82_FR_25504 82 FR 25400 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT

82 FR 25400 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 104 (June 1, 2017)

Page Range25400-25404
FR Document2017-11364

Federal Register, Volume 82 Issue 104 (Thursday, June 1, 2017)
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)]
[Notices]
[Pages 25400-25404]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-11364]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80788; File No. SR-IEX-2017-18]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Eliminate Requirements That Will Be 
Duplicative of CAT

May 26, 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 May 15, 2017, Investors Exchange LLC (``IEX'' or the ``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 prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act''), and Rule 19b-4 thereunder, 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposed rule change to eliminate Rule 11.420 (Order Audit Trail System 
Requirements) and amend Rule 8.220 to reflect a change to this rule 
once Members are effectively reporting to the consolidated audit trail 
(``CAT'') adopted pursuant to the National Market System Plan Governing 
the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'') and the 
CAT's accuracy and reliability meets certain standards as described 
below.
    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.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 self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
(1) Background
    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 \3\ and Rule 
608 of Regulation NMS thereunder,\4\ the CAT NMS Plan.\5\ 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,\6\ and approved by the Commission, as 
modified, on November 15, 2016.\7\ On March 15, 2017, the Commission 
approved the new IEX Rule Series 11.600 to implement provisions of the 
CAT NMS Plan that are applicable to IEX Members.\8\
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    \3\ 15 U.S.C. 78k-1.
    \4\ 17 CFR 242.608.
    \5\ 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.
    \6\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \7\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \8\ Securities Exchange Act Rel. No. 80255 (March 15, 2017), 82 
FR 14563 (March 21, 2017).
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    The CAT NMS Plan is designed to create, implement, and maintain a 
consolidated audit trail that will capture in a single consolidated 
data source customer and order event information for orders in NMS 
Securities and OTC

[[Page 25401]]

Equity Securities, across all markets, from the time of order inception 
through routing, cancellation, modification, or execution. Among other 
things, Section C.9 of Appendix C to the Plan, as modified by the 
Commission, requires each Participant to ``file with the SEC the 
relevant rule change filing to eliminate or modify its duplicative 
rules within six (6) months of the SEC's approval of the CAT NMS 
Plan.'' The Plan notes that ``the elimination of such rules and the 
retirement of such systems [will] be effective at such time as CAT Data 
meets minimum standards of accuracy and reliability.'' Finally, the 
Plan requires the rule filing to discuss the following:
    (i) Specific accuracy and reliability standards that will determine 
when duplicative systems will be retired, including, but not limited 
to, whether the attainment of a certain Error Rate should determine 
when a system duplicative of the CAT can be retired;
    (ii) whether the availability of certain data from Small Industry 
Members two years after the Effective Date would facilitate a more 
expeditious retirement of duplicative systems; and
    (iii) whether individual Industry Members can be exempted from 
reporting to duplicative systems once their CAT reporting meets 
specified accuracy and reliability standards, including, but not 
limited to, ways in which establishing cross-system regulatory 
functionality or integrating data from existing systems and the CAT 
would facilitate such Individual Industry Member exemptions.
    In response to these requirements, the proposed rule change deletes 
Rule 11.420 (the ``OATS Rule'') \9\ and adds new Supplementary Material 
to Rule 8.220 once the CAT achieves the specific accuracy and 
reliability standards described below and IEX has determined that its 
usage of the CAT Data has not revealed material issues that have not 
been corrected, confirmed that the CAT includes all data necessary to 
allow IEX to continue to meet its surveillance obligations,\10\ and 
confirmed that the Plan Processor is sufficiently meeting all of its 
obligations under the CAT NMS Plan.
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    \9\ Rule 11.420 incorporates in relevant part the requirements 
of FINRA Rule 7420 through 7460.
    \10\ IEX and the Financial Industry Regulatory Authority 
(``FINRA'') are parties to a regulatory contract pursuant to which 
FINRA performs certain regulatory functions, including applicable 
surveillance, on behalf of IEX, subject to IEX's oversight. IEX and 
FINRA are also parties to several allocation agreements pursuant to 
Section 17d-1 of the Act pursuant to which certain other IEX 
regulatory functions are allocated to FINRA, including applicable 
surveillance. See, e.g., Securities Exchange Act Release No. 34-
78434 (July 28, 2016), 81 FR 51256 (August 3, 2016) (File No. 4-
700).
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(2) Specific Accuracy and Reliability Standards
    The first issue the Plan requires the proposed rule change to 
discuss is ``specific accuracy and reliability standards that will 
determine when duplicative systems will be retired, including, but not 
limited to, whether the attainment of a certain Error Rate should 
determine when a system duplicative of the CAT can be retired.'' IEX 
believes that relevant error rates are the primary, but not the sole, 
metric by which to determine the CAT's accuracy and reliability and 
will serve as the baseline requirement needed before the OATS Rule can 
be retired and requests for trading information pursuant to Rule 8.220 
can be adjusted.
    As discussed in Section A.3.(b) of Appendix C to the CAT NMS Plan, 
the Participants established an initial Error Rate, as defined in the 
Plan, of 5% on initially submitted data (i.e., data as submitted by a 
CAT Reporter before any required corrections are performed). The 
Participants noted in the Plan that their expectation was that ``error 
rates after reprocessing of error corrections will be de minimis.'' 
\11\ The Participants based this Error Rate on their consideration of 
``current and historical OATS Error Rates, the magnitude of new 
reporting requirements on the CAT Reporters and the fact that many CAT 
Reporters may have never been obligated to report data to an audit 
trail.'' \12\
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    \11\ See CAT NMS Plan, at C-23 n.102.
    \12\ CAT NMS Plan at C-23.
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    IEX agrees with the Participants' conclusion that a 5% pre-
correction threshold ``strikes the balance of adapting to a new 
reporting regime, while ensuring that the data provided to regulators 
will be capable of being used to conduct surveillance and market 
reconstruction, as well as having a sufficient level of accuracy to 
facilitate the retirement of existing regulatory reports and systems 
where possible.'' \13\ However, IEX believes that, when assessing the 
accuracy and reliability of the data for the purposes of retiring OATS, 
the error thresholds should be measured in more granular ways and 
should also include minimum error rates of post-correction data, which 
represents the data most likely to be used by IEX (or FINRA on its 
behalf) to conduct surveillance.\14\ Although IEX is proposing to 
measure the appropriate error rates in the aggregate, rather than firm-
by-firm, IEX believes that the error rates for equity securities should 
be measured separately from options since options orders are not 
currently reported regularly or included in OATS.
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    \13\ CAT NMS Plan at C-24.
    \14\ See note 10 supra.
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    To ensure the CAT's accuracy and reliability, IEX is proposing 
that, before OATS could be retired, the CAT would need to achieve a 
sustained error rate in each of the categories below for a period of at 
least 180 days of 5% or lower, measured on a pre-correction or as-
submitted basis and 2% or lower on a post-correction basis (measured at 
T+5).\15\ IEX proposes to measure the 5% pre-correction and 2% post-
correction thresholds by averaging the error rate across the period, 
not require a 5% pre-correction and 2% post-correction maximum each day 
for 180 consecutive days. IEX believes that measuring each of the 
thresholds over the course of 180 days will ensure that the CAT 
consistently meets minimum accuracy and reliability thresholds while 
also ensuring that single-day measurements do not unduly affect the 
overall measurements. IEX also proposes to measure the appropriate 
error rates in the aggregate, rather than firm-by-firm.
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    \15\ The Plan requires that the Plan Processor must ensure that 
regulators have access to corrected and linked order and Customer 
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, at C-15.
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    IEX is proposing to use error rates in each the following 
categories, measured separately for equities, to assess whether the 
threshold error rates are being met:
     Rejection Rates and Data Validations. Data validations for 
the CAT, while not expected to be designed the same as OATS, must be 
functionally equivalent to OATS in accordance with the CAT NMS Plan 
(i.e., the same types of basic data validations must be performed by 
the Plan Processor to comply with the CAT NMS Plan requirements). 
Appendix D of the Plan, for example, requires that certain file 
validations and syntax and context checks be performed.\16\ The 
specific validations can be determined only after the Plan Processor 
has finalized the Industry Member Technical Specifications; however, 
the Plan also requires the Plan Processor to provide daily statistics 
on rejection rates after the data has been processed, including the 
number of files rejected and accepted, the number of order events 
accepted and rejected, and the number of each type of report rejected. 
FINRA [sic] is proposing that, over the 180-day period, aggregate 
rejection rates (measured separately for equities and options) must be 
no more than 5% pre-correction or 2% post-correction across all CAT 
Reporters.
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    \16\ See CAT NMS Plan, at D-21.

