82 FR 10130 - Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change To Adopt Chapter 9
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 26 (February 9, 2017)
Federal Register Volume 82, Issue 26 (February 9, 2017)
| Page Range | 10130-10143 | |
| FR Document | 2017-02644 |
[Federal Register Volume 82, Number 26 (Thursday, February 9, 2017)] [Notices] [Pages 10130-10143] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02644] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79963; File No. SR-ISEMercury-2017-03] Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change To Adopt Chapter 9 February 3, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on February 2, 2017, ISE Mercury, LLC (``ISE Mercury'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, below, which Items have been [[Page 10131]] prepared by the Exchange.\3\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The Exchange originally filed this proposed rule change on January 17, 2017 under File No. SR-ISEMercury-2017-001. The Exchange withdrew that filing on January 31, 2017 and filed SR-ISEMercury- 2017-002. The Exchange withdrew that filing on February 2, 2017 and filed this proposed rule change. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt Chapter 9 and the rules contained therein to implement the compliance rule (``Compliance Rule'') regarding the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\4\ --------------------------------------------------------------------------- \4\ Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein or in the CAT NMS Plan. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at www.ise.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, Investors' Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami International Securities Exchange LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively, the ``Participants'') filed with the Commission, pursuant to Section 11A of the Exchange Act \5\ and Rule 608 of Regulation NMS thereunder,\6\ the CAT NMS Plan.\7\ The Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan was published for comment in the Federal Register on May 17, 2016,\8\ and approved by the Commission, as modified, on November 15, 2016.\9\ --------------------------------------------------------------------------- \5\ 15 U.S.C. 78k-1. \6\ 17 CFR 242.608. \7\ See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. On December 24, 2015, the Participants submitted an amendment to the CAT NMS Plan. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. \8\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \9\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``Approval Order''). --------------------------------------------------------------------------- The Plan is designed to create, implement and maintain a consolidated audit trail (``CAT'') that would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. Each Participant is required to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan, by adopting a Compliance Rule applicable to their Industry Members.\10\ As is described more fully below, the rules contained in proposed Chapter 9 set forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. Proposed Chapter 9 includes twelve Proposed Rules covering the following areas: (1) Definitions; (2) clock synchronization; (3) Industry Member Data reporting; (4) Customer information reporting; (5) Industry Member information reporting; (6) time stamps; (7) clock synchronization rule violations; (8) connectivity and data transmission; (9) development and testing; (10) recordkeeping; (11) timely, accurate and complete data; and (12) compliance dates. Each of these Proposed Rules are discussed in detail below. --------------------------------------------------------------------------- \10\ See SEC Rule 613(g)(1). --------------------------------------------------------------------------- (i) Definitions Proposed Rule 900 (Consolidated Audit Trail--Definitions) sets forth the definitions for the terms used in proposed Chapter 9. Each of the defined terms in Proposed Rule 900 is discussed in detail in this section. (A) Account Effective Date (I) Customer Information Approach SEC Rule 613 requires that numerous data elements be reported to the CAT to ensure there is sufficient information to create the lifecycle of an order, and provide regulators with sufficient detail about an order to perform their regulatory duties. Certain required elements are intended to ensure that the regulators can identify the Customer's[sic] associated with orders. For example, SEC Rule 613(c)(7)(i)(A) requires an Industry Member to report the ``Customer- IDs'' for each Customer for the original receipt or origination of an order. ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository[sic].'' SEC Rule 613(c)(8) requires Industry Members to use the same Customer-ID for each Customer. The SEC granted the Participants exemptive relief to permit the use of an alternative approach to the requirement that an Industry Member report a Customer- ID for every Customer upon original receipt or origination.\11\ The alternative approach is called the Customer Information Approach. --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT NMS Plan at Appendix C, Section A.1(a)(iii). --------------------------------------------------------------------------- Under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. As the Firm Designated ID, Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Prior to their commencement of reporting to the CAT, Industry Members would submit an initial set of Customer information to the Central Repository, including the Firm Designated ID, Customer Identifying Information and Customer Account Information (which may include, as applicable, the Customer's name, address, date of birth, individual tax payer identifier number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with power of attorney) [[Page 10132]] and LEI and/or Larger Trader ID (``LTID'')). This process is referred to as the customer definition process. In accordance with the Customer Information Approach, Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Within the Central Repository, each Customer would be uniquely identified by identifiers or a combination of identifiers such as ITIN/SSN, date of birth, and as applicable, LEI and LTID. The Plan Processor would be required to use these unique identifiers to map orders to specific Customers across all Industry Members and Participants. To ensure information identifying a Customer is up to date, Industry Members would be required to submit to the Central Repository daily and periodic updates for reactivated accounts, newly established accounts, and revised Firm Designated IDs or associated reportable Customer information. (II) Definition of Account Effective Date In connection with the Customer Information Approach, Industry Members would be required to report Customer Account Information to the Central Repository. ``Customer Account Information'' is defined in SEC Rule 613(j)(4) to ``include, but not be limited to, account number, account type, customer type, date account opened, and large trader identifier (if applicable).'' Therefore, when reporting Customer Account Information, an Industry Member is required to report the date an account was opened. The Participants requested and received an exemption to allow an ``Account Effective Date'' to be reported in lieu of an account open date in certain limited circumstances. The definition of ``Account Effective Date'' as set forth in Paragraph (a) of Proposed Rule 900 describes those limited circumstances in which an Industry Member may report an ``Account Effective Date'' rather than the account open date. The proposed definition is the same as the definition of ``Account Effective Date'' set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. Specifically, Paragraph (a)(1) defines ``Account Effective Date'' to mean, with regard to those circumstances in which an Industry Member has established a trading relationship with an institution but has not established an account with that institution: (1) When the trading relationship was established prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, either (a) the date the relationship identifier was established within the Industry Member; (b) the date when trading began (i.e., the date the first order was received) using the relevant relationship identifier; or (c) if both dates are available, the earlier date will be used to the extent that the dates differ; or (2) when the trading relationship was established on or after November 15, 2018 for Industry Members other than Small Industry Members, or on or after November 15, 2019 for Small Industry Members, the date the Industry Member established the relationship identifier, which would be no later than the date the first order was received. Paragraph (a)(2) of Proposed Rule 900 states that an ``Account Effective Date'' means, where an Industry Member changes back office providers or clearing firms prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, the date an account was established at the relevant Industry Member, either directly or via transfer. Paragraph (a)(3) states that an ``Account Effective Date'' means, where an Industry Member acquires another Industry Member prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, the date an account was established at the relevant Industry Member, either directly or via transfer. Paragraph (a)(4) states that ``Account Effective Date'' means, where there are multiple dates associated with an account established prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, the earliest available date. Paragraph (a)(5) states that an ``Account Effective Date'' means, with regard to Industry Member proprietary accounts established prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members: (1) The date established for the account in the Industry Member or in a system of the Industry Member or (2) the date when proprietary trading began in the account (i.e., the date on which the first orders were submitted from the account). With regard to paragraphs (a)(2)-(5), the Account Effective Date will be no later than the date trading occurs at the Industry Member or in the Industry Member's system. (B) Active Account Under the Customer Information Approach, Industry Members are required to report Customer Identifying Information and Customer Account Information for only those accounts that are active. This will alleviate the need for Industry Members to update such information for non-active accounts, but still ensure that the Central Repository will collect audit trail data for Customer accounts that have any Reportable Events. Accordingly, paragraph (b) of Proposed Rule 900 defines an ``Active Account'' as an account that has had activity in Eligible Securities within the last six months. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (C) Allocation Report (I) Allocation Report Approach SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record and report to the Central Repository ``the account number for any subaccounts to which the execution is allocated (in whole or in part).'' The Participants requested and received from the SEC exemptive relief from SEC Rule 613 for an alternative to this approach (``Allocation Report Approach''). The Allocation Report Approach would permit Industry Members to record and report to the Central Repository an Allocation Report that includes, among other things, the Firm Designated ID for any account(s) to which executed shares are allocated when an execution is allocated in whole or part in lieu of requiring the reporting of the account number for any subaccount to which an execution is allocated, as is required by SEC Rule 613.\12\ Under SEC Rule 613, regulators would be able to link the subaccount to which an allocation was made to a specific order. In contrast, under the Allocation Report Approach, regulators would only be able to link an allocation to the account to which it was made, and not to a specific order. --------------------------------------------------------------------------- \12\ See Exemptive Request Letter at 26-27; and Exemption Order. --------------------------------------------------------------------------- (II) Definition of Allocation Report To assist in implementing the Allocation Report Approach, paragraph (c) of Proposed Rule 900 defines an ``Allocation Report.'' Specifically, an ``Allocation Report'' means a report made to the Central Repository by an Industry Member that identifies the Firm Designated ID for any account(s), including subaccount(s), to which executed shares are allocated and [[Page 10133]] provides the security that has been allocated, the identifier of the firm reporting the allocation, the price per share of shares allocated, the side of shares allocated, the number of shares allocated to each account, and the time of the allocation; provided, for the avoidance of doubt, any such Allocation Report shall not be required to be linked to particular orders or executions. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (D) Business Clock To create the required audit trail, Industry Members are required to record the date and time of various Reportable Events to the Central Repository. Industry Members will use ``Business Clocks'' to record such dates and times. Accordingly, paragraph (d) of Proposed Rule 900 defines the term ``Business Clock'' as a clock used to record the date and time of any Reportable Event required to be reported under this Chapter 9. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange proposes to replace the phrase ``under SEC Rule 613'' at the end of the definition in Section 1.1 of the Plan with the phrase ``under this Chapter 9.'' This change is intended to recognize that the Industry Members' obligations with regard to the CAT are set forth in this Chapter 9. (E) CAT Paragraph (e) of Proposed Rule 900 defines the term ``CAT'' to mean the consolidated audit trail contemplated by SEC Rule 613. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (F) CAT NMS Plan Paragraph (f) of Proposed Rule 900 defines the term ``CAT NMS Plan'' to mean the National Market System Plan Governing the Consolidated Audit Trail, as amended from time to time. (G) CAT-Order-ID (I) Daisy Chain Approach Under the CAT NMS Plan, the Daisy Chain Approach is used to link and reconstruct the complete lifecycle of each Reportable Event in CAT. According to this Approach, Industry Members assign their own identifiers to each order event. Within the Central Repository, the Plan Processor later replaces the identifier provided by the Industry Member for each Reportable Event with a single identifier, called the CAT Order-ID, for all order events pertaining to the same order. This CAT Order-ID is used to link the Reportable Events related to the same order. (II) Definition of CAT-Order-ID To implement the Daisy Chain Approach, Paragraph (g) of Proposed Rule 900 defines the term ``CAT-Order-ID.'' The term ``CAT-Order-ID'' is defined to mean a unique order identifier or series of unique order identifiers that allows the Central Repository to efficiently and accurately link all Reportable Events for an order, and all orders that result from the aggregation or disaggregation of such order. This is the same definition as set forth in SEC Rule 613(j)(1), and Section 1.1 of the CAT NMS Plan defines ``CAT-Order-ID'' by reference to SEC Rule 613(j)(1). (H) CAT Reporting Agent The CAT NMS Plan permits an Industry Member to use a third party, such as a vendor, to report the required data to the Central Repository on behalf of the Industry Member.\13\ Such a third party, referred to in proposed Chapter 9 as a ``CAT Reporting Agent,'' would be one type of a Data Submitter, that is, a party that submits data to the Central Repository. Paragraph (h) of Proposed Rule 900 defines the term ``CAT Reporting Agent'' to mean a Data Submitter that is a third party that enters into an agreement with an Industry Member pursuant to which the CAT Reporting Agent agrees to fulfill such Industry Member's reporting obligations under this Chapter 9. --------------------------------------------------------------------------- \13\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- This definition is based on FINRA's definition of a ``Reporting Agent'' as set forth in FINRA's rule related to its Order Audit Trail System (``OATS''). Specifically, FINRA Rule 7410(n) defines a ``Reporting Agent'' as a third party that enters into any agreement with a member pursuant to which the Reporting Agent agrees to fulfill such member's obligations under Rule 7450. The Reporting Agent for OATS fulfills a similar role to the CAT Reporting Agent. (I) Central Repository Paragraph (i) of Proposed Rule 900 defines the term ``Central Repository'' to mean the repository responsible for the receipt, consolidation, and retention of all information reported to the CAT pursuant to SEC Rule 613 and the CAT NMS Plan. