control and the control of their Agents,
including policies and procedures that provide systemic controls for
classifying, declassifying, redacting, aggregating, anonymizing, and
safeguarding information, that is in addition to, and not less than,
the protection afforded herein. Such policies will be reviewed and
approved by the Operating Committee pursuant to Section 4.3, publicly
posted, and made available to the Operating Committee for review and
approval every two years thereafter or when changes are made, whichever
is sooner.
(v) Information will be classified solely based on its content.
(b) Procedures.
(i) General
(A) The Administrator and Processors will be the custodians of all
documents discussed by the Operating Committee and will be responsible
for maintaining
[[Page 94981]]
the classification of such documents pursuant to this Policy.
(B) The Administrator may, under delegated authority, designate
documents as Restricted, Highly Confidential, or Confidential, which
will be determinative unless altered by an affirmative vote of the
Operating Committee pursuant to Section 4.3.
(C) The Administrator will ensure that all Restricted, Highly
Confidential, or Confidential documents are properly labeled and, if
applicable, electronically safeguarded.
(D) All contracts between the Company and its Agents shall require
Company information to be treated as Confidential Information that may
not be disclosed to third parties, except as necessary to effect the
terms of the contract or as required by law, and shall incorporate the
terms of this Policy, or terms that are substantially equivalent or
more restrictive, into the contract.
(ii) Procedures Concerning Restricted Information.
(A) Disclosure of Restricted Information
(1) Except as provided below, Covered Persons in possession of
Restricted Information are prohibited from disclosing it to others.
(2) Covered Persons in possession of Restricted Information are
prohibited from disclosing it to others, including Agents, except where
authorized to do so by the Operating Committee. Any authorization to
disclose Restricted Information must specify the information to be
disclosed and identify the Covered Persons or third party authorized to
receive the Restricted Information, and such disclosure must be in
furtherance of the interests of the plan. Any authorization must be
granted on a case-by-case basis, unless the Operating Committee grants
standing approval to allow disclosure of specified recurring
information to identified Covered Persons. Any Covered Person or third
party receiving or having access to Restricted Information pursuant to
this subparagraph must segregate such information, retain it in
confidence, and use it only in a manner consistent with the terms of
this Policy.
(3) Covered Persons may disclose Restricted Information to the
staff of the SEC or as otherwise required by Applicable Law, or to
other Covered Persons as expressly provided for by this Policy.
(B) If the Administrator determines that it is appropriate to share
a customer's financial information with the Operating Committee or a
subcommittee thereof, the Administrator will first anonymize the
information by redacting the customer's name and any other information
that may lead to the identification of the customer.
(C) The Administrator may disclose the identity of a customer that
is the subject of Restricted Information in Executive Session only if
the Administrator determines in good faith that it is necessary to
disclose the customer's identity in order to obtain input or feedback
from the Operating Committee or a subcommittee thereof about a matter
of importance to the Company. In such an event, the Administrator will
change the designation of the information at issue from ``Restricted
Information'' to ``Highly Confidential Information,'' and its use will
be governed by the procedures for Highly Confidential Information in
subparagraph (iii) below.
(iii) Procedures Concerning Highly Confidential Information
(A) Disclosure of Highly Confidential Information:
(1) Highly Confidential Information may be disclosed in Executive
Session of the Operating Committee or to the subcommittee established
pursuant to Section [4.7(c)]4.8(d). Covered Persons in possession of
Highly Confidential Information are prohibited from disclosing it to
others, including Agents, except as provided below. This prohibition
does not apply to disclosures to the staff of the SEC[or as otherwise
required by law (such as those required to receive the information to
ensure the Member complies with its regulatory obligations)].
(2) A[n SRO] Voting Representative may disclose certain Highly
Confidential Information to officers or employees of a Member who have
direct or supervisory responsibility for the Member's participation in
the Plan, or with agents for the Member supporting the Member's
participation in the Plan, provided that such information may not be
used in the procurement for, or development, modeling, pricing,
licensing, or sale of, PDP. The types of Highly Confidential
Information permitted to be shared under this subparagraph shall
consist of (i) the Plan's contract negotiations with the Processor(s)
or Administrator; (ii) communications with, and work product of,
counsel to the Plan; and (iii) information concerning personnel matters
that affect the employees of the Member or of the Plan. Any Covered
Person receiving or having access to [Restricted Information]Highly
Confidential Information pursuant to this subparagraph must segregate
such information, retain it in confidence, and use it only in a manner
consistent with the terms of this Policy. Any [SRO]Voting
Representative who discloses Highly Confidential Information pursuant
to this subparagraph shall maintain a log documenting each instance of
such disclosure, including the information shared, the persons
receiving the information, and the date the information was shared.