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[[Page 25402]]

     Intra-Firm Linkages. The Plan requires that ``the Plan 
Processor must be able to link all related order events from all CAT 
Reporters involved in the lifecycle of an order.'' \17\ At a minimum, 
this requirement includes the creation of an order lifecycle between 
``[a]ll order events handled within an individual CAT Reporter, 
including orders routed to internal desks or departments with different 
functions (e.g., an internal ATS).'' \18\ IEX is proposing that 
aggregate intra-firm linkage rates across all Industry Member Reporters 
must be at least 95% pre-correction and 98% post-correction.
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    \17\ CAT NMS Plan, at D-8.
    \18\ Id.
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     Inter-Firm Linkages. The order linkage requirements in the 
Plan also require that the Plan Processor be able to create the 
lifecycle between orders routed between broker-dealers.\19\ IEX is 
proposing that at least a 95% pre-correction and 98% post-correction 
aggregate match rate be achieved for orders routed between two Industry 
Member Reporters.\20\
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    \19\ Id.
    \20\ This assumes linkage statistics will include both unlinked 
route reports and new orders where no related route report could be 
found.
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     Order Linkage Rates. In addition to creating linkages 
within and between broker-dealers, the Plan also includes requirements 
that the Plan Processor be able to create lifecycles to link various 
pieces of related orders. For example, the Plan requires linkages 
between customer orders and ``representative'' orders created in firm 
accounts for the purpose of facilitating a customer order, various legs 
of option/equity complex orders, riskless principal orders, and orders 
worked through average price accounts.\21\ IEX is proposing that there 
be at least a 95% pre-correction and 98% post-correction linkage rate 
for multi-legged orders (e.g., related equity/options orders, VWAP 
orders, riskless principal transactions).
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    \21\ See CAT NMS Plan, at D-8, D-9.
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     Exchange and TRF/ORF Match Rates. The Plan requires that 
an order lifecycle be created to link ``[o]rders routed from broker-
dealers to exchanges'' and ``[e]xecuted orders and trade reports.'' 
\22\ IEX is proposing at least a 95% pre-correction and 98% post-
correction aggregate match rate to each equity exchange for orders 
routed from Industry Members to an exchange and, for over-the-counter 
executions, the same match rate for orders linked to trade reports.
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    \22\ Id. at D-9.
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    In addition to these minimum error rates and matching thresholds 
that must be met before OATS can be retired, IEX believes that during 
the minimum 180-day period during which the thresholds are calculated, 
FINRA's use of the data in the CAT on behalf of IEX must confirm that 
(i) usage over that time period has not revealed material issues that 
have not been corrected, (ii) the CAT includes all data necessary to 
allow IEX to continue to meet its surveillance obligations, and (iii) 
the Plan Processor is sufficiently meeting all of its obligations under 
the CAT NMS Plan. IEX believes this time period to use the CAT Data is 
necessary to reveal any errors that may manifest themselves only after 
surveillance patterns and other queries have been run and to confirm 
that the Plan Processor is meeting its obligations and performing its 
functions adequately.
(3) Small Industry Member Data Availability
    The second issue the Plan requires the proposed rule change to 
address is ``whether the availability of certain data from Small 
Industry Members two years after the Effective Date would facilitate a 
more expeditious retirement of duplicative systems.'' IEX believes that 
there is no effective way to retire OATS until all current OATS 
reporters are reporting to the CAT. Although Technical Specifications 
for Industry Members are not yet available, IEX believes it would be 
inefficient, less reliable, and more costly to attempt to marry the 
OATS and CAT databases for a temporary period to allow some IEX members 
to report to CAT while others continue to report to OATS. Consequently, 
IEX believes that if the Plan is amended and FINRA makes a rule change 
\23\ such that all Small Industry Members \24\ that are OATS reporters 
must report to OATS beginning in November 2018 rather than November 
2019, it would substantially facilitate a more expeditious retirement 
of OATS. For this reason, IEX supports an amendment to the Plan that 
would require current OATS Reporters that are ``Small Industry 
Members'' to report two years after the Effective Date (instead of 
three). IEX intends to work with the other Participants to submit a 
proposed amendment to the Plan to require Small Industry Members that 
are OATS Reporters to report two years after the Effective Date. Based 
on FINRA's assessment of the impact to Small Industry Members, as 
described above,\25\ IEX believes that the burden on current OATS 
Reporters that are ``Small Industry Members'' would not be significant 
if those firms are required to report to CAT beginning in November 2018 
rather than November 2019. The burdens, however, are significantly 
greater for those firms that are not reporting to OATS currently; 
therefore, IEX does not believe it would be necessary or appropriate to 
accelerate CAT reporting for ``Small Industry Members'' that are not 
currently reporting to OATS, and IEX would not support an amendment to 
the Plan to accelerate CAT reporting for ``Small Industry Members'' 
that are not currently OATS Reporters.
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    \23\ IEX Rule 11.420 (in relevant part) incorporates FINRA Rules 
7430, 7440 and 7450 related to OATS reporting, providing that IEX 
Members must comply with such rules as if such rules were part of 
IEX's rules.
    \24\ FINRA has identified approximately 300 member firms that 
currently report to OATS and meet the definition of ``Small Industry 
Member;'' however, only ten of these firms submit information to 
OATS on their own behalf, and eight of the ten firms report very few 
orders to OATS (e.g., in one recent month, eight of the ten firms 