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange uses the phrase ``CAT NMS Plan'' in place of the phrase ``this Agreement.'' (J) Compliance Threshold Paragraph (j) of Proposed Rule 900 defines the term ``Compliance Threshold'' as having the meaning set forth in Proposed Rule 910(d). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below with regard to Proposed Rule 910(d), each Industry Member is required to meet a separate compliance threshold which will be an Industry Member-specific rate that may be used as the basis for further review or investigation into the Industry Member's performance with regard to the CAT. This Industry Member-specific rate is the ``Compliance Threshold.'' (K) Customer Industry Members are required to submit to the Central Repository certain information related to their Customers, including Customer Identifying Information and Customer Account Information, as well as data related to their Customer's Reportable Events. Accordingly, Paragraph (k) of Proposed Rule 900 proposes to define the term ``Customer.'' Specifically, the term ``Customer'' would be defined to mean: (1) The account holder(s) of the account at an Industry Member originating the order; and (2) any person from whom the Industry Member is authorized to accept trading instructions for such account, if different from the account holder(s). This is the same definition as set forth in SEC Rule 613(j)(3), except the Exchange proposes to replace the references to a registered broker-dealer or broker-dealer with a reference to an Industry Member for consistency of terms used in proposed Chapter 9. The Exchange also notes that Section 1.1 of the CAT NMS Plan defines ``Customer'' by reference to SEC Rule 613(j)(3). (L) Customer Account Information As discussed above, under the Customer Information Approach, Industry Members are required to report Customer Account Information to the Central Repository as part of the customer definition process. Accordingly, the Exchange proposes to define the term ``Customer Account Information'' to clarify what customer information would need to be reported to the Central Repository. Paragraph (l) of Proposed Rule 900 defines the term ``Customer Account Information'' to include, in part, account number, account type, customer type, date account opened, and large trader identifier (if applicable). Proposed Rule 900(l), however, provides an alternative definition of ``Customer Account Information'' in two limited circumstances. First, in those circumstances in which an Industry Member has established a trading [[Page 10134]] relationship with an institution but has not established an account with that institution, the Industry Member will: (1) Provide the Account Effective Date in lieu of the ``date account opened''; (2) provide the relationship identifier in lieu of the ``account number''; and (3) identify the ``account type'' as a ``relationship.'' Second, in those circumstances in which the relevant account was established prior to November 15, 2018 for Industry Members other than Small Industry Members, or prior to November 15, 2019 for Small Industry Members, and no ``date account opened'' is available for the account, the Industry Member will provide the Account Effective Date in the following circumstances: (1) Where an Industry Member changes back office providers or clearing firms and the date account opened is changed to the date the account was opened on the new back office/clearing firm system; (2) where an Industry Member acquires another Industry Member and the date account opened is changed to the date the account was opened on the post-merger back office/clearing firm system; (3) where there are multiple dates associated with an account in an Industry Member's system, and the parameters of each date are determined by the individual Industry Member; and (4) where the relevant account is an Industry Member proprietary account. The proposed definition is the same as the definition of ``Customer Account Information'' set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. (M) Customer Identifying Information As discussed above, under the Customer Information Approach, Industry Members are required to report Customer Identifying Information to the Central Repository as part of the customer definition process. Accordingly, the Exchange proposes to define the term ``Customer Account Information'' to clarify what Customer information would need to be reported to the Central Repository. Paragraph (m) of Proposed Rule 900 defines the term ``Customer Identifying Information'' to mean information of sufficient detail to identify a Customer. With respect to individuals, ``Customer Identifying Information'' includes, but is not limited to: Name, address, date of birth, individual tax payer identification number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with the power of attorney). With respect to legal entities, ``Customer Identifying Information'' includes, but is not limited to, name, address, Employer Identification Number (``EIN'')/Legal Entity Identifier (``LEI'') or other comparable common entity identifier, if applicable. The definition further notes that an Industry Member that has an LEI for a Customer must submit the Customer's LEI in addition to other information of sufficient detail to identify the Customer. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (N) Data Submitter The CAT NMS Plan uses the term ``Data Submitter'' to refer to any person that reports data to the Central Repository.\14\ Such Data Submitters may include those entities that are required to submit data to the Central Repository (e.g., national securities exchanges, national securities associations and Industry Members), third-parties that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT Reporting Agents), and outside parties that are not required to submit data to the CAT but from which the CAT may receive data (e.g., securities information processors (``SIPs'')). To include this term in proposed Chapter 9, the Exchange proposes to define ``Data Submitter'' in paragraph (n) of Proposed Rule 900. Specifically, paragraph (n) of Proposed Rule 900 defines a ``Data Submitter'' to mean any person that reports data to the Central Repository, including national securities exchanges, national securities associations, broker-dealers, the SIPs for the CQS, CTA, UTP and Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information (``OPRA'') Plans, and certain other vendors or third parties that may submit data to the Central Repository on behalf of Industry Members. --------------------------------------------------------------------------- \14\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- (O) Eligible Security The reporting requirements of proposed Chapter 9 only apply to Reportable Events in Eligible Securities. Currently, an Eligible Security includes NMS Securities and OTC Equity Securities. Accordingly, paragraph (o) of Proposed Rule 900 defines the term ``Eligible Security'' to include: (1) All NMS Securities; and (2) all OTC Equity Securities. The terms ``NMS Securities'' and ``OTC Equity Securities'' are defined, in turn, below. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (P) Error Rate (I) Maximum Error Rate Under the CAT NMS Plan, the Operating Committee sets the maximum Error Rate that the Central Repository would tolerate from an Industry Member reporting data to the Central Repository.\15\ The Operating Committee reviews and resets the maximum Error Rate, at least annually.\16\ If an Industry Member reports CAT data to the Central Repository with errors such that their error percentage exceeds the maximum Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.\17\ As such, the Exchange or the SEC ``may take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.\18\ The CAT NMS Plan sets the initial Error Rate at 5%.\19\ It is anticipated that the maximum Error Rate will be reviewed and lowered by the Operating Committee once Industry Members begin to report to the Central Repository.\20\ --------------------------------------------------------------------------- \15\ Section 6.5(d)(i) of the CAT NMS Plan. \16\ Appendix C, Section A.3(b) of the CAT NMS Plan. \17\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)-(h). \18\ Appendix C, Section A.3(b) of the CAT NMS Plan. \19\ Section 6.5(d)(i) of the CAT NMS Plan. \20\ Appendix C, Section A.3(b) of the CAT NMS Plan. --------------------------------------------------------------------------- The CAT NMS Plan requires the Plan Processor to: (1) Measure and report errors every business day; (2) provide Industry Members daily statistics and error reports as they become available, including a description of such errors; (3) provide monthly reports to Industry Members that detail an Industry Member's performance and comparison statistics; (4) define educational and support programs for Industry Members to minimize Error Rates; and (5) identify, daily, all Industry Members exceeding the maximum allowable Error Rate. To timely correct data-submitted errors to the Central Repository, the CAT NMS Plan requires that the Central Repository receive and process error corrections at all times. Further, the CAT NMS Plan requires that Industry Members be able to submit error corrections to the Central Repository through a web-interface or via bulk uploads or file submissions, and that the Plan Processor, subject to the Operating Committee's approval, support the bulk replacement of records and the reprocessing of such records. The Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based [[Page 10135]] on the Plan Processor's validation processes.\21\ --------------------------------------------------------------------------- \21\ Approval Order at 84718. --------------------------------------------------------------------------- (II) Definition of Error Rate To implement the requirements of the CAT NMS Plan related to the Error Rate, the Exchange proposes to define the term ``Error Rate'' in Proposed Rule 900. Paragraph (p) of Proposed Rule 900 defines the term ``Error Rate'' to mean the percentage of Reportable Events collected by the Central Repository in which the data reported does not fully and accurately reflect the order event that occurred in the market. This is the same definition as set forth in SEC Rule 613(j)(6), and Section 1.1 of the CAT NMS Plan defines ``Error Rate'' by reference to SEC Rule 613(j)(6). (Q) Firm Designated ID As discussed above, under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. Industry Members would be permitted to use as the Firm Designated ID an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Accordingly, the Exchange proposes to define the term ``Firm Designated ID'' in Proposed Rule 900. Specifically, paragraph (q) of Proposed Rule 900 defines the term ``Firm Designated ID'' to mean a unique identifier for each trading account designated by Industry Members for purposes of providing data to the Central Repository, where each such identifier is unique among all identifiers from any given Industry Member for each business date. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). (R) Industry Member Paragraph (r) of Proposed Rule 900 defines the term ``Industry Member'' to mean a member of a national securities exchange or a member of a national securities association.'' This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (S) Industry Member Data Paragraph (s) of Proposed Rule 900 states that the term ``Industry Member Data'' has the meaning set forth in Rule 902(a)(2). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. The definition of ``Industry Member Data'' is discussed more fully in the discussion below regarding Proposed Rule 902(a)(2). (T) Initial Plan Processor Paragraph (t) of Proposed Rule 900 defines the term ``Initial Plan Processor'' to mean the first Plan Processor selected by the Operating Committee in accordance with SEC Rule 613, Section 6.1 of the CAT NMS Plan and the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, although the proposed definition uses the full name of the ``Selection Plan.'' (U) Listed Option or Option The CAT NMS Plan and proposed Chapter 9 applies to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of proposed Chapter 9 apply specifically to Listed Options. Accordingly, Paragraph (u) of Proposed Rule 900 defines the term ``Listed Option'' or ``Option.'' Specifically, paragraph (u) of Proposed Rule 900 states that the term ``Listed Option'' or ``Option'' has the meaning set forth in SEC Rule 600(b)(35) of Regulation NMS. SEC Rule 600(b)(35), in turn, defines a listed option as ``any option traded on a registered national securities exchange or automated facility of a national securities association.'' The Exchange notes that the proposed definition of ``Listed Option'' is the same definition as the definition set forth in Section 1.1 of the CAT NMS Plan. (V) Manual Order Event (I) Manual Order Event Approach The CAT NMS Plan sets forth clock synchronization and timestamp requirements for Industry Members which reflect exemptions for Manual Order Events granted by the Commission.\22\ Specifically, the Plan requires Industry Members to record and report the time of each Reportable Event using timestamps reflecting current industry standards (which must be at least to the millisecond) or, if an Industry Member's order handling or execution system uses timestamps in increments finer than milliseconds, such finer increments, when reporting to the Central Repository. For Manual Order Events, however, the Plan provides that such events must be recorded in increments up to and including one second, provided that Industry Members record and report the time the event is captured electronically in an order handling and execution system (``Electronic Capture Time'') in milliseconds. In addition, Industry Members are required to synchronize their respective Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (``NIST''), and maintain such a synchronization. Each Industry Members[sic] is required to synchronize their Business Clocks used solely for Manual Order Events, however, at a minimum to within one second of the time maintained by the NIST. --------------------------------------------------------------------------- \22\ Exemption Order. --------------------------------------------------------------------------- (II) Definition of Manual Order Event In order to clarify what a Manual Order Event is for clock synchronization and time stamp purposes, the Exchange proposes to define the term ``Manual Order Event'' in Proposed Rule 900. Specifically, paragraph (v) of Proposed Rule 900 defines the term ``Manual Order Event'' to mean a non-electronic communication of order- related information for which Industry Members must record and report the time of the event. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (W) Material Terms of the Order Proposed Rule 902 requires Industry Members to record and report to the Central Repository Material Terms of the Order with certain Reportable Events (e.g., for the original receipt or origination of an order, for the routing of an order). Accordingly, the Exchange proposes to define the term ``Material Terms of the Order'' in Proposed Rule 900. Specifically, paragraph (w) of Proposed Rule 900 defines the term ``Material Terms of the Order'' to include: The NMS Security or OTC Equity Security symbol; security type; price (if applicable); size (displayed and non-displayed); side (buy/sell); order type; if a sell order, whether the order is long, short, short exempt; open/close indicator (except on transactions in equities); time in force (if applicable); if the order is for a Listed Option, option [[Page 10136]] type (put/call), option symbol or root symbol, underlying symbol, strike price, expiration date, and open/close (except on market maker quotations); and any special handling instructions. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (X) NMS Security NMS Securities are one of the types of Eligible Securities for the CAT. Therefore, the Exchange proposes to define the term ``NMS Security'' in Proposed Rule 900. Specifically, paragraph (x) of Proposed Rule 900 defines the term ``NMS Security'' to mean any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in Listed Options. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (Y) NMS Stock Under the CAT NMS Plan, the Operating Committee may establish different Trading Days for NMS Stocks (as defined in SEC Rule 600(b)(47)), Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. Accordingly, the Exchange proposes to define the term ``NMS Stock'' in Paragraph (y) of Proposed Rule 900 to mean any NMS Security other than an option. This is the same definition as set forth in SEC Rule 600(b)(47) of Regulation NMS. (Z) Operating Committee Paragraph (z) of Proposed Rule 900 defines the term ``Operating Committee'' to mean the governing body of the CAT NMS, LLC designated as such and described in Article IV of the CAT NMS Plan. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange proposes to use the phrase ``CAT NMS LLC'' in place of the phrase ``the Company'' for clarity. (AA) Options Market Maker (I) Options Market Maker Quote Exemption SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each Industry Member to record and electronically report to the Central Repository details for each order and each reportable event, including the routing and modification or cancellation of an order. SEC Rule 613(j)(8) defines ``order'' to include ``any bid or offer.'' Therefore, under SEC Rule 613, the details for each Options Market Maker quotation must be reported to the Central Repository by both the Options Market Maker and the options exchange to which it routes its quote. The Participants, however, requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit Options Market Maker quotes to be reported to the Central Repository by the relevant options exchange in lieu of requiring that such reporting be done by both the options exchange and the Options Market Maker, as is required by SEC Rule 613.\23\ In accordance with the exemptive relief, Options Market Makers would be required to report to the options exchange the time at which a quote in a Listed Option is sent to the options exchange. Such time information also will be reported to the Central Repository by the options exchange in lieu of reporting by the Options Market Maker[sic]. --------------------------------------------------------------------------- \23\ See Exemptive Request Letter at 2, and Exemption Order. --------------------------------------------------------------------------- (II) Definition of Options Market Maker To implement the requirements related to Option Market Maker quotes, the Exchange proposes to define the term ``Options Market Maker'' in Proposed Rule 900. Specifically, paragraph (aa) of Proposed Rule 900 defines the term ``Options Market Maker'' to mean a broker- dealer registered with an exchange for the purpose of making markets in options contracts traded on the exchange. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (BB) Order Proposed Chapter 9 requires each Industry Member to record and electronically report to the Central Repository certain details for each order. Accordingly, the Exchange proposes to define the term ``Order'' in Proposed Rule 900. Specifically, paragraph (bb) of Proposed Rule 900 defines the term ``Order'', with respect to Eligible Securities, to include: (1) Any order received by an Industry Member from any person; (2) any order originated by an Industry Member; or (3) any bid or offer. This is the same definition as set forth in SEC Rule 613(j)(8), except the Exchange proposes to replace the phrase ``member of a national securities exchange or national securities association'' with the term ``Industry Member.'' The Exchange notes that Section 1.1 of the CAT NMS Plan defines ``Order'' by reference to SEC Rule 613(j)(8). (CC) OTC Equity Security OTC Equity Securities are one of the types of Eligible Securities for the CAT. Therefore, the Exchange proposes to define the term ``OTC Equity Security'' in Proposed Rule 900. Specifically, paragraph (cc) of Proposed Rule 900 defines the term ``OTC Equity Security'' to mean any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association's equity trade reporting facilities. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Participant Paragraph (dd) of Proposed Rule 900 defines the term ``Participant'' to mean each Person identified as such in Exhibit A of the CAT NMS Plan, as amended, in such Person's capacity as a Participant in CAT NMS, LLC. This is the same definition in substance as set forth in Section 1.1 of the CAT NMS Plan. (EE) Person Paragraph (ee) of Proposed Rule 900 defines the term ``Person'' to mean any individual, partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association and any heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so permits. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (FF) Plan Processor Paragraph (ff) of Proposed Rule 900 defines the term ``Plan Processor'' to mean the Initial Plan Processor or any other Person selected by the Operating Committee pursuant to SEC Rule 613 and Sections 4.3(b)(i) and 6.1 of the CAT NMS Plan, and with regard to the Initial Plan Processor, the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail, to perform the CAT processing functions required by SEC Rule 613 and set forth in the CAT NMS Plan. (GG) Received Industry Member Data Paragraph (gg) of Proposed Rule 900 states that the term ``Received Industry Member Data'' has the meaning set forth in Rule 902(a)(2). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. The definition of ``Received Industry Member Data'' is discussed more fully in the discussion [[Page 10137]] below regarding Proposed Rule 902(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of Proposed Rule 900 states that the term ``Recorded Industry Member Data'' has the meaning set forth in Rule 902(a)(1). This definition has the same substantive meaning as the definition set forth in in Section 1.1 of the CAT NMS Plan. The definition of ``Recorded Industry Member Data'' is discussed more fully in the discussion below regarding Proposed Rule 902(a)(1). (II) Reportable Event Proposed Chapter 9 requires each Industry Member to record and electronically report to the Central Repository certain details for each Reportable Event. To clarify these requirements, the Exchange proposes to define the term ``Reportable Event'' in Proposed Rule 900. Specifically, paragraph (ii) of Proposed Rule 900 states that the term ``Reportable Event'' includes, but is not limited to, the original receipt or origination, modification, cancellation, routing, execution (in whole or in part) and allocation of an order, and receipt of a routed order. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (JJ) SRO Paragraph (jj) of Proposed Rule 900 defines the term ``SRO'' to mean any self-regulatory organization within the meaning of Section 3(a)(26) of the Exchange Act. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (KK) SRO-Assigned Market Participant Identifier (I) Existing Identifier Approach The Participants requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit the Existing Identifier Approach, which would allow an Industry Member to report an existing SRO-Assigned Market Participant Identifier in lieu of requiring the reporting of a universal CAT-Reporter-ID (that is, a code that uniquely and consistently identifies an Industry Member for purposes of providing data to the Central Repository).\24\ The CAT NMS Plan reflects the ``Existing Identifier Approach'' for purposes of identifying each Industry Member associated with an order or Reportable Event. Under the Existing Identifier Approach, Industry Members are required to record and report to the Central Repository an SRO-Assigned Market Participant Identifier for orders and certain Reportable Events to be used by the Central Repository to assign a unique CAT-Reporter-ID to identify Industry Members. --------------------------------------------------------------------------- \24\ See Exemptive Request Letter at 19, and Exemption Order. --------------------------------------------------------------------------- For the Central Repository to link the SRO-Assigned Market Participant Identifier to the CAT-Reporter-ID, each SRO will submit to the Central Repository, on a daily basis, all SRO-Assigned Market Participant Identifiers used by its Industry Members, as well as information to identify each such Industry Member, including CRD number and LEI, if the SRO has collected such LEI of the Industry Member. Additionally, each Industry Member is required to submit to the Central Repository the CRD number of the Industry Member as well as the LEI of the Industry Member (if the Industry Member has an LEI). The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. (II) Definition of SRO-Assigned Market Participant Identifier To implement the Existing Identifier Approach, the Exchange proposes to define the term ``SRO-Assigned Market Participant'' in Proposed Rule 900. Specifically, paragraph (kk) of Proposed Rule 900 defines the term ``SRO-Assigned Market Participant Identifier'' to mean an identifier assigned to an Industry Member by an SRO. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. For example, an Industry Member would be permitted to use any existing SRO- Assigned Market Participant Identifier (e.g., FINRA MPID, NASDAQ MPID, NYSE Mnemonic, CBOE User Acronym and CHX Acronym) when reporting order information to the Central Repository. (LL) Small Industry Member The requirements of Proposed Chapter 9 differ to some extent for Small Industry Members versus Industry Members other than Small Industry Members. For example, the compliance dates for reporting data to the CAT are different for Small Industry Members versus other Industry Members. Accordingly, to clarify the requirements that apply to which Industry Members, the Exchange proposes to define the term ``Small Industry Member'' in Proposed Rule 900. Specifically, paragraph (ll) of Proposed Rule 900 defines the term ``Small Industry Member'' to mean an Industry Member that qualifies as a small broker-dealer as defined in Rule 0-10(c) under the Securities Exchange Act of 1934, as amended. This is the same in substance as the definition of ``Small Industry Member'' as set forth in Section 1.1 of the CAT NMS Plan. Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small Industry Member'' as ``an Industry Member that qualifies as a small broker-dealer as defined in SEC Rule 613.'' The definition of a small broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as defined in SEC Rule 0-10(c). (MM) Trading Day Proposed Rule 902(b) establishes the deadlines for reporting certain data to the Central Repository using the term ``Trading Day.'' Accordingly, the Exchange proposes to define the term ``Trading Day'' in Proposed Rule 900. Specifically, Paragraph (mm) of Proposed Rule 900 states that the term ``Trading Day'' shall have the meaning as is determined by the Operating Committee. For the avoidance of doubt, the Operating Committee may establish different Trading Days for NMS Stocks (as defined in SEC Rule 600(b)(47), Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. (ii) Clock Synchronization SEC Rule 613(d)(1) under Regulation NMS requires Industry Members to synchronize their Business Clocks to the time maintained by NIST, consistent with industry standards. To comply with this provision, Section 6.8 of the Plan sets forth the clock synchronization requirements for Industry Members.\25\ To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 901 (Consolidated Audit Trail--Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. --------------------------------------------------------------------------- \25\ In addition, Section 6.7(a)(ii) of the Plan sets forth the timeline for CAT Reporters to comply with the clock synchronization requirements. --------------------------------------------------------------------------- Paragraph (a) of Proposed Rule 901 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of Proposed Rule 901 requires each Industry Member to synchronize its Business Clocks, other than such Business Clocks used solely for Manual Order Events or used solely for the time of allocation on Allocation Reports, at a minimum to within a fifty (50) millisecond tolerance of the time maintained by the NIST atomic clock, and maintain such synchronization. [[Page 10138]] This is the same requirement as set forth in Section 6.8(a)(ii)(A) of the CAT NMS Plan. Paragraph (a)(2) of Proposed Rule 901 requires each Industry Member to synchronize (1) its Business Clocks used solely for Manual Order Events and (2) its Business Clocks used solely for the time of allocation on Allocation Reports at a minimum to within a one second tolerance of the time maintained by the NIST atomic clock, and maintain such synchronization. This is the same requirement as set forth in Section 6.8(a)(iii) and (iv) of the CAT NMS Plan. Paragraph (a)(3) of Proposed Rule 901 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the Proposed Rule 901 includes all of the following: (1) The time difference between the NIST atomic clock and the Industry Member's Business Clock; (2) the transmission delay from the source; and (3) the amount of drift of the Industry Member's Business Clock. This description of the clock synchronization tolerance is the same as set forth in paragraph (b) of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (a)(4) of Proposed Rule 901 requires Industry Members to synchronize their Business Clocks every business day before market open to ensure that timestamps for Reportable Events are accurate. In addition, to maintain clock synchronization, Business Clocks must be checked against the NIST atomic clock and re-synchronized, as necessary, throughout the day. This description of the required frequency of clock synchronization is the same as set forth in paragraph (c) of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (b) of Proposed Rule 901 sets forth documentation requirements with regard to clock synchronization. Specifically, paragraph (b) requires Industry Members to document and maintain their synchronization procedures for their Business Clocks. The Proposed Rule requires Industry Members to keep a log of the times when they synchronize their Business Clocks and the results of the synchronization process. This log is required to include notice of any time a Business Clock drifts more than the applicable tolerance specified in paragraph (a) of the Proposed Rule. Such logs must include results for a period of not less than five years ending on the then current date, or for the entire period for which the Industry Member has been required to comply with this Rule if less than five years. These documentation requirements are the same as those set forth in the ``Sequencing Orders and Clock Synchronization'' section of Appendix C of the CAT NMS Plan. Moreover, these documentation requirements regarding clock synchronization are comparable to those set forth in Supplementary Material .01 of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (c) of Proposed Rule 901 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of Proposed Rule 901 requires each Industry Member to certify to the Exchange that its Business Clocks satisfy the synchronization requirements set forth in paragraph (a) of Proposed Rule 901 periodically in accordance with the certification schedule established by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(B), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the certification schedule established by the Operating Committee in a Regulatory Information Circular. Paragraph (d) of Proposed Rule 901 establishes reporting requirements with regard to clock synchronization. Paragraph (d) of Proposed Rule 901 requires Industry Members to report to the Plan Processor and the Exchange violations of paragraph (a) of this Rule pursuant to the thresholds set by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant thresholds established by the Operating Committee in a Regulatory Information Circular. (iii) Industry Member Data Reporting SEC Rule 613(c) under Regulation NMS requires the CAT NMS Plan to set forth certain provisions requiring Industry Members to record and report data to the CAT. To comply with this provision, Section 6.4 of the CAT NMS Plan sets forth the data reporting requirements for Industry