(3) Highly Confidential Information may be disclosed to the staff
of the SEC, unless it is protected by the Attorney-Client Privilege or
the Work Product Doctrine. Any disclosure of Highly Confidential
Information to the staff of the SEC will be accompanied by a FOIA
Confidential Treatment request.
(4) Highly Confidential Information may be disclosed, as required
by Applicable Law.
(5) The Operating Committee may authorize the disclosure of
specified Highly Confidential Information to identified third parties
that are acting as Agents. Any authorization must be granted on a case-
by-case basis, unless the Operating Committee grants standing approval
to allow disclosure of specified recurring information to identified
third parties[Covered Persons]. Any [Covered Person or ]third party
receiving or having access to Highly Confidential Information pursuant
to this subparagraph must segregate such information, retain it in
confidence, and use it only in a manner consistent with the terms of
this Policy.
[(5)](6) Apart from the foregoing, the Operating Committee has no
power to authorize any other disclosure of Highly Confidential
Information.
(B) In the event that a Covered Person is determined by an
affirmative vote of the Operating Committee pursuant to this Policy to
have disclosed Highly Confidential Information, the Operating Committee
will determine the appropriate remedy for the breach based on the facts
and circumstances of the event. For a[n SRO] Voting Representative or
Member Observer, remedies include a letter of complaint submitted to
the SEC, which may be made public by the Operating Committee. For a
member of the Advisory Committee, remedies include removal of that
member of the Advisory Committee.
(iv) Procedures Concerning Confidential Information
(A) Confidential Information may be disclosed during a meeting of
the Operating Committee or any subcommittee thereof. Additionally, a
Covered Person may disclose Confidential Information to other persons
who need to receive such information to fulfill their
[[Page 94982]]
responsibilities to the Plan, including oversight of the Plan. The
recipient must segregate the information, retain it in confidence, and
use it only in a manner consistent with the terms of this policy. A
Covered Person also may disclose Confidential Information to the staff
of the SEC, as authorized by the Operating Committee as described
below, or as may be otherwise required by [law]Applicable Law.
(B) The Operating Committee may authorize the disclosure of
Confidential Information by an affirmative vote of the Operating
Committee pursuant to Section 4.3. Any authorization must be granted on
a case-by-case basis, unless the Operating Committee grants standing
approval to allow disclosure of specified recurring information to
identified Covered Persons. Any Covered Person or third party receiving
or having access to Confidential Information pursuant to this
subparagraph must segregate such information, retain it in confidence,
and use it only in a manner consistent with the terms of this Policy.
Notwithstanding the foregoing, the Operating Committee will not
authorize the disclosure of Confidential Information that is generated
by a Member or member of the Advisory Committee and designated by such
Member or member of the Advisory Committee as Confidential, unless such
Member or member of the Advisory Committee consents to the disclosure.
(C) Members of the Advisory Committee may be authorized by the
Operating Committee to disclose particular Confidential Information
only in furtherance of the interests of the Company, to enable them to
consult with industry representatives or technical experts, provided
that the members of the Advisory Committee take any steps requested by
the Operating Committee to prevent further dissemination of that
Confidential Information, including providing the individual(s)
consulted with a copy of this Policy and requesting that person to
maintain the confidentiality of such information in a manner consistent
with this policy.
(D) A Covered Person that is a representative of a Member may be
authorized by the Operating Committee to disclose particular
Confidential Information to other employees or agents of the Member or
its affiliates only in furtherance of the interests of the Company as
needed for such Covered Person to perform his or her function on behalf
of the Company. A copy of this Policy will be made available to
recipients of such information who are employees or agents of a Member
or its affiliates that are not Covered Persons, who will be required to
abide by this Confidentiality Policy.
(E) A Covered Person may disclose their own individual views and
statements that may otherwise be considered Confidential Information
without obtaining authorization of the Operating Committee, provided
that in so disclosing, the Covered Person is not disclosing the views
or statements of any other Covered Person or Member that are considered
Confidential Information.