submitted fewer than 100 reports during the month, with four firms 
submitting fewer than 50). The vast majority of these 300 firms use 
third parties to fulfill their reporting obligations, and many of 
these third parties will begin reporting to CAT in November 2018. 
IEX is assessing how many of its Members are Small Industry Members.
    \25\ See supra note 24.
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(4) Individual Industry Member Exemptions
    The final issue the Plan requires the proposed rule change to 
address is ``whether individual Industry Members can be exempted from 
reporting to duplicative systems once their CAT reporting meets 
specified accuracy and reliability standards, including, but not 
limited to, ways in which establishing cross-system regulatory 
functionality or integrating data from existing systems and the CAT 
would facilitate such Individual Industry Member exemptions.''
    IEX believes that a single cut-over from OATS to CAT is highly 
preferable to a firm-by-firm approach and is not proposing to exempt 
members from the OATS requirements on a firm-by-firm basis. The primary 
benefit to a firm-by-firm exemptive approach would be to reduce the 
amount of time an individual firm is required to report to a legacy 
system (e.g., OATS) if it is also accurately and reliably reporting to 
the CAT. IEX believes that the overall accuracy and reliability 
thresholds for the CAT described above would need to be met under any 
conditions before firms could stop reporting to OATS, and there is no 
need to exempt members from OATS requirements on a firm-by-firm basis.

[[Page 25403]]

(5) Automated Submission of Trading Data
    In addition to the OATS rules, Rule 8. [sic] 8.220 (the ``EBS 
Rule'') will also be affected by the implementation of the CAT. The EBS 
Rule is IEX's rule regarding the automated submission of specific 
trading data to IEX (or FINRA on behalf of IEX) upon request using the 
FINRA Electronic Blue Sheet (``EBS'') system.
    Once broker-dealer reporting to the CAT has begun, the CAT will 
contain the data the Participants would otherwise have requested via 
the EBS system for purposes of NMS Securities. Consequently, IEX will 
not need to use the EBS system or request information pursuant to the 
EBS Rule for NMS Securities for time periods after CAT reporting has 
begun if the appropriate accuracy and reliability thresholds are 
achieved, including an acceptable accuracy rate for customer and 
account information. However, the EBS Rule cannot be completely removed 
from the IEX Rulebook immediately upon the CAT achieving the 
appropriate thresholds because IEX staff (or FINRA staff on behalf of 
IEX) may still need to request information pursuant to these rules for 
trading activity occurring before a member was reporting to the 
CAT.\26\
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    \26\ Firms are required to maintain the trade information for 
pre-CAT transactions in equities and options pursuant to applicable 
rules, such as books and records retention requirements, for the 
relevant time period, which is generally three or six years, 
depending upon the record. See 17 CFR 240.17a-3(a), 240.17a-4.
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    The proposed rule change includes new Supplementary Material .01 to 
clarify how IEX (or FINRA on behalf of IEX) will request data under 
these rules after members are reporting to the CAT. Specifically, the 
proposed Supplementary Material to the rule will note that IEX (or 
FINRA on behalf of IEX) will request information under the rule only if 
the information is not available in the CAT because, for example, the 
transactions in question occurred before the firm was reporting 
information to the CAT. In essence, under the new Supplementary 
Material, IEX (or FINRA on behalf of IEX) will make requests under 
these rules if and only if the information is not otherwise available 
through the CAT.
    However, as noted above, IEX believes that the CAT must meet 
certain minimum accuracy and reliability standards before IEX could 
rely on the CAT Data to replace existing regulatory tools, including 
EBS. Consequently, the proposed Supplementary Material will be 
implemented only after the thresholds set forth above with respect to 
OATS and an acceptable accuracy rate for customer and account 
information are achieved and at least a 180-day time period has passed 
to allow IEX staff (or FINRA staff on behalf of IEX) to use the CAT to 
ensure that it is functioning at a level sufficient to ensure that IEX 
can rely solely on the CAT for the data and that the CAT Plan Processor 
is fulfilling its obligations under the CAT NMS Plan.
    If the Commission approves the proposed rule change, IEX will 
announce the implementation date of the proposed rule change in a 
Regulatory Notice that will be published once IEX concludes the 
thresholds for accuracy and reliability described above have been met 
and that the Plan Processor is sufficiently meeting all of its 
obligations under the CAT NMS Plan.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b)(5) of the Act,\27\ which require, among 
other things, that the IEX 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. IEX believes that the proposed rule change fulfills 
the obligation in the CAT NMS Plan for IEX to submit a proposed rule 
change to eliminate or modify duplicative rules. IEX believes that the 
approach set forth in the proposed rule change strikes the appropriate 
balance between ensuring that IEX is able to continue to fulfill its 
statutory obligation to protect investors and the public interest by 
ensuring its surveillance of market activity remains accurate and 
effective while also establishing a reasonable timeframe for 
elimination or modification of its rules that will be rendered 
duplicative after implementation of the CAT.
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    \27\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX 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. IEX notes that the proposed 
rule change implements provisions of the CAT NMS Plan, and is designed 
to assist IEX in meeting its regulatory obligations pursuant to the 
Plan. IEX also notes that the Proposed Rule Series implementing 
provisions of the CAT NMS Plan will apply equally to all firms that 
trade NMS Securities. In addition, all national securities exchanges 
and FINRA are proposing substantially similar rule filings. 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