Members. To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 902 (Consolidated Audit Trail--Industry Member Data Reporting) to require its Industry Members to comply with the Industry Member Data reporting requirements of the Plan. Proposed Rule 902 has six sections covering: (1) Recording and reporting Industry Member Data, (2) timing of the recording and reporting, (3) the applicable securities cover[sic] by the recording and reporting requirements, (4) format, (5) the security symbology to be used in the recording and reporting, and (6) error correction requirements, each of which is described below. (A) Recording and Reporting Industry Member Data Paragraph (a) of Proposed Rule 902 describes the recording and reporting of Industry Member Data to the Central Repository. Paragraph (a) consists of paragraphs (a)(1)-(a)(3), which cover Recorded Industry Member Data, Received Industry Member Data and Options Market Maker data, respectively. Paragraphs (a)(1)-(a)(3) of Proposed Rule 902 set forth the recording and reporting requirements required in Section 6.4(d)(i)-(iii) of the CAT NMS Plan, respectively. Paragraph (a)(1) requires, subject to paragraph (a)(3) regarding Options Market Makers, each Industry Member to record and electronically report to the Central Repository the following details for each order and each Reportable Event, as applicable (``Recorded Industry Member Data'') in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan:For original receipt or origination of an order: (1) Firm Designated ID(s) for each Customer; (2) CAT-Order-ID; (3) SRO-Assigned Market Participant Identifier of the Industry Member receiving or originating the order; (4) date of order receipt or origination; (5) time of order receipt or origination (using timestamps pursuant to Proposed Rule 905); and (6) Material Terms of the Order; for the routing of an order: (1) CAT-Order-ID; (2) date on which the order is routed; (3) time at which the order is routed (using timestamps pursuant to Proposed Rule 905); (4) SRO-Assigned Market Participant Identifier of the Industry Member routing the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Participant to which the order is being routed; (6) if routed internally at the Industry Member, the identity and nature of the department or desk to which the order is routed; and (7) Material Terms of the Order; for the receipt of an order that has been routed, the following information: (1) CAT-Order-ID; (2) date on which the order is received; (3) time at which the order is received (using timestamps pursuant to Proposed Rule 905); (4) SRO-Assigned Market Participant Identifier of the Industry Member receiving the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Participant routing the order; and (6) Material Terms of the Order; [[Page 10139]] if the order is modified or cancelled: (1) CAT-Order-ID; (2) date the modification or cancellation is received or originated; (3) time at which the modification or cancellation is received or originated (using timestamps pursuant to Proposed Rule 905); (4) price and remaining size of the order, if modified; (5) other changes in the Material Terms of the Order, if modified; and (6) whether the modification or cancellation instruction was given by the Customer or was initiated by the Industry Member; if the order is executed, in whole or in part: (1) CAT- Order-ID; (2) date of execution; (3) time of execution (using timestamps pursuant to Proposed Rule 905; (4) execution capacity (principal, agency or riskless principal); (5) execution price and size; (6) SRO-Assigned Market Participant Identifier of the Industry Member executing the order; (7) whether the execution was reported pursuant to an effective transaction reporting plan or the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information; and other information or additional events as may be prescribed pursuant to the CAT NMS Plan. Paragraph (a)(2) of Proposed Rule 902 requires, subject to paragraph (a)(3) regarding Options Market Makers, each Industry Member to record and report to the Central Repository the following, as applicable (``Received Industry Member Data'' and collectively with the information referred to in Rule 902(a)(1) ``Industry Member Data'') in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan: If the order is executed, in whole or in part: (1) An Allocation Report; (2) SRO-Assigned Market Participant Identifier of the clearing broker or prime broker, if applicable; and (3) CAT-Order- ID of any contra-side order(s); if the trade is cancelled, a cancelled trade indicator; and for original receipt or origination of an order, the Firm Designated ID for the relevant Customer, and in accordance with Proposed Rule 903, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of Proposed Rule 902 states that each Industry Member that is an Options Market Maker is not required to report to the Central Repository the Industry Member Data regarding the routing, modification or cancellation of its quotes in Listed Options. Each Industry Member that is an Options Market Maker, however, is required to report to the Exchange the time at which its quote in a Listed Option is sent to the Exchange (and, if applicable, any subsequent quote modification time and/or cancellation time when such modification or cancellation is originated by the Options Market Maker). This paragraph implements the Options Market Maker Quote Exemption, as discussed above. (B) Timing of Recording and Reporting Paragraph (b) of Proposed Rule 902 describes the requirements related to the timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)-(b)(3) of Proposed Rule 902 set forth the requirements related to the timing of the recording and reporting requirements required in Section 6.4(b)(i)-(ii) of the CAT NMS Plan. Paragraph (b)(1) of Proposed Rule 902 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of Proposed Rule 902 requires each Industry Member to report: (1) Recorded Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Industry Member records such Recorded Industry Member Data; and (2) Received Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Industry Member receives such Received Industry Member Data. Paragraph (b)(3) states that Industry Members may, but are not required to, voluntarily report Industry Member Data prior to the applicable 8:00 a.m. Eastern Time deadline. (C) Applicable Securities Paragraph (c) of Proposed Rule 902 describes the securities to which the recording and reporting requirements of Proposed Rule 902 apply. Paragraphs (c)(1) and (c)(2) of Proposed Rule 902 set forth the description of applicable securities as set forth in Section 6.4(c)(i) and (ii) of the CAT NMS Plan, respectively. Paragraph (c)(1) of Proposed Rule 902 requires each Industry Member to record and report to the Central Repository the Industry Member Data as set forth in paragraph (a) of Proposed Rule 902 for each NMS Security registered or listed for trading on such exchange or admitted to unlisted trading privileges on such exchange. Paragraph (c)(2) of Proposed Rule 902 requires each Industry Member to record and report to the Central Repository the Industry Member Data as set forth in paragraph (a) of this Proposed Rule 902 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of Proposed Rule 902 describes the security symbology that Industry Members are required to use when reporting Industry Member Data to the Central Repository. Paragraph (d)(1) of Proposed Rule 902 requires, for each exchange-listed Eligible Security, each Industry Member to report Industry Member Data to the Central Repository using the symbology format of the exchange listing the security. This requirement implements the requirement set forth in Section 2 of Appendix D of the CAT NMS Plan to use the listing exchange symbology when reporting data to the Central Repository for exchange- listed Eligible Securities. For each Eligible Security that is not exchange-listed, however, there is no listing exchange to provide the symbology format. Moreover, to date, the requisite symbology format has not been determined. Therefore, Paragraph (d)(2) of Proposed Rule 902 requires, for each Eligible Security that is not exchange-listed, each Industry Member to report Industry Member Data to the Central Repository using such symbology format as approved by the Operating Committee pursuant to the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant symbology formats established by the Operating Committee in a Regulatory Information Circular. (E) Error Correction To ensure that the CAT contains accurate data, the CAT NMS Plan requires Industry Members to correct erroneous data submitted to the Central Repository. Therefore, the Exchange proposes to adopt paragraph (e) of Proposed Rule 902, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of Proposed Rule 902 requires, for each Industry Member for which errors in Industry Member Data submitted to the Central Repository have been identified by the Plan Processor or otherwise, that such Industry Member submit corrected Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on T+3. This requirement implements the error correction requirement set forth in Section 6 of Appendix D of the CAT NMS Plan. (iv) Customer Information Reporting Section 6.4(d)(iv) of the CAT NMS Plan requires Industry Members to submit to the Central Repository certain information related to their Customers in accordance with the Customer Information Approach discussed above. [[Page 10140]] The Exchange proposes Rule 903 (Consolidated Audit Trail--Customer Information Reporting) to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, paragraph (a) of Proposed Rule 903 requires each Industry Member to submit to the Central Repository the Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account prior to such Industry Member's commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 908. Paragraph (b) of Proposed Rule 903 requires each Industry Member to submit to the Central Repository any updates, additions or other changes to the Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account on a daily basis. Paragraph (c) of Proposed Rule 903 requires each Industry Member, on a periodic basis as designated by the Plan Processor and approved by the Operating Committee, to submit to the Central Repository a complete set of Firm Designated IDs, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account. This periodic refresh is intended to ensure that the Central Repository has the most current information identifying a Customer. The Exchange intends to announce to its Industry Members when such a periodic refresh is required by the Plan Processor and the Operating Committee in a Regulatory Information Circular. Finally, paragraph (d) of Proposed Rule 903 addresses the correction of erroneous Customer data reported to the Central Repository to ensure an accurate audit trail. Paragraph (d) requires, for each Industry Member for which errors in Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account submitted to the Central Repository have been identified by the Plan Processor or otherwise, such Member to submit corrected data to the Central Repository by 5:00 p.m. Eastern Time on T+3. This requirement implements the error correction requirement set forth in Appendix C of the CAT NMS Plan. (v) Industry Member Information Reporting Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained, in accordance with the Existing Identifier Approach discussed above. The Exchange proposes Rule 904 (Consolidated Audit Trail--Industry Member Information Reporting) to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, Proposed Rule 904 requires each Industry Member to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained, prior to such Industry Member's commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 908, and keep such information up to date as necessary. (vi) Time Stamps SEC Rule 613(d)(3) under Regulation NMS sets forth requirements for time stamps used by CAT Reporters in recording and reporting data to the CAT.\26\ To comply with this provision, Section 6.8(b) of the Plan sets forth time stamp requirements for Industry Members. To implement this provision with regard to its Industry Members, the Exchange proposes new Rule 905 (Consolidated Audit Trail--Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. --------------------------------------------------------------------------- \26\ 17 CFR 242.613(d)(3). --------------------------------------------------------------------------- Paragraph (a) of Proposed Rule 905 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of Proposed Rule 905 requires each Industry Member to record and report Industry Member Data to the Central Repository with time stamps in milliseconds, subject to paragraphs (a)(2) and (b) of Proposed Rule 905. To the extent that any Industry Member's order handling or execution systems utilize time stamps in increments finer than milliseconds, paragraph (a)(2) of Proposed Rule 905 requires such Industry Member to record and report Industry Member Data to the Central Repository with time stamps in such finer increment, subject to paragraph (b) of Proposed Rule 905 regarding Manual Order Events and Allocation Reports. Paragraph (b) of Proposed Rule 905 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of Proposed Rule 905 permits each Industry Member to record and report Manual Order Events to the Central Repository in increments up to and including one second, provided that each Industry Member is required to record and report the time when a Manual Order Event has been captured electronically in an order handling and execution system of such Member (``Electronic Capture Time'') in milliseconds. In addition, paragraph (b)(2) of Proposed Rule 905 permits each Industry Member to record and report the time of Allocation Reports in increments up to and including one second. (vii) Clock Synchronization Rule Violations Proposed Rule 906 (Consolidated Audit Trail--Clock Synchronization Rule Violations) describes potential violations of the clock synchronization time period requirements set forth in proposed Chapter 9. Proposed Rule 906 states that an Industry Member that engages in a pattern or practice of reporting Reportable Events outside of the required clock synchronization time period as set forth in this Chapter 9 without reasonable justification or exceptional circumstances may be considered in violation of this Rule. This provision implements the requirements of Section 6.8 of the CAT NMS Plan which requires the Compliance Rule to provide that a pattern or practice of reporting events outside of the required clock synchronization time period without reasonable justification or exceptional circumstances may be considered a violation of SEC Rule 613 or the CAT NMS Plan. (viii) Connectivity and Data Transmission Proposed Rule 907 (Consolidated Audit Trail--Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of Proposed Rule 907 describes the format(s) for reporting Industry Member Data to the Central Repository, thereby implementing the formatting requirements as set forth in Section 6.4(a) of the CAT NMS Plan. Specifically, paragraph (a) of Proposed Rule 907 requires each Industry Member to transmit data as required under the CAT NMS Plan to the Central Repository utilizing such format(s) as may be provided by the Plan Processor and approved by the Operating Committee. Paragraph (b) of Proposed Rule 907 addresses connectivity requirements related to the CAT. Paragraph (b) of Proposed Rule 907 requires each Industry Member to connect to the Central Repository using a secure method(s), including, but not limited to, private line(s) and virtual private network connection(s). This provision [[Page 10141]] implements the connectivity requirements set forth in Section 4 of Appendix D to the CAT NMS Plan. Paragraph (c) permits Industry Members to use CAT Reporting Agents to fulfill their data reporting obligations related to the CAT. Paragraph (c) is based on FINRA Rule 7450(c), which permits OATS Reporting Members to enter into agreements with Reporting Agents to fulfill the OATS obligations of the OATS Reporting Member. Specifically, Paragraph (c)(1) of Proposed Rule 907 states that any Industry Member may enter into an agreement with a CAT Reporting Agent pursuant to which the CAT Reporting Agent agrees to fulfill the obligations of such Industry Member under proposed Chapter 9. Any such agreement must be evidenced in writing, which specifies the respective functions and responsibilities of