(F) A person that has reason to believe that Confidential
Information has been disclosed by another without the authorization of
the Operating Committee or otherwise in a manner inconsistent with this
Policy may report such potential unauthorized disclosure to the Chair
of the Operating Committee. In addition, a Covered Person that
discloses Confidential Information without the authorization of the
Operating Committee will report such disclosure to the Chair of the
Operating Committee. Such self-reported unauthorized disclosure of
Confidential Information will be recorded in the minutes of the meeting
of the Operating Committee and will contain: (a) the name(s) of the
person(s) who disclosed such Confidential Information, and (b) a
description of the Confidential Information disclosed. The name(s) of
the person(s) who disclosed such Confidential Information will also be
recorded in any publicly available summaries of Operating Committee
minutes.
EXHIBIT D
Distributions
Cost Allocation and Revenue Sharing
(a) Payments. In accordance with Paragraph (l) of this Exhibit D,
each Member will receive an annual payment (if any) for each calendar
year that is equal to the sum of the Member's Trading Shares and
Quoting Shares (each as defined below), in each Eligible Security for
such calendar year. In the event that total Net Distributable Operating
Income (as defined below) is negative for a given calendar year, each
Member will receive an annual bill for such calendar year to be
determined according to the same formula (described in this paragraph)
for determining annual payments to the Members. Unless otherwise stated
in this agreement, a year shall run from January 1st to December 31st
and quarters shall end on March 31st, June 30th, September 30th, and
December 31st. The Company shall cause the Administrator to provide the
Members with written estimates of each Member's percentage of total
volume within five business days of the end of each calendar month.
(b) Security Income Allocation. The ``Security Income Allocation''
for an Eligible Security shall be determined by multiplying (i) the Net
Distributable Operating Income under this Agreement for the calendar
year by (ii) the Volume Percentage for such Eligible Security (the
``Initial Allocation''), and then adding or subtracting any amounts
specified in the reallocation set forth below.
(c) Volume Percentage. The ``Volume Percentage'' for an Eligible
Security shall be determined by dividing (A) the square root of the
dollar volume of Transaction Reports disseminated by the Processors in
such Eligible Security during the calendar year by (B) the sum of the
square roots of the dollar volume of Transaction Reports disseminated
by the Processors in each Eligible Security during the calendar year.
(d) Cap on Net Distributable Operating Income. If the Initial
Allocation of Net Distributable Operating Income in accordance with the
Volume Percentage of an Eligible Security equals an amount greater than
$4.00 multiplied by the total number of qualified Transaction Reports
in such Eligible Security during the calendar year, the excess amount
shall be subtracted from the Initial Allocation for such Eligible
Security and reallocated among all Eligible Securities in direct
proportion to the dollar volume of Transaction Reports disseminated by
the Processors in Eligible Securities during the calendar year. A
Transaction Report with a dollar volume of $5,000 or more shall
constitute one qualified Transaction Report. A Transaction Report with
a dollar volume of less than $5,000 shall constitute a fraction of a
qualified Transaction Report that equals the dollar volume of the
Transaction Report divided by $5,000.
(e) Trading Share. The ``Trading Share'' of a Member in an Eligible
Security shall be determined by multiplying (i) an amount equal to
fifty percent of the Security Income Allocation for the Eligible
Security by (ii) the Member's Trade Rating in the Eligible Security.
(f) Trade Rating. A Member's ``Trade Rating'' in an Eligible
Security shall be determined by taking the average of (A) the Member's
percentage of the total dollar volume of Transaction Reports
disseminated by the Processors in the Eligible Security during the
calendar year, and (B) the Member's percentage of the total number of
qualified
[[Page 94983]]
Transaction Reports disseminated by the Processors in the Eligible
Security during the calendar year.
(g) Quoting Share. The ``Quoting Share'' of a Member in an Eligible
Security shall be determined by multiplying (A) an amount equal to
fifty percent of the Security Income Allocation for the Eligible
Security by (B) the Member's Quote Rating in the Eligible Security.
(h) Quote Rating. A Member's ``Quote Rating'' in an Eligible
Security shall be determined by dividing (A) the sum of the Quote
Credits earned by the Member in such Eligible Security during the
calendar year by (B) the sum of the Quote Credits earned by all Members
in such Eligible Security during the calendar year.