    Although written comments on the proposed rule change were not 
solicited, the Participants received comments from two commenters, the 
Financial Information Forum (``FIF'') and the Securities Industry and 
Financial Markets Association (``SIFMA''), regarding the retirement of 
systems related to the CAT.\28\ In its comment letters, with regard to 
the retirement of duplicative systems more generally, FIF recommended 
that the Participants continue the effort to incorporate current 
reporting obligations into the CAT in order to replace existing 
reportable systems with the CAT. In addition, FIF further recommended 
that, once a CAT Reporter achieved satisfactory reporting data quality, 
the CAT Reporter should be exempt from reporting to any duplicative 
reporting systems. FIF believed that these recommendations ``would 
serve both an underlying regulatory objective of more immediate and 
accurate access to data as well as an industry objective of reduced 
costs and burdens of regulatory oversight.'' \29\ In its comments about 
EBS specifically, FIF stated that the retirement of the EBS 
requirements should be a high priority, and that the CAT should be 
designed to include the requisite data elements to permit the rapid 
retirement of EBS.\30\ Similarly, SIFMA stated that ``the establishment 
of the CAT must be accompanied by the prompt elimination of duplicative 
systems,'' and ``recommend[ed] that the initial technical 
specifications be designed to facilitate the immediate retirement of . 
. . duplicative reporting systems.'' \31\
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    \28\ Letter from William H. Hebert, FIF, to Participants re: 
Milestone for Participants' rule change filings to eliminate/modify 
duplicative rules (Apr. 12, 2017) (``FIF Letter''); Letter from 
William H. Hebert, FIF, to Brent J. Fields, SEC re: Milestone for 
Participants' rule change filings to eliminate/modify duplicative 
rules (Apr. 12, 2017); and Letter from Kenneth E. Bentsen, Jr., 
SIFMA, to Participants re: Selection of Thesys as CAT Processor 
(Apr. 4, 2017) (``SIFMA Letter'') at 2.
    \29\ FIF Letter at 2.
    \30\ FIF Letter at 2.
    \31\ SIFMA Letter at 2.

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[[Page 25404]]