each party to the agreement that are required to effect full compliance with the requirements of proposed Chapter 9. The Exchange notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of Proposed Rule 907 requires that all written documents evidencing an agreement with a CAT Reporting Agent be maintained by each party to the agreement. Paragraph (c)(3) states that each Industry Member remains primarily responsible for compliance with the requirements of proposed Chapter 9, notwithstanding the existence of an agreement described in paragraph (c) of Proposed Rule 907. (ix) Development and Testing The Exchange proposes Rule 908 (Consolidated Audit Trail-- Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of Proposed Rule 908 sets forth the testing requirements and deadlines for Industry Members to develop and commence reporting to the Central Repository. These requirements are set forth in Appendix C to the CAT NMS Plan. Paragraph (a)(1) sets forth the deadlines related to connectivity and acceptance testing. Industry Members (other than Small Industry Members) are required to begin connectivity and acceptance testing with the Central Repository no later than August 15, 2018, and Small Industry Members are required to begin connectivity and acceptance testing with the Central Repository no later than August 15, 2019. Paragraph (a)(2) sets forth the deadlines related to reporting Customer and Industry Member information. Paragraph (a)(2)(i) requires Industry Members (other than Small Industry Members) to begin reporting Customer and Industry Member information, as required by Rules 903(a) and 904, respectively, to the Central Repository for processing no later than October 15, 2018. Paragraph (a)(2)(ii) requires Small Industry Members to begin reporting Customer and Industry Member information, as required by Rules 903(a) and 904, respectively, to the Central Repository for processing no later than October 15, 2019. Paragraph (a)(3) sets forth the deadlines related to the submission of order data. Under paragraph (a)(3)(i), Industry Members (other than Small Industry Members) are permitted, but not required, to submit order data for testing purposes beginning no later than May 15, 2018. In addition, Industry Members (other than Small Industry Members) are required to participate in the coordinated and structured testing of order submission, which will begin no later than August 15, 2018. Under paragraph (a)(3)(ii), Small Industry Members are permitted, but not required, to submit order data for testing purposes beginning no later than May 15, 2019. In addition, Small Industry Members are required to participate in the coordinated and structured testing of order submission, which will begin no later than August 15, 2019. Paragraph (a)(4) states that Industry Members are permitted, but not required to, submit Quote Sent Times on Options Market Maker quotes, beginning no later than October 15, 2018 Paragraph (b) of Proposed Rule 908 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.\27\ Specifically, Proposed Rule 908 requires that each Industry Member participate in testing related to the Central Repository, including any industry-wide disaster recovery testing, pursuant to the schedule established pursuant to the CAT NMS Plan. The Exchange intends to announce to its Industry Members the schedule established pursuant to the CAT NMS Plan in a Regulatory Information Circular. --------------------------------------------------------------------------- \27\ Adopting Release at 84725. --------------------------------------------------------------------------- (x) Recordkeeping Proposed Rule 909 (Consolidated Audit Trail--Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 909 requires each Industry Member to maintain and preserve records of the information required to be recorded under proposed Chapter 9 for the period of time and accessibility specified in SEC Rule 17a-4(b). The records required to be maintained and preserved under proposed Chapter 9 may be immediately produced or reproduced on ``micrographic media'' as defined in SEC Rule 17a- 4(f)(1)(i) or by means of ``electronic storage media'' as defined in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule 17a-4(f) and be maintained and preserved for the required time in that form. Proposed Rule 909 is based on FINRA Rule 7440(a)(5), which sets forth the recordkeeping requirements related to OATS. (xi) Timely, Accurate and Complete Data SEC Rule 613 and the CAT NMS Plan emphasize the importance of the timeliness, accuracy, completeness and integrity of the data submitted to the CAT.\28\ Accordingly, Proposed Rule 910 (Consolidated Audit Trail--Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of Proposed Rule 910 requires that Industry Members record and report data to the Central Repository as required by proposed Chapter 9 in a manner that ensures the timeliness, accuracy, integrity and completeness of such data. --------------------------------------------------------------------------- \28\ See SEC Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the CAT NMS Plan. --------------------------------------------------------------------------- In addition, without limiting the general requirement as set forth in paragraph (a), paragraph (b) of Proposed Rule 910 requires Industry Members to accurately provide the LEIs in their records as required by proposed Chapter 9 and states that Industry Members may not knowingly submit inaccurate LEIs to the Central Repository. Paragraph (b) notes, however, that this requirement does not impose any additional due diligence obligations on Industry Members with regard to LEIs for CAT purposes. Accordingly, this provision does not impose any due diligence obligations beyond those that may exist today with respect to information associated with an LEI. Although Industry Members will not be required to perform additional due diligence with regard to the LEIs for CAT purposes, Industry Members will be required to accurately provide the LEIs in their records and may not knowingly submit inaccurate LEIs to the CAT. Paragraph (b) is consistent with the SEC's statements in the Approval Order for the CAT NMS Plan regarding an [[Page 10142]] Industry Member's obligations regarding LEIs.\29\ --------------------------------------------------------------------------- \29\ Approval Order at 84745. --------------------------------------------------------------------------- Paragraph (c) states that, if an Industry Member reports data to the Central Repository with errors such that its error percentage exceeds the maximum Error Rate established by the Operating Committee pursuant to the CAT NMS Plan, then such Industry Member would not be in compliance with Chapter 9. As discussed above, the initial maximum Error Rate is 5%, although the Error Rate is expected to be reduced over time. The Exchange intends to announce to its Industry Members changes to the Error Rate established pursuant to the CAT NMS Plan in a Regulatory Information Circular. Furthermore, paragraph (d) of Proposed Rule 910 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 910 states that each Industry Member is required to meet a separate compliance threshold which will be an Industry Member-specific rate that may be used as the basis for further review or investigation into the Industry Member's performance with regard to the CAT (the ``Compliance Thresholds''). Compliance Thresholds will compare an Industry Member's error rate to the aggregate Error Rate over a period of time to be defined by the Operating Committee. Compliance Thresholds will be set by the Operating Committee, and will be calculated at intervals to be set by the Operating Committee.\30\ Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 910 states that an Industry Member's performance with respect to its Compliance Threshold will not signify, as a matter of law, that such Industry Member has violated this proposed Chapter 9. --------------------------------------------------------------------------- \30\ Appendix C of the CAT NMS Plan. --------------------------------------------------------------------------- (xi) Compliance Dates Proposed Rule 911 (Consolidated Audit Trail--Compliance Dates) sets forth the compliance dates for the various provisions in proposed Chapter 9. Paragraph (a) of Proposed Rule 911 states that paragraphs (b) and (c) of this Rule set forth the additional details with respect to the compliance date of the proposed rules in Chapter 9. Unless otherwise noted, the proposed rules in Chapter 9 are fully effective upon approval by the Commission and members must comply with their terms. Paragraph (b) of Proposed Rule 911 establishes the compliance dates for the clock synchronization requirements as set forth in Proposed Rule 901. Paragraph (b)(1) states that each Industry Member shall comply with Rule 901 with regard to Business Clocks that capture time in milliseconds commencing on or before March 15, 2017. Paragraph (b)(2) states that each Industry Member shall comply with Rule 901 with regard to Business Clocks that do not capture time in milliseconds commencing on or before February 19, 2018. The compliance date set forth in paragraph (b)(1) reflects the exemptive relief requested by the Participants with regard to the clock synchronization requirements related to Business Clocks that do not capture time in milliseconds.\31\ --------------------------------------------------------------------------- \31\ See Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 17, 2017. --------------------------------------------------------------------------- Paragraph (c) of Proposed Rule 911 establishes the compliance dates for the data recording and reporting requirements for Industry Members. Paragraph (c)(1) requires each Industry Member (other than Small Industry Members) to record and report the Industry Member Data to the Central Repository by November 15, 2018. Paragraph (c)(2) requires that each Industry Member that is a Small Industry Member to record and report the Industry Member Data to the Central Repository by November 15, 2019. Such compliance dates are consistent with the compliance dates set forth in SEC Rule 613(a)(3)(v) and (vi), and Section 6.7(a)(v) and (vi) of the CAT NMS Plan. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act,\32\ which require, among other things, that the Exchange's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and Section 6(b)(8) of the Act,\33\ which requires that the Exchange's rules not impose any burden on competition that is not necessary or appropriate. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78f(b)(6). \33\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- The Exchange believes that this proposal is consistent with the Act because it implements, interprets or clarifies the provisions of the Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ``is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.''\34\ To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. --------------------------------------------------------------------------- \34\ Approval Order at 84697. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change implements provisions of the CAT NMS Plan, and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. The Exchange also notes that the rules contained in proposed Chapter 9 implementing provisions of the CAT NMS Plan will apply equally to all firms that trade NMS Securities and OTC Equity Securities. In addition, all national securities exchanges and FINRA are proposing the rules contained in proposed Chapter 9. Therefore, this is not a competitive rule filing, and, therefore, it does not impose a burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule [[Page 10143]] change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-ISEMercury-2017-03 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISEMercury-2017-03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISEMercury-2017-03 and should be submitted on or before March 2, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\35\ --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-02644 Filed 2-8-17; 8:45 am] BILLING CODE 8011-01-P
![10130 Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices
as part of its longer-term review of minimum denominations are not forced subject line if email is used. To help the
various issues arising regarding market upon dealers. Presumably, entities only Commission process and review your
transparency. incur these costs when they stand to comments more efficiently, please use
Trade Reporting; Rescission of reap benefits exceeding compliance only one method. The Commission will
Transactions. BDA suggested that firms costs. However, to the extent that post all comments on the Commission’s
be allowed to rescind and correct a compliance costs are incrementally Internet Web site (http://www.sec.gov/
transaction in a below-minimum higher because of the proposed rule, rules/sro.shtml). Copies of the
denomination position within a dealers can be expected to engage in submission, all subsequent
reasonable time frame. Romano fewer profitable transactions for amendments, all written statements
suggested that RTRS be enhanced to positions below the minimum with respect to the proposed rule
include a ‘‘flag’’ denoting any below- denomination. change that are filed with the
minimum denomination transaction, Although commenters raised concern Commission, and all written
which would allow dealers to review over the potential costs associated with communications relating to the
such trades on T + 1 and cancel and the enforcement of minimum proposed rule change between the
correct such trades if not effected denominations, no commenter provided Commission and any person, other than
pursuant to the appropriate exception. data or quantitative estimates in those that may be withheld from the
The changes suggested by BDA and connection with the preliminary public in accordance with the
Romano involve exceptions to MSRB’s Economic Analysis outlined in the First provisions of 5 U.S.C. 552, will be
trade reporting rules and are beyond the and Second Requests for Comment. available for Web site viewing and
scope of the proposed provisions on Nevertheless, to reduce uncertainty printing in the Commission’s Public
which the MSRB requested comment. regarding the exceptions to this Reference Room, 100 F Street NE.,
At this time, the MSRB does not proposed rule, and in response to Washington, DC 20549 on official
propose to amend such rules to comments, the text of the proposed rule business days between the hours of
incorporate the commenters’ has been simplified while an additional 10:00 a.m. and 3:00 p.m. Copies of the
suggestions. exception was still incorporated. filing also will be available for
Comments not Related to Proposal. inspection and copying at the principal
Finally, several comments were III. Date of Effectiveness of the office of the MSRB. All comments
received in response to the First and Proposed Rule Change and Timing for received will be posted without change;
Second Requests for Comment, that Commission Action the Commission does not edit personal
were generally beyond the scope of the Within 45 days of the date of identifying information from
MSRB’s jurisdiction (e.g., generally, publication of this notice in the Federal submissions. You should submit only
issuers should change their practices to Register or within such longer period of information that you wish to make
reduce or eliminate below-minimum up to 90 days (i) as the Commission may available publicly. All submissions
denomination positions or positions not designate if it finds such longer period should refer to File Number SR–MSRB–
meeting an issuer’s increment to be appropriate and publishes its 2017–01 and should be submitted on or
requirements; issuers should be reasons for so finding or (ii) as to which before March 2, 2017.
informed that there is no regulatory the self-regulatory organization For the Commission, pursuant to delegated
requirement to use $5,000 as a consents, the Commission will: authority.20
minimum increment; and an ‘‘official’’ (A) By order approve or disapprove Robert W. Errett,
minimum increment of $1,000 should such proposed rule change, or Deputy Secretary.
be considered). As a result, the MSRB (B) institute proceedings to determine
[FR Doc. 2017–02737 Filed 2–8–17; 8:45 am]
has not considered such comments in whether the proposed rule change
BILLING CODE 8011–01–P
the proposed rule change. should be disapproved.