(i) Quote Credits. A Member shall earn one ``Quote Credit'' for
each second of time (with a minimum of one full second) multiplied by
dollar value of size that an automated best bid (offer) transmitted by
the Member to the Processors during regular trading hours is equal to
the price of the National Best Bid and Offer in the Eligible Security
and does not lock or cross a previously displayed ``automated
quotation'' (as defined under Rule 600 of Regulation NMS). The dollar
value of size of a quote shall be determined by multiplying the price
of a quote by its size.
(j) Net Distributable Operating Income. The ``Net Distributable
Operating Income'' for any particular calendar year shall mean:
(i) all cash revenues, funds and proceeds received by the Company
during such calendar year (other than Capital Contributions by the
Members or amounts paid pursuant to Section 3.7(b) of this Agreement),
including all revenues from (A) the CT Feeds, which includes the
dissemination of information with respect to Eligible Securities to
foreign marketplaces, and (B) FINRA quotation data and last sale
information for securities classified as OTC Equity Securities under
FINRA's Rule 6400 Series (the ``FINRA OTC Data'') ((A) and (B)
collectively, the ``Data Feeds''), and (C) any Membership Fees; less
(ii) 6.25% of the revenue received by the Company during such
calendar year attributable to the segment of the Data Feeds reflecting
the dissemination of information with respect to Network C Securities
and FINRA OTC Data (but, for the avoidance of doubt, not including
revenue attributable to the segment of the Data Feeds reflecting the
dissemination of information with respect to Network A Securities and
Network B Securities), which amount shall be paid to FINRA as
compensation for the FINRA OTC Data; \1\ less
---------------------------------------------------------------------------
\1\ All costs associated with collecting, consolidating,
validating, generating, and disseminating the FINRA OTC Data are
borne directly by FINRA and not the Company and the Members.
---------------------------------------------------------------------------
(iii) reasonable working capital reserves and reasonable reserves
for contingencies for such calendar year, as determined by the
Operating Committee, and all costs and expenses of the Company during
such calendar year, including:
(A) all amounts payable during such calendar year to the
Administrator pursuant to the Administrative Services Agreement or this
Agreement;
(B) all amounts payable during such calendar year to the Processors
pursuant to the Processor Services Agreements or this Agreement; and
(C) all amounts payable during such calendar year to third-party
service providers engaged by or on behalf of the Company.
(k) Initial Eligibility. At the time a Member implements a
Processor-approved electronic interface with the Processors, the Member
will become eligible to receive revenue.
(l) Quarterly Distributions. The Company shall cause the
Administrator to provide Members with written estimates of each
Member's quarterly Net Distributable Operating Income within 45
calendar days of the end of the quarter, and estimated quarterly
payments or billings shall be made on the basis of such estimates. All
quarterly payments or billings shall be made to each eligible Member
within 45 days following the end of each calendar quarter in which the
Member is eligible to receive revenue; provided, that each quarterly
payment or billing shall be reconciled against a Member's cumulative
year-to-date payment or billing received to date and adjusted
accordingly; further, provided, that the total of such estimated
payments or billings shall be reconciled at the end of each calendar
year and, if necessary, adjusted by March 31st of the following year.
Interest shall be included in quarterly payments and in adjusted
payments made on March 31st of the following year. Such interest shall
accrue monthly during the period in which revenue was earned and not
yet paid and will be based on the 90-day Treasury bill rate in effect
at the end of the quarter in which the payment is made. Monthly
interest shall start accruing 45 days following the month in which it
is earned and accrue until the date on which the payment is made.
(m) Itemized Statements. In conjunction with calculating estimated
quarterly and reconciled annual payments under this Exhibit D, the
Company shall cause the Administrator to submit to the Members a
quarterly itemized statement setting forth the basis upon which Net
Distributable Operating Income was calculated. Such Net Distributable
Operating Income shall be adjusted annually based solely on the
quarterly itemized statement audited pursuant to the annual audit. The
Company shall cause the Administrator to pay or bill Members for the
audit adjustments within thirty days of completion of the annual audit.
Upon the affirmative vote of Voting Representatives pursuant to Section
4.3, the Company shall cause the Administrator to engage an independent
auditor to audit the Administrator's costs or other calculation(s).
EXHIBIT E
Fees
(To be determined by the Operating Committee under this Agreement)
[EXHIBIT F] *
* The Commission has deleted proposed Exhibit F in its entirety.
[FR Doc. 2024-27644 Filed 11-27-24; 8:45 am]
BILLING CODE 8011-01-P