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 
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-IEX-2017-18 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-IEX-2017-18. 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 such 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-IEX-2017-18, and should be 
submitted on or before June 22, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-11364 Filed 5-31-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                  25400                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  connection with the reorganization were                 SECURITIES AND EXCHANGE                                of these statements may be examined at
                                                  paid by the applicant.                                  COMMISSION                                             the places specified in Item IV below.
                                                     Filing Dates: The application was                                                                           The self-regulatory organization has
                                                                                                          [Release No. 34–80788; File No. SR–IEX–
                                                  filed on April 20, 2017 and amended on                                                                         prepared summaries, set forth in
                                                                                                          2017–18]
                                                                                                                                                                 Sections A, B, and C below, of the most
                                                  [DATE].
                                                                                                          Self-Regulatory Organizations;                         significant aspects of such statements.
                                                     Applicants’ Address: 333 West                        Investors Exchange LLC; Notice of
                                                  Wacker Drive, Chicago, Illinois 60606.                                                                         A. Self-Regulatory Organization’s
                                                                                                          Filing of Proposed Rule Change To                      Statement of the Purpose of, and the
                                                  AB Blended Style Series, Inc.                           Eliminate Requirements That Will Be                    Statutory Basis for, the Proposed Rule
                                                                                                          Duplicative of CAT                                     Change
                                                  [File No. 811–21081]
                                                                                                          May 26, 2017.                                          1. Purpose
                                                     Summary: Applicant seeks an order                       Pursuant to Section 19(b)(1) of the
                                                  declaring that it has ceased to be an                                                                          (1) Background
                                                                                                          Securities Exchange Act of 1934
                                                  investment company. On November 20,                     (‘‘Act’’) 1 and Rule 19b–4 thereunder,2                   Bats BYX Exchange, Inc., Bats BZX
                                                  2015, applicant made a liquidating                      notice is hereby given that on May 15,                 Exchange, Inc., Bats EDGA Exchange,
                                                  distribution to its shareholders, based                 2017, Investors Exchange LLC (‘‘IEX’’ or               Inc., Bats EDGX Exchange, Inc., BOX
                                                  on net asset value. Expenses of $19,049                 the ‘‘Exchange’’) filed with the                       Options Exchange LLC, C2 Options
                                                  incurred in connection with the                         Securities and Exchange Commission                     Exchange, Incorporated, Chicago Board
                                                  liquidation were paid by the applicant’s                (‘‘SEC’’ or ‘‘Commission’’) the proposed               Options Exchange, Incorporated,
                                                  investment adviser.                                     rule change as described in Items I, II,               Chicago Stock Exchange, Inc., Financial
                                                                                                          and III below, which Items have been                   Industry Regulatory Authority, Inc.,
                                                     Filing Date: The application was filed
                                                                                                          prepared by the self-regulatory                        International Securities Exchange, LLC,
                                                  on May 16, 2017.                                                                                               Investors Exchange LLC, ISE Gemini,
                                                                                                          organization. The Commission is
                                                     Applicant’s Address: 1345 Avenue of                  publishing this notice to solicit                      LLC, ISE Mercury, LLC, Miami
                                                  the Americas, New York, New York                        comments on the proposed rule change                   International Securities Exchange LLC,
                                                  10105.                                                  from interested persons.                               MIAX PEARL, LLC, NASDAQ BX, Inc.,
                                                                                                                                                                 NASDAQ PHLX LLC, The NASDAQ
                                                  Alliance New York Municipal Income                      I. Self-Regulatory Organization’s                      Stock Market LLC, National Stock
                                                  Fund                                                    Statement of the Terms of Substance of                 Exchange, Inc., New York Stock
                                                  [File No. 811–10577]                                    the Proposed Rule Change                               Exchange LLC, NYSE MKT LLC, and
                                                                                                             Pursuant to the provisions of Section               NYSE Arca, Inc. (collectively, the
                                                     Summary: Applicant, a closed-end                                                                            ‘‘Participants’’) filed with the
                                                                                                          19(b)(1) of the Securities Exchange Act
                                                  investment company, seeks an order                                                                             Commission, pursuant to Section 11A of
                                                                                                          of 1934 (‘‘Exchange Act’’), and Rule
                                                  declaring that it has ceased to be an                                                                          the Exchange Act 3 and Rule 608 of
                                                                                                          19b–4 thereunder, Investors Exchange
                                                  investment company. On September 22,                    LLC (‘‘IEX’’ or ‘‘Exchange’’) is filing                Regulation NMS thereunder,4 the CAT
                                                  2015, applicant made a liquidating                      with the Securities and Exchange                       NMS Plan.5 The Participants filed the
                                                  distribution to its shareholders, based                 Commission (‘‘SEC’’ or ‘‘Commission’’)                 Plan to comply with Rule 613 of
                                                  on net asset value. Payment was made                    a proposed rule change to eliminate                    Regulation NMS under the Exchange
                                                  on applicant’s senior securities at the                 Rule 11.420 (Order Audit Trail System                  Act. The Plan was published for
                                                  liquidation preference per share in                     Requirements) and amend Rule 8.220 to                  comment in the Federal Register on
                                                  accordance with their terms. All                        reflect a change to this rule once                     May 17, 2016,6 and approved by the
                                                  remaining amounts were distributed to                   Members are effectively reporting to the               Commission, as modified, on November
                                                  common shareholders on the basis of                     consolidated audit trail (‘‘CAT’’)                     15, 2016.7 On March 15, 2017, the
                                                  net assets. Expenses of $114,788                        adopted pursuant to the National                       Commission approved the new IEX Rule
                                                  incurred in connection with the                         Market System Plan Governing the                       Series 11.600 to implement provisions
                                                  liquidation were paid by the applicant.                 Consolidated Audit Trail (the ‘‘CAT                    of the CAT NMS Plan that are
                                                                                                          NMS Plan’’ or ‘‘Plan’’) and the CAT’s                  applicable to IEX Members.8
                                                     Filing Dates: The application was                                                                              The CAT NMS Plan is designed to
                                                  filed on May 16, 2017 and amended on                    accuracy and reliability meets certain
                                                                                                                                                                 create, implement, and maintain a
                                                  May 24, 2017.                                           standards as described below.
                                                                                                             The text of the proposed rule change                consolidated audit trail that will capture
                                                     Applicant’s Address: 1345 Avenue of                  is available at the Exchange’s Web site                in a single consolidated data source
                                                  the Americas, New York, NY 10105.                       at www.iextrading.com, at the principal                customer and order event information
                                                                                                          office of the Exchange, and at the                     for orders in NMS Securities and OTC
                                                    For the Commission, by the Division of
                                                  Investment Management, pursuant to                      Commission’s Public Reference Room.                      3 15  U.S.C. 78k–1.
                                                  delegated authority.                                    II. Self-Regulatory Organization’s                       4 17  CFR 242.608.
                                                                                                                                                                    5 See Letter from the Participants to Brent J.
                                                  Eduardo A. Aleman,                                      Statement of the Purpose of, and
                                                                                                                                                                 Fields, Secretary, Commission, dated September 30,
                                                  Assistant Secretary.                                    Statutory Basis for, the Proposed Rule                 2014; and Letter from Participants to Brent J. Fields,
                                                  [FR Doc. 2017–11346 Filed 5–31–17; 8:45 am]             Change                                                 Secretary, Commission, dated February 27, 2015.
                                                                                                                                                                 On December 24, 2015, the Participants submitted
                                                  BILLING CODE 8011–01–P                                     In its filing with the Commission, the              an amendment to the CAT NMS Plan. See Letter
                                                                                                          self-regulatory organization included
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                                                                                                                                                                 from Participants to Brent J. Fields, Secretary,
                                                                                                          statements concerning the purpose of                   Commission, dated December 23, 2015.
                                                                                                          and basis for the proposed rule change                    6 Securities Exchange Act Rel. No. 77724 (Apr.