Economic Analysis IV. Solicitation of Comments
Although commenters expressed SECURITIES AND EXCHANGE
Interested persons are invited to
general concerns regarding the cost of COMMISSION
submit written data, views, and
the regulation on below-minimum arguments concerning the foregoing, [Release No. 34–79963; File No. SR–
denomination transactions, no including whether the proposed rule ISEMercury–2017–03]
commenters in response to the First or change is consistent with the Act.
Second Request for Comment provided Comments may be submitted by any of Self-Regulatory Organizations; ISE
data to support these concerns. Issuers the following methods: Mercury, LLC; Notice of Filing of
set a minimum denomination, Proposed Rule Change To Adopt
presumably, at a level that is consistent Electronic Comments Chapter 9
with receiving the best possible price, or • Use the Commission’s Internet February 3, 2017.
desired yield, in the primary market. comment form (http://www.sec.gov/ Pursuant to Section 19(b)(1) of the
Thus, doing away with the minimum rules/sro.shtml); or Securities Exchange Act of 1934
denomination entirely is not a • Send an email to rule-comments@ (‘‘Act’’),1 and Rule 19b–4 thereunder,2
reasonable regulatory alternative since sec.gov. Please include File Number SR– notice is hereby given that on February
this would lead to suboptimal minimum MSRB–2017–01 on the subject line. 2, 2017, ISE Mercury, LLC (‘‘ISE
denominations from the perspective of Paper Comments Mercury’’ or ‘‘Exchange’’) filed with the
sradovich on DSK3GMQ082PROD with NOTICES
the issuer. Securities and Exchange Commission
From the perspective of dealers, • Send paper comments in triplicate
(‘‘SEC’’ or ‘‘Commission’’) the proposed
proposed Rule G–49 does not require to Secretary, Securities and Exchange
rule change as described in Items I, II,
dealers to exercise the exceptions to Commission, 100 F Street NE.,
and III, below, which Items have been
transact in amounts below the minimum Washington, DC 20549.
denomination. Therefore, the costs All submissions should refer to File 20 17 CFR 200.30–3(a)(12).
associated with complying with the Number SR–MSRB–2017–01. This file 1 15 U.S.C. 78s(b)(1).
requirements for transactions below number should be included on the 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices 10131
prepared by the Exchange.3 The Exchange LLC, NYSE MKT LLC, and terms in Proposed Rule 900 is discussed
Commission is publishing this notice to NYSE Arca, Inc. (collectively, the in detail in this section.
solicit comments on the proposed rule ‘‘Participants’’) filed with the
(A) Account Effective Date
change from interested persons. Commission, pursuant to Section 11A of
the Exchange Act 5 and Rule 608 of (I) Customer Information Approach
I. Self-Regulatory Organization’s
Regulation NMS thereunder,6 the CAT SEC Rule 613 requires that numerous
Statement of the Terms of Substance of
NMS Plan.7 The Participants filed the data elements be reported to the CAT to
the Proposed Rule Change
Plan to comply with Rule 613 of ensure there is sufficient information to
The Exchange proposes to adopt Regulation NMS under the Exchange create the lifecycle of an order, and
Chapter 9 and the rules contained Act. The Plan was published for provide regulators with sufficient detail
therein to implement the compliance comment in the Federal Register on about an order to perform their
rule (‘‘Compliance Rule’’) regarding the May 17, 2016,8 and approved by the regulatory duties. Certain required
National Market System Plan Governing Commission, as modified, on November elements are intended to ensure that the
the Consolidated Audit Trail (the ‘‘CAT 15, 2016.9 regulators can identify the
NMS Plan’’ or ‘‘Plan’’).4 The Plan is designed to create, Customer’s[sic] associated with orders.
The text of the proposed rule change implement and maintain a consolidated For example, SEC Rule 613(c)(7)(i)(A)
is available on the Exchange’s Web site audit trail (‘‘CAT’’) that would capture requires an Industry Member to report
at www.ise.com, at the principal office customer and order event information the ‘‘Customer-IDs’’ for each Customer
of the Exchange, and at the for orders in NMS Securities and OTC for the original receipt or origination of
Commission’s Public Reference Room. Equity Securities, across all markets, an order. ‘‘Customer-ID’’ is defined in
II. Self-Regulatory Organization’s from the time of order inception through SEC Rule 613(j)(5) to mean ‘‘with
Statement of the Purpose of, and routing, cancellation, modification, or respect to a customer, a code that
Statutory Basis for, the Proposed Rule execution in a single consolidated data uniquely and consistently identifies
Change source. Each Participant is required to such customer for purposes of providing
enforce compliance by its Industry data to the Central Repository[sic].’’ SEC
In its filing with the Commission, the Members, as applicable, with the Rule 613(c)(8) requires Industry
Exchange included statements provisions of the Plan, by adopting a Members to use the same Customer-ID
concerning the purpose of and basis for Compliance Rule applicable to their for each Customer. The SEC granted the
the proposed rule change and discussed Industry Members.10 As is described Participants exemptive relief to permit
any comments it received on the more fully below, the rules contained in the use of an alternative approach to the
proposed rule change. The text of these proposed Chapter 9 set forth the requirement that an Industry Member
statements may be examined at the Compliance Rule to require Industry report a Customer-ID for every Customer
places specified in Item IV below. The Members to comply with the provisions upon original receipt or origination.11
Exchange has prepared summaries, set of the CAT NMS Plan. Proposed Chapter The alternative approach is called the
forth in sections A, B, and C below, of 9 includes twelve Proposed Rules Customer Information Approach.
the most significant aspects of such covering the following areas: (1) Under the Customer Information
statements. Definitions; (2) clock synchronization; Approach, the CAT NMS Plan would
A. Self-Regulatory Organization’s (3) Industry Member Data reporting; (4) require each Industry Member to assign
Statement of the Purpose of, and Customer information reporting; (5) a unique Firm Designated ID to each
Statutory Basis for, the Proposed Rule Industry Member information reporting; Customer. As the Firm Designated ID,
Change (6) time stamps; (7) clock Industry Members would be permitted
synchronization rule violations; (8) to use an account number or any other
1. Purpose connectivity and data transmission; (9) identifier defined by the firm, provided
Bats BYX Exchange, Inc., Bats BZX development and testing; (10) each identifier is unique across the firm
Exchange, Inc., Bats EDGA Exchange, recordkeeping; (11) timely, accurate and for each business date (i.e., a single firm
Inc., Bats EDGX Exchange, Inc., BOX complete data; and (12) compliance may not have multiple separate
Options Exchange LLC, C2 Options dates. Each of these Proposed Rules are customers with the same identifier on
Exchange, Incorporated, Chicago Board discussed in detail below. any given date). Prior to their
Options Exchange, Incorporated, commencement of reporting to the CAT,
(i) Definitions Industry Members would submit an
Chicago Stock Exchange, Inc., Financial
Industry Regulatory Authority, Inc., Proposed Rule 900 (Consolidated initial set of Customer information to
International Securities Exchange, LLC, Audit Trail—Definitions) sets forth the the Central Repository, including the
Investors’ Exchange LLC, ISE Gemini, definitions for the terms used in Firm Designated ID, Customer
LLC, ISE Mercury, LLC, Miami proposed Chapter 9. Each of the defined Identifying Information and Customer
International Securities Exchange LLC, Account Information (which may
MIAX PEARL, LLC, NASDAQ BX, Inc., 5 15 U.S.C. 78k–1. include, as applicable, the Customer’s
NASDAQ PHLX LLC, The NASDAQ
6 17 CFR 242.608. name, address, date of birth, individual
Stock Market LLC, National Stock
7 See Letter from the Participants to Brent J.
tax payer identifier number (‘‘ITIN’’)/
Fields, Secretary, Commission, dated September 30, social security number (‘‘SSN’’),
Exchange, Inc., New York Stock 2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015. individual’s role in the account (e.g.,
3 The Exchange originally filed this proposed rule On December 24, 2015, the Participants submitted primary holder, joint holder, guardian,
sradovich on DSK3GMQ082PROD with NOTICES
change on January 17, 2017 under File No. SR– an amendment to the CAT NMS Plan. See Letter trustee, person with power of attorney)
ISEMercury–2017–001. The Exchange withdrew from Participants to Brent J. Fields, Secretary,
that filing on January 31, 2017 and filed SR– Commission, dated December 23, 2015. 11 See Securities Exchange Act Release No. 77265
8 Securities Exchange Act Rel. No. 77724 (Apr.
ISEMercury–2017–002. The Exchange withdrew (March 1, 2016), 81 FR 11856 (March 7, 2016)
that filing on February 2, 2017 and filed this 27, 2016), 81 FR 30614 (May 17, 2016). (‘‘Exemption Order’’). See also Letter from
proposed rule change. 9 Securities Exchange Act Rel. No. 79318 (Nov.
Participants to Brent J. Fields, Secretary,
4 Unless otherwise specified, capitalized terms 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval Commission, dated January 30, 2015 at 12
used in this rule filing are defined as set forth Order’’). (‘‘Exemptive Request Letter’’); and CAT NMS Plan
herein or in the CAT NMS Plan. 10 See SEC Rule 613(g)(1). at Appendix C, Section A.1(a)(iii).
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![Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices 10135
on the Plan Processor’s validation securities association.’’ This is the same current industry standards (which must
processes.21 definition as set forth in Section 1.1 of be at least to the millisecond) or, if an
the CAT NMS Plan. Industry Member’s order handling or
(II) Definition of Error Rate
execution system uses timestamps in
To implement the requirements of the (S) Industry Member Data
increments finer than milliseconds,
CAT NMS Plan related to the Error Rate, Paragraph (s) of Proposed Rule 900 such finer increments, when reporting
the Exchange proposes to define the states that the term ‘‘Industry Member to the Central Repository. For Manual
term ‘‘Error Rate’’ in Proposed Rule 900. Data’’ has the meaning set forth in Rule Order Events, however, the Plan
Paragraph (p) of Proposed Rule 900 902(a)(2). This definition has the same provides that such events must be
defines the term ‘‘Error Rate’’ to mean substantive meaning as the definition recorded in increments up to and
the percentage of Reportable Events set forth in Section 1.1 of the CAT NMS including one second, provided that
collected by the Central Repository in Plan. The definition of ‘‘Industry Industry Members record and report the
which the data reported does not fully Member Data’’ is discussed more fully time the event is captured electronically
and accurately reflect the order event in the discussion below regarding in an order handling and execution
that occurred in the market. This is the Proposed Rule 902(a)(2). system (‘‘Electronic Capture Time’’) in
same definition as set forth in SEC Rule milliseconds. In addition, Industry
(T) Initial Plan Processor
613(j)(6), and Section 1.1 of the CAT Members are required to synchronize
NMS Plan defines ‘‘Error Rate’’ by Paragraph (t) of Proposed Rule 900 their respective Business Clocks (other
reference to SEC Rule 613(j)(6). defines the term ‘‘Initial Plan Processor’’ than such Business Clocks used solely
to mean the first Plan Processor selected for Manual Order Events) at a minimum
(Q) Firm Designated ID by the Operating Committee in to within 50 milliseconds of the time
As discussed above, under the accordance with SEC Rule 613, Section maintained by the National Institute of
Customer Information Approach, the 6.1 of the CAT NMS Plan and the Standards and Technology (‘‘NIST’’),
CAT NMS Plan would require each National Market System Plan Governing and maintain such a synchronization.
Industry Member to assign a unique the Process for Selecting a Plan Each Industry Members[sic] is required
Firm Designated ID to each Customer. Processor and Developing a Plan for the to synchronize their Business Clocks
Industry Members would be permitted Consolidated Audit Trail. This is the used solely for Manual Order Events,
to use as the Firm Designated ID an same definition as set forth in Section however, at a minimum to within one
account number or any other identifier 1.1 of the CAT NMS Plan, although the second of the time maintained by the
defined by the firm, provided each proposed definition uses the full name NIST.
identifier is unique across the firm for of the ‘‘Selection Plan.’’
each business date (i.e., a single firm (II) Definition of Manual Order Event
(U) Listed Option or Option
may not have multiple separate In order to clarify what a Manual
customers with the same identifier on The CAT NMS Plan and proposed Order Event is for clock synchronization
any given date). Industry Members Chapter 9 applies to Eligible Securities, and time stamp purposes, the Exchange
would be required to report only the which includes NMS Securities, which, proposes to define the term ‘‘Manual
Firm Designated ID for each new order in turn, includes Listed Options. Certain Order Event’’ in Proposed Rule 900.
submitted to the Central Repository, requirements of proposed Chapter 9 Specifically, paragraph (v) of Proposed
rather than the ‘‘Customer-ID’’ with apply specifically to Listed Options. Rule 900 defines the term ‘‘Manual
individual order events. Accordingly, Accordingly, Paragraph (u) of Proposed Order Event’’ to mean a non-electronic
the Exchange proposes to define the Rule 900 defines the term ‘‘Listed communication of order-related
term ‘‘Firm Designated ID’’ in Proposed Option’’ or ‘‘Option.’’ Specifically, information for which Industry
Rule 900. Specifically, paragraph (q) of paragraph (u) of Proposed Rule 900 Members must record and report the
Proposed Rule 900 defines the term states that the term ‘‘Listed Option’’ or time of the event. This is the same
‘‘Firm Designated ID’’ to mean a unique ‘‘Option’’ has the meaning set forth in definition as set forth in Section 1.1 of
identifier for each trading account SEC Rule 600(b)(35) of Regulation NMS. the CAT NMS Plan.
designated by Industry Members for SEC Rule 600(b)(35), in turn, defines a
listed option as ‘‘any option traded on (W) Material Terms of the Order
purposes of providing data to the
Central Repository, where each such a registered national securities exchange Proposed Rule 902 requires Industry
identifier is unique among all identifiers or automated facility of a national Members to record and report to the
from any given Industry Member for securities association.’’ The Exchange Central Repository Material Terms of
each business date. This is the same notes that the proposed definition of the Order with certain Reportable
definition as set forth in Section 1.1 of ‘‘Listed Option’’ is the same definition Events (e.g., for the original receipt or
the CAT NMS Plan. Industry Members as the definition set forth in Section 1.1 origination of an order, for the routing
would be permitted to use an account of the CAT NMS Plan. of an order). Accordingly, the Exchange
number or any other identifier defined (V) Manual Order Event proposes to define the term ‘‘Material
by the firm, provided each identifier is Terms of the Order’’ in Proposed Rule
(I) Manual Order Event Approach 900. Specifically, paragraph (w) of
unique across the firm for each business
date (i.e., a single firm may not have The CAT NMS Plan sets forth clock Proposed Rule 900 defines the term
multiple separate customers with the synchronization and timestamp ‘‘Material Terms of the Order’’ to
same identifier on any given date). requirements for Industry Members include: The NMS Security or OTC
Equity Security symbol; security type;
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which reflect exemptions for Manual
(R) Industry Member Order Events granted by the price (if applicable); size (displayed and
Paragraph (r) of Proposed Rule 900 Commission.22 Specifically, the Plan non-displayed); side (buy/sell); order
defines the term ‘‘Industry Member’’ to requires Industry Members to record type; if a sell order, whether the order
mean a member of a national securities and report the time of each Reportable is long, short, short exempt; open/close
exchange or a member of a national Event using timestamps reflecting indicator (except on transactions in
equities); time in force (if applicable); if
21 Approval Order at 84718. 22 Exemption Order. the order is for a Listed Option, option
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![10136 Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices
type (put/call), option symbol or root details for each Options Market Maker (CC) OTC Equity Security
symbol, underlying symbol, strike price, quotation must be reported to the OTC Equity Securities are one of the
expiration date, and open/close (except Central Repository by both the Options types of Eligible Securities for the CAT.
on market maker quotations); and any Market Maker and the options exchange Therefore, the Exchange proposes to
special handling instructions. This is to which it routes its quote. define the term ‘‘OTC Equity Security’’
the same definition as set forth in The Participants, however, requested in Proposed Rule 900. Specifically,
Section 1.1 of the CAT NMS Plan. and received exemptive relief from SEC paragraph (cc) of Proposed Rule 900
(X) NMS Security Rule 613 so that the CAT NMS Plan may defines the term ‘‘OTC Equity Security’’
NMS Securities are one of the types permit Options Market Maker quotes to to mean any equity security, other than
of Eligible Securities for the CAT. be reported to the Central Repository by an NMS Security, subject to prompt last
Therefore, the Exchange proposes to the relevant options exchange in lieu of sale reporting rules of a registered
define the term ‘‘NMS Security’’ in requiring that such reporting be done by national securities association and
Proposed Rule 900. Specifically, both the options exchange and the reported to one of such association’s
paragraph (x) of Proposed Rule 900 Options Market Maker, as is required by equity trade reporting facilities. This is
defines the term ‘‘NMS Security’’ to SEC Rule 613.23 In accordance with the the same definition as set forth in
mean any security or class of securities exemptive relief, Options Market Section 1.1 of the CAT NMS Plan.
for which transaction reports are Makers would be required to report to
(DD) Participant
collected, processed, and made the options exchange the time at which
available pursuant to an effective a quote in a Listed Option is sent to the Paragraph (dd) of Proposed Rule 900
transaction reporting plan, or an options exchange. Such time defines the term ‘‘Participant’’ to mean
effective national market system plan information also will be reported to the each Person identified as such in
for reporting transactions in Listed Central Repository by the options Exhibit A of the CAT NMS Plan, as
Options. This is the same definition as exchange in lieu of reporting by the amended, in such Person’s capacity as
set forth in Section 1.1 of the CAT NMS Options Market Maker[sic]. a Participant in CAT NMS, LLC. This is
Plan. the same definition in substance as set
(II) Definition of Options Market Maker forth in Section 1.1 of the CAT NMS
(Y) NMS Stock Plan.
To implement the requirements
Under the CAT NMS Plan, the
related to Option Market Maker quotes, (EE) Person
Operating Committee may establish
the Exchange proposes to define the
different Trading Days for NMS Stocks Paragraph (ee) of Proposed Rule 900
term ‘‘Options Market Maker’’ in defines the term ‘‘Person’’ to mean any
(as defined in SEC Rule 600(b)(47)),
Proposed Rule 900. Specifically, individual, partnership, limited liability
Listed Options, OTC Equity Securities,
and any other securities that are paragraph (aa) of Proposed Rule 900 company, corporation, joint venture,
included as Eligible Securities from defines the term ‘‘Options Market trust, business trust, cooperative or
time to time. Accordingly, the Exchange Maker’’ to mean a broker-dealer association and any heirs, executors,
proposes to define the term ‘‘NMS registered with an exchange for the administrators, legal representatives,
Stock’’ in Paragraph (y) of Proposed purpose of making markets in options successors and assigns of such Person
Rule 900 to mean any NMS Security contracts traded on the exchange. This where the context so permits. This is the
other than an option. This is the same is the same definition as set forth in same definition as set forth in Section
definition as set forth in SEC Rule Section 1.1 of the CAT NMS Plan. 1.1 of the CAT NMS Plan.
600(b)(47) of Regulation NMS. (BB) Order (FF) Plan Processor
(Z) Operating Committee
Proposed Chapter 9 requires each Paragraph (ff) of Proposed Rule 900
Paragraph (z) of Proposed Rule 900 Industry Member to record and defines the term ‘‘Plan Processor’’ to
defines the term ‘‘Operating Committee’’ electronically report to the Central mean the Initial Plan Processor or any
to mean the governing body of the CAT Repository certain details for each order. other Person selected by the Operating
NMS, LLC designated as such and Accordingly, the Exchange proposes to Committee pursuant to SEC Rule 613
described in Article IV of the CAT NMS define the term ‘‘Order’’ in Proposed and Sections 4.3(b)(i) and 6.1 of the
Plan. This is the same definition as set Rule 900. Specifically, paragraph (bb) of CAT NMS Plan, and with regard to the
forth in Section 1.1 of the CAT NMS Proposed Rule 900 defines the term Initial Plan Processor, the National
Plan, except the Exchange proposes to ‘‘Order’’, with respect to Eligible Market System Plan Governing the
use the phrase ‘‘CAT NMS LLC’’ in Securities, to include: (1) Any order Process for Selecting a Plan Processor
place of the phrase ‘‘the Company’’ for received by an Industry Member from and Developing a Plan for the
clarity. any person; (2) any order originated by Consolidated Audit Trail, to perform the
(AA) Options Market Maker an Industry Member; or (3) any bid or CAT processing functions required by
offer. This is the same definition as set SEC Rule 613 and set forth in the CAT
(I) Options Market Maker Quote forth in SEC Rule 613(j)(8), except the NMS Plan.
Exemption Exchange proposes to replace the phrase
SEC Rule 613(c)(7) provides that the (GG) Received Industry Member Data
‘‘member of a national securities
CAT NMS Plan must require each exchange or national securities Paragraph (gg) of Proposed Rule 900
Industry Member to record and states that the term ‘‘Received Industry
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association’’ with the term ‘‘Industry
electronically report to the Central Member.’’ The Exchange notes that Member Data’’ has the meaning set forth
Repository details for each order and Section 1.1 of the CAT NMS Plan in Rule 902(a)(2). This definition has the
each reportable event, including the defines ‘‘Order’’ by reference to SEC same substantive meaning as the
routing and modification or cancellation Rule 613(j)(8). definition set forth in Section 1.1 of the
of an order. SEC Rule 613(j)(8) defines CAT NMS Plan. The definition of
‘‘order’’ to include ‘‘any bid or offer.’’ 23 See Exemptive Request Letter at 2, and ‘‘Received Industry Member Data’’ is
Therefore, under SEC Rule 613, the Exemption Order. discussed more fully in the discussion
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![10138 Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices
This is the same requirement as set forth ‘‘Sequencing Orders and Clock (4) format, (5) the security symbology to
in Section 6.8(a)(ii)(A) of the CAT NMS Synchronization’’ section of Appendix be used in the recording and reporting,
Plan. C of the CAT NMS Plan. Moreover, and (6) error correction requirements,
Paragraph (a)(2) of Proposed Rule 901 these documentation requirements each of which is described below.
requires each Industry Member to regarding clock synchronization are
synchronize (1) its Business Clocks used (A) Recording and Reporting Industry
comparable to those set forth in
solely for Manual Order Events and (2) Member Data
Supplementary Material .01 of FINRA
its Business Clocks used solely for the Rule 4590 (Synchronization of Member Paragraph (a) of Proposed Rule 902
time of allocation on Allocation Reports Business Clocks). describes the recording and reporting of
at a minimum to within a one second Paragraph (c) of Proposed Rule 901 Industry Member Data to the Central
tolerance of the time maintained by the sets forth certification requirements Repository. Paragraph (a) consists of
NIST atomic clock, and maintain such with regard to clock synchronization. paragraphs (a)(1)–(a)(3), which cover
synchronization. This is the same Specifically, paragraph (c) of Proposed Recorded Industry Member Data,
requirement as set forth in Section Rule 901 requires each Industry Member Received Industry Member Data and
6.8(a)(iii) and (iv) of the CAT NMS Plan. to certify to the Exchange that its Options Market Maker data,
Paragraph (a)(3) of Proposed Rule 901 Business Clocks satisfy the respectively. Paragraphs (a)(1)–(a)(3) of
clarifies that the tolerance described in synchronization requirements set forth Proposed Rule 902 set forth the
paragraphs (a)(1) and (2) of the Proposed in paragraph (a) of Proposed Rule 901 recording and reporting requirements
Rule 901 includes all of the following: periodically in accordance with the required in Section 6.4(d)(i)–(iii) of the
(1) The time difference between the certification schedule established by the CAT NMS Plan, respectively.