                                                                                                          and discussed any comments it received                 27, 2016), 81 FR 30614 (May 17, 2016).
                                                                                                                                                                    7 Securities Exchange Act Rel. No. 79318 (Nov.
                                                                                                          on the proposed rule change. The text                  15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Approval
                                                                                                                                                                 Order’’).
                                                                                                           1 15   U.S.C. 78s(b)(1).                                 8 Securities Exchange Act Rel. No. 80255 (March
                                                                                                           2 17   CFR 240.19b–4.                                 15, 2017), 82 FR 14563 (March 21, 2017).



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                                                                                 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                    25401

                                                  Equity Securities, across all markets,                  sufficiently meeting all of its obligations           rates for equity securities should be
                                                  from the time of order inception through                under the CAT NMS Plan.                               measured separately from options since
                                                  routing, cancellation, modification, or                                                                       options orders are not currently
                                                                                                          (2) Specific Accuracy and Reliability
                                                  execution. Among other things, Section                                                                        reported regularly or included in OATS.
                                                                                                          Standards
                                                  C.9 of Appendix C to the Plan, as                                                                                To ensure the CAT’s accuracy and
                                                  modified by the Commission, requires                       The first issue the Plan requires the              reliability, IEX is proposing that, before
                                                  each Participant to ‘‘file with the SEC                 proposed rule change to discuss is                    OATS could be retired, the CAT would
                                                  the relevant rule change filing to                      ‘‘specific accuracy and reliability                   need to achieve a sustained error rate in
                                                  eliminate or modify its duplicative rules               standards that will determine when                    each of the categories below for a period
                                                  within six (6) months of the SEC’s                      duplicative systems will be retired,                  of at least 180 days of 5% or lower,
                                                  approval of the CAT NMS Plan.’’ The                     including, but not limited to, whether                measured on a pre-correction or as-
                                                  Plan notes that ‘‘the elimination of such               the attainment of a certain Error Rate                submitted basis and 2% or lower on a
                                                  rules and the retirement of such systems                should determine when a system                        post-correction basis (measured at
                                                  [will] be effective at such time as CAT                 duplicative of the CAT can be retired.’’              T+5).15 IEX proposes to measure the 5%
                                                  Data meets minimum standards of                         IEX believes that relevant error rates are            pre-correction and 2% post-correction
                                                  accuracy and reliability.’’ Finally, the                the primary, but not the sole, metric by              thresholds by averaging the error rate
                                                  Plan requires the rule filing to discuss                which to determine the CAT’s accuracy                 across the period, not require a 5% pre-
                                                  the following:                                          and reliability and will serve as the                 correction and 2% post-correction
                                                     (i) Specific accuracy and reliability                baseline requirement needed before the                maximum each day for 180 consecutive
                                                  standards that will determine when                      OATS Rule can be retired and requests                 days. IEX believes that measuring each
                                                  duplicative systems will be retired,                    for trading information pursuant to Rule              of the thresholds over the course of 180
                                                  including, but not limited to, whether                  8.220 can be adjusted.                                days will ensure that the CAT
                                                  the attainment of a certain Error Rate                     As discussed in Section A.3.(b) of                 consistently meets minimum accuracy
                                                  should determine when a system                          Appendix C to the CAT NMS Plan, the                   and reliability thresholds while also
                                                  duplicative of the CAT can be retired;                  Participants established an initial Error             ensuring that single-day measurements
                                                     (ii) whether the availability of certain             Rate, as defined in the Plan, of 5% on                do not unduly affect the overall
                                                  data from Small Industry Members two                    initially submitted data (i.e., data as               measurements. IEX also proposes to
                                                  years after the Effective Date would                    submitted by a CAT Reporter before any                measure the appropriate error rates in
                                                  facilitate a more expeditious retirement                required corrections are performed). The              the aggregate, rather than firm-by-firm.
                                                  of duplicative systems; and                             Participants noted in the Plan that their                IEX is proposing to use error rates in
                                                     (iii) whether individual Industry                    expectation was that ‘‘error rates after              each the following categories, measured
                                                  Members can be exempted from                            reprocessing of error corrections will be             separately for equities, to assess whether
                                                  reporting to duplicative systems once                   de minimis.’’ 11 The Participants based               the threshold error rates are being met:
                                                  their CAT reporting meets specified                     this Error Rate on their consideration of                • Rejection Rates and Data
                                                  accuracy and reliability standards,                     ‘‘current and historical OATS Error                   Validations. Data validations for the
                                                  including, but not limited to, ways in                  Rates, the magnitude of new reporting                 CAT, while not expected to be designed
                                                  which establishing cross-system                         requirements on the CAT Reporters and                 the same as OATS, must be functionally
                                                  regulatory functionality or integrating                 the fact that many CAT Reporters may                  equivalent to OATS in accordance with
                                                  data from existing systems and the CAT                  have never been obligated to report data              the CAT NMS Plan (i.e., the same types
                                                  would facilitate such Individual                        to an audit trail.’’ 12                               of basic data validations must be
                                                  Industry Member exemptions.                                IEX agrees with the Participants’                  performed by the Plan Processor to
                                                     In response to these requirements, the               conclusion that a 5% pre-correction                   comply with the CAT NMS Plan
                                                  proposed rule change deletes Rule                       threshold ‘‘strikes the balance of                    requirements). Appendix D of the Plan,
                                                  11.420 (the ‘‘OATS Rule’’) 9 and adds                   adapting to a new reporting regime,                   for example, requires that certain file
                                                                                                          while ensuring that the data provided to              validations and syntax and context
                                                  new Supplementary Material to Rule
                                                                                                          regulators will be capable of being used              checks be performed.16 The specific
                                                  8.220 once the CAT achieves the
                                                                                                          to conduct surveillance and market
                                                  specific accuracy and reliability                                                                             validations can be determined only after
                                                                                                          reconstruction, as well as having a
                                                  standards described below and IEX has                                                                         the Plan Processor has finalized the
                                                                                                          sufficient level of accuracy to facilitate
                                                  determined that its usage of the CAT                                                                          Industry Member Technical
                                                                                                          the retirement of existing regulatory
                                                  Data has not revealed material issues                                                                         Specifications; however, the Plan also
                                                                                                          reports and systems where possible.’’ 13
                                                  that have not been corrected, confirmed                                                                       requires the Plan Processor to provide
                                                  that the CAT includes all data necessary                However, IEX believes that, when                      daily statistics on rejection rates after
                                                  to allow IEX to continue to meet its                    assessing the accuracy and reliability of             the data has been processed, including
                                                  surveillance obligations,10 and                         the data for the purposes of retiring                 the number of files rejected and
                                                                                                          OATS, the error thresholds should be
                                                  confirmed that the Plan Processor is                                                                          accepted, the number of order events
                                                                                                          measured in more granular ways and                    accepted and rejected, and the number
                                                     9 Rule 11.420 incorporates in relevant part the      should also include minimum error                     of each type of report rejected. FINRA
                                                  requirements of FINRA Rule 7420 through 7460.           rates of post-correction data, which                  [sic] is proposing that, over the 180-day
                                                     10 IEX and the Financial Industry Regulatory         represents the data most likely to be                 period, aggregate rejection rates
                                                  Authority (‘‘FINRA’’) are parties to a regulatory       used by IEX (or FINRA on its behalf) to
                                                  contract pursuant to which FINRA performs certain                                                             (measured separately for equities and
                                                  regulatory functions, including applicable
                                                                                                          conduct surveillance.14 Although IEX is               options) must be no more than 5% pre-
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                                                  surveillance, on behalf of IEX, subject to IEX’s        proposing to measure the appropriate                  correction or 2% post-correction across
                                                  oversight. IEX and FINRA are also parties to several    error rates in the aggregate, rather than             all CAT Reporters.
                                                  allocation agreements pursuant to Section 17d–1 of      firm-by-firm, IEX believes that the error
                                                  the Act pursuant to which certain other IEX
                                                                                                                                                                   15 The Plan requires that the Plan Processor must
                                                  regulatory functions are allocated to FINRA,             11 See
                                                  including applicable surveillance. See, e.g.,                   CAT NMS Plan, at C–23 n.102.                  ensure that regulators have access to corrected and
                                                                                                           12 CAT  NMS Plan at C–23.
                                                  Securities Exchange Act Release No. 34–78434 (July                                                            linked order and Customer data by 8:00 a.m.
                                                                                                           13 CAT NMS Plan at C–24.                             Eastern Time on T+5. See CAT NMS Plan, at C–15.
                                                  28, 2016), 81 FR 51256 (August 3, 2016) (File No.
                                                  4–700).                                                  14 See note 10 supra.                                   16 See CAT NMS Plan, at D–21.