NIST atomic clock and the Industry Operating Committee pursuant to the Paragraph (a)(1) requires, subject to
Member’s Business Clock; (2) the CAT NMS Plan. This requirement is the paragraph (a)(3) regarding Options
transmission delay from the source; and same requirement as set forth in Section Market Makers, each Industry Member
(3) the amount of drift of the Industry 6.8(a)(ii)(B), (iii) and (iv) of the CAT to record and electronically report to the
Member’s Business Clock. This NMS Plan. The Exchange intends to Central Repository the following details
description of the clock synchronization announce to its Industry Members the for each order and each Reportable
tolerance is the same as set forth in certification schedule established by the Event, as applicable (‘‘Recorded
paragraph (b) of FINRA Rule 4590 Operating Committee in a Regulatory Industry Member Data’’) in the manner
(Synchronization of Member Business Information Circular. prescribed by the Operating Committee
Clocks). Paragraph (d) of Proposed Rule 901 pursuant to the CAT NMS Plan:
Paragraph (a)(4) of Proposed Rule 901 establishes reporting requirements with • For original receipt or origination of
requires Industry Members to regard to clock synchronization. an order: (1) Firm Designated ID(s) for
synchronize their Business Clocks every Paragraph (d) of Proposed Rule 901 each Customer; (2) CAT-Order-ID; (3)
business day before market open to requires Industry Members to report to SRO-Assigned Market Participant
ensure that timestamps for Reportable the Plan Processor and the Exchange Identifier of the Industry Member
Events are accurate. In addition, to violations of paragraph (a) of this Rule receiving or originating the order; (4)
maintain clock synchronization, pursuant to the thresholds set by the date of order receipt or origination; (5)
Business Clocks must be checked Operating Committee pursuant to the time of order receipt or origination
against the NIST atomic clock and re- CAT NMS Plan. This requirement is the (using timestamps pursuant to Proposed
synchronized, as necessary, throughout same requirement as set forth in Section Rule 905); and (6) Material Terms of the
the day. This description of the required 6.8(a)(ii)(C), (iii) and (iv) of the CAT Order;
frequency of clock synchronization is NMS Plan. The Exchange intends to • for the routing of an order: (1) CAT-
the same as set forth in paragraph (c) of announce to its Industry Members the Order-ID; (2) date on which the order is
FINRA Rule 4590 (Synchronization of relevant thresholds established by the routed; (3) time at which the order is
Member Business Clocks). Operating Committee in a Regulatory routed (using timestamps pursuant to
Paragraph (b) of Proposed Rule 901 Information Circular. Proposed Rule 905); (4) SRO-Assigned
sets forth documentation requirements Market Participant Identifier of the
with regard to clock synchronization. (iii) Industry Member Data Reporting Industry Member routing the order; (5)
Specifically, paragraph (b) requires SEC Rule 613(c) under Regulation SRO-Assigned Market Participant
Industry Members to document and NMS requires the CAT NMS Plan to set Identifier of the Industry Member or
maintain their synchronization forth certain provisions requiring Participant to which the order is being
procedures for their Business Clocks. Industry Members to record and report routed; (6) if routed internally at the
The Proposed Rule requires Industry data to the CAT. To comply with this Industry Member, the identity and
Members to keep a log of the times provision, Section 6.4 of the CAT NMS nature of the department or desk to
when they synchronize their Business Plan sets forth the data reporting which the order is routed; and (7)
Clocks and the results of the requirements for Industry Members. To Material Terms of the Order;
synchronization process. This log is implement these provisions with regard • for the receipt of an order that has
required to include notice of any time to its Industry Members, the Exchange been routed, the following information:
a Business Clock drifts more than the proposes Rule 902 (Consolidated Audit (1) CAT-Order-ID; (2) date on which the
applicable tolerance specified in Trail—Industry Member Data Reporting) order is received; (3) time at which the
paragraph (a) of the Proposed Rule. to require its Industry Members to order is received (using timestamps
Such logs must include results for a comply with the Industry Member Data pursuant to Proposed Rule 905); (4)
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period of not less than five years ending reporting requirements of the Plan. SRO-Assigned Market Participant
on the then current date, or for the Proposed Rule 902 has six sections Identifier of the Industry Member
entire period for which the Industry covering: (1) Recording and reporting receiving the order; (5) SRO-Assigned
Member has been required to comply Industry Member Data, (2) timing of the Market Participant Identifier of the
with this Rule if less than five years. recording and reporting, (3) the Industry Member or Participant routing
These documentation requirements are applicable securities cover[sic] by the the order; and (6) Material Terms of the
the same as those set forth in the recording and reporting requirements, Order;
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![Federal Register / Vol. 82, No. 26 / Thursday, February 9, 2017 / Notices 10143
change is consistent with the Act. SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
Comments may be submitted by any of COMMISSION Statement of the Purpose of, and
the following methods: Statutory Basis for, the Proposed Rule
[Release No. 34–79959; File No. SR– Change
Electronic Comments
PEARL–2017–06] 1. Purpose
• Use the Commission’s Internet
comment form (http://www.sec.gov/ Self-Regulatory Organizations; MIAX The Exchange proposes to amend
rules/sro.shtml); or PEARL, LLC; Notice of Filing of a Exchange Rule 519A, Risk Protection
• Send an email to rule-comments@ Proposed Rule Change To Amend Monitor for Orders Entered via the FIX
sec.gov. Please include File Number SR– Exchange Rule 519A, Risk Protection Interface (‘‘RPM–FIX’’) to make the
ISEMercury–2017–03 on the subject Monitor for Orders Entered via the FIX protections provided by the Rule
line. Interface (‘‘RPM–FIX’’), and Exchange available to all Members 3 of the
Rule 519B, Risk Protection Monitor for Exchange, and to make their usage
Paper Comments Orders Entered via the MEO Interface mandatory for Electronic Exchange
• Send paper comments in triplicate (‘‘RPM–MEO’’) Members (‘‘EEMs’’).4 Additionally, the
to Brent J. Fields, Secretary, Securities Exchange proposes to amend Exchange
February 3, 2017.
and Exchange Commission, 100 F Street Rule 519B, Risk Protection Monitor for
NE., Washington, DC 20549–1090. Pursuant to the provisions of Section Orders Entered via the MEO Interface
19(b)(1) of the Securities Exchange Act (‘‘RPM–MEO’’) to align the rule text to
All submissions should refer to File
of 1934 (‘‘Act’’) 1 and Rule 19b–4 the proposed change to Rule 519A and
Number SR–ISEMercury–2017–03. This
thereunder,2 notice is hereby given that to make it mandatory for EEMs using
file number should be included on the
on February 2, 2017, MIAX PEARL, LLC MEO to use the protections provided by
subject line if email is used. To help the
(‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed the Rule.
Commission process and review your
with the Securities and Exchange
comments more efficiently, please use Exchange Rule 519A. Risk Protection
Commission (‘‘Commission’’) a
only one method. The Commission will Monitor for Orders Entered via the FIX
proposed rule change as described in
post all comments on the Commission’s Interface (‘‘RPM–FIX’’)
Items I and II below, which Items have
Internet Web site (http://www.sec.gov/
been prepared by the Exchange. The
rules/sro.shtml). The Exchange proposes to amend
Commission is publishing this notice to
Copies of the submission, all Exchange Rule 519A, Risk Protection
solicit comments on the proposed rule
subsequent amendments, all written Monitor for Orders Entered via the FIX
change from interested persons.
statements with respect to the proposed Interface (‘‘RPM–FIX’’) by replacing
rule change that are filed with the I. Self-Regulatory Organization’s ‘‘EEM’’ with ‘‘Member’’ to make the risk
Commission, and all written Statement of the Terms of Substance of protections described in the rule
communications relating to the the Proposed Rule Change available to all Members of the
proposed rule change between the Exchange. MIAX PEARL Members may
The Exchange proposes to amend connect to the System 5 using the FIX
Commission and any person, other than
Exchange Rule 519A, Risk Protection Order Interface and/or the MIAX
those that may be withheld from the
Monitor for Orders Entered via the FIX Express Order (‘‘MEO’’) Interface. These
public in accordance with the
Interface (‘‘RPM–FIX’’), and Exchange two connection protocols are not
provisions of 5 U.S.C. 552, will be
Rule 519B, Risk Protection Monitor for mutually exclusive and Members,
available for Web site viewing and
Orders Entered via the MEO Interface specifically Market Makers (‘‘MMs’’) 6
printing in the Commission’s Public
(‘‘RPM–MEO’’). on the Exchange, may use MEO for
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official The text of the proposed rule change providing liquidity to the Exchange via
business days between the hours of is available on the Exchange’s Web site their Market Making activities; and FIX
10:00 a.m. and 3:00 p.m. Copies of the at http://www.miaxoptions.com/rule- for removing liquidity from the
filing also will be available for filings/pearl, at MIAX PEARL’s Exchange. The Exchange seeks to
inspection and copying at the principal principal office, and at the provide risk protection tools to all
office of the Exchange. All comments Commission’s Public Reference Room.
received will be posted without change; II. Self-Regulatory Organization’s 3 The term ‘‘Member’’ means an individual or
the Commission does not edit personal Statement of the Purpose of, and organization that is registered with the Exchange
pursuant to Chapter II of MIAX PEARL Rules for
identifying information from Statutory Basis for, the Proposed Rule purposes of trading on the Exchange as an
submissions. You should submit only Change ‘‘Electronic Exchange Member’’ or ‘‘ ‘‘Market
information that you wish to make Maker.’’ Members are deemed ‘‘members under the
available publicly. In its filing with the Commission, the Exchange Act. See Exchange Rule 100.
All submissions should refer to File Exchange included statements 4 The term ‘‘Electronic Exchange Member’’ or
concerning the purpose of and basis for ‘‘EEM’’ means the holder of a Trading Permit who
Number SR–ISEMercury–2017–03 and is a Member representing as agent Public Customer
should be submitted on or before March the proposed rule change and discussed Orders or Non-Customer Orders on the Exchange
2, 2017. any comments it received on the and those non-Market Maker Members conducting
proposed rule change. The text of these proprietary trading. Electronic Exchange Members
For the Commission, by the Division of statements may be examined at the are deemed ‘‘members’’ under the Exchange Act.
Trading and Markets, pursuant to delegated places specified in Item IV below. The See Exchange Rule 100.
sradovich on DSK3GMQ082PROD with NOTICES
authority.35 5 The term ‘‘System’’ means the automated
Exchange has prepared summaries, set trading system used by the Exchange for the trading
Eduardo A. Aleman, forth in sections A, B, and C below, of of securities. See Exchange Rule 100.
Assistant Secretary. the most significant aspects of such 6 The term ‘‘Market Maker’’ or ‘‘MM’’ means a
[FR Doc. 2017–02644 Filed 2–8–17; 8:45 am] statements. Member registered with the Exchange for the
BILLING CODE 8011–01–P
purpose of making markets in options contracts
traded on the Exchange and that is vested with the
1 15 U.S.C. 78s(b)(1). rights and responsibilities specified in Chapter VI
35 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. of MIAX PEARL Rules. See Exchange Rule 100.
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Document Created: 2017-02-09 01:02:48
Document Modified: 2017-02-09 01:02:48
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 10130 |
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