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                                                  25402                           Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                     • Intra-Firm Linkages. The Plan                       believes that during the minimum 180-                   ‘‘Small Industry Members’’ to report two
                                                  requires that ‘‘the Plan Processor must                  day period during which the thresholds                  years after the Effective Date (instead of
                                                  be able to link all related order events                 are calculated, FINRA’s use of the data                 three). IEX intends to work with the
                                                  from all CAT Reporters involved in the                   in the CAT on behalf of IEX must                        other Participants to submit a proposed
                                                  lifecycle of an order.’’ 17 At a minimum,                confirm that (i) usage over that time                   amendment to the Plan to require Small
                                                  this requirement includes the creation                   period has not revealed material issues                 Industry Members that are OATS
                                                  of an order lifecycle between ‘‘[a]ll order              that have not been corrected, (ii) the                  Reporters to report two years after the
                                                  events handled within an individual                      CAT includes all data necessary to                      Effective Date. Based on FINRA’s
                                                  CAT Reporter, including orders routed                    allow IEX to continue to meet its                       assessment of the impact to Small
                                                  to internal desks or departments with                    surveillance obligations, and (iii) the                 Industry Members, as described
                                                  different functions (e.g., an internal                   Plan Processor is sufficiently meeting all
                                                                                                                                                                   above,25 IEX believes that the burden on
                                                  ATS).’’ 18 IEX is proposing that aggregate               of its obligations under the CAT NMS
                                                  intra-firm linkage rates across all                                                                              current OATS Reporters that are ‘‘Small
                                                                                                           Plan. IEX believes this time period to
                                                  Industry Member Reporters must be at                                                                             Industry Members’’ would not be
                                                                                                           use the CAT Data is necessary to reveal
                                                  least 95% pre-correction and 98% post-                   any errors that may manifest themselves                 significant if those firms are required to
                                                  correction.                                              only after surveillance patterns and                    report to CAT beginning in November
                                                     • Inter-Firm Linkages. The order                      other queries have been run and to                      2018 rather than November 2019. The
                                                  linkage requirements in the Plan also                    confirm that the Plan Processor is                      burdens, however, are significantly
                                                  require that the Plan Processor be able                  meeting its obligations and performing                  greater for those firms that are not
                                                  to create the lifecycle between orders                   its functions adequately.                               reporting to OATS currently; therefore,
                                                  routed between broker-dealers.19 IEX is                                                                          IEX does not believe it would be
                                                  proposing that at least a 95% pre-                       (3) Small Industry Member Data                          necessary or appropriate to accelerate
                                                  correction and 98% post-correction                       Availability                                            CAT reporting for ‘‘Small Industry
                                                  aggregate match rate be achieved for                        The second issue the Plan requires the               Members’’ that are not currently
                                                  orders routed between two Industry                       proposed rule change to address is                      reporting to OATS, and IEX would not
                                                  Member Reporters.20                                      ‘‘whether the availability of certain data              support an amendment to the Plan to
                                                     • Order Linkage Rates. In addition to                 from Small Industry Members two years                   accelerate CAT reporting for ‘‘Small
                                                  creating linkages within and between                     after the Effective Date would facilitate               Industry Members’’ that are not
                                                  broker-dealers, the Plan also includes                   a more expeditious retirement of                        currently OATS Reporters.
                                                  requirements that the Plan Processor be                  duplicative systems.’’ IEX believes that
                                                  able to create lifecycles to link various                there is no effective way to retire OATS                (4) Individual Industry Member
                                                  pieces of related orders. For example,                   until all current OATS reporters are                    Exemptions
                                                  the Plan requires linkages between                       reporting to the CAT. Although
                                                  customer orders and ‘‘representative’’                   Technical Specifications for Industry                      The final issue the Plan requires the
                                                  orders created in firm accounts for the                  Members are not yet available, IEX                      proposed rule change to address is
                                                  purpose of facilitating a customer order,                believes it would be inefficient, less                  ‘‘whether individual Industry Members
                                                  various legs of option/equity complex                    reliable, and more costly to attempt to                 can be exempted from reporting to
                                                  orders, riskless principal orders, and                   marry the OATS and CAT databases for                    duplicative systems once their CAT
                                                  orders worked through average price                      a temporary period to allow some IEX                    reporting meets specified accuracy and
                                                  accounts.21 IEX is proposing that there                  members to report to CAT while others                   reliability standards, including, but not
                                                  be at least a 95% pre-correction and                     continue to report to OATS.                             limited to, ways in which establishing
                                                  98% post-correction linkage rate for                     Consequently, IEX believes that if the                  cross-system regulatory functionality or
                                                  multi-legged orders (e.g., related equity/               Plan is amended and FINRA makes a                       integrating data from existing systems
                                                  options orders, VWAP orders, riskless                    rule change 23 such that all Small                      and the CAT would facilitate such
                                                  principal transactions).                                 Industry Members 24 that are OATS                       Individual Industry Member
                                                     • Exchange and TRF/ORF Match                          reporters must report to OATS
                                                  Rates. The Plan requires that an order                                                                           exemptions.’’
                                                                                                           beginning in November 2018 rather than
                                                  lifecycle be created to link ‘‘[o]rders                                                                             IEX believes that a single cut-over
                                                                                                           November 2019, it would substantially
                                                  routed from broker-dealers to                                                                                    from OATS to CAT is highly preferable
                                                                                                           facilitate a more expeditious retirement
                                                  exchanges’’ and ‘‘[e]xecuted orders and                  of OATS. For this reason, IEX supports                  to a firm-by-firm approach and is not
                                                  trade reports.’’ 22 IEX is proposing at                                                                          proposing to exempt members from the
                                                                                                           an amendment to the Plan that would
                                                  least a 95% pre-correction and 98%                                                                               OATS requirements on a firm-by-firm
                                                                                                           require current OATS Reporters that are
                                                  post-correction aggregate match rate to                                                                          basis. The primary benefit to a firm-by-
                                                  each equity exchange for orders routed                      23 IEX Rule 11.420 (in relevant part) incorporates   firm exemptive approach would be to
                                                  from Industry Members to an exchange                     FINRA Rules 7430, 7440 and 7450 related to OATS         reduce the amount of time an individual
                                                  and, for over-the-counter executions, the                reporting, providing that IEX Members must              firm is required to report to a legacy
                                                  same match rate for orders linked to                     comply with such rules as if such rules were part
                                                                                                                                                                   system (e.g., OATS) if it is also
                                                  trade reports.                                           of IEX’s rules.
                                                                                                              24 FINRA has identified approximately 300            accurately and reliably reporting to the
                                                     In addition to these minimum error                    member firms that currently report to OATS and          CAT. IEX believes that the overall
                                                  rates and matching thresholds that must                  meet the definition of ‘‘Small Industry Member;’’
                                                  be met before OATS can be retired, IEX                                                                           accuracy and reliability thresholds for
                                                                                                           however, only ten of these firms submit information
                                                                                                           to OATS on their own behalf, and eight of the ten       the CAT described above would need to
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                                                    17 CAT   NMS Plan, at D–8.                             firms report very few orders to OATS (e.g., in one      be met under any conditions before
                                                    18 Id.                                                 recent month, eight of the ten firms submitted fewer    firms could stop reporting to OATS, and
                                                                                                           than 100 reports during the month, with four firms
                                                    19 Id.
                                                                                                           submitting fewer than 50). The vast majority of         there is no need to exempt members
                                                    20 This assumes linkage statistics will include
                                                                                                           these 300 firms use third parties to fulfill their      from OATS requirements on a firm-by-
                                                  both unlinked route reports and new orders where         reporting obligations, and many of these third
                                                  no related route report could be found.
                                                                                                                                                                   firm basis.
                                                                                                           parties will begin reporting to CAT in November
                                                    21 See CAT NMS Plan, at D–8, D–9.
                                                                                                           2018. IEX is assessing how many of its Members are
                                                    22 Id. at D–9.                                         Small Industry Members.                                  25 See   supra note 24.



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                                                                                 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices                                                     25403

                                                  (5) Automated Submission of Trading                     to OATS and an acceptable accuracy                     securities exchanges and FINRA are
                                                  Data                                                    rate for customer and account                          proposing substantially similar rule
                                                     In addition to the OATS rules, Rule 8.               information are achieved and at least a                filings. Therefore, this is not a
                                                  [sic] 8.220 (the ‘‘EBS Rule’’) will also be             180-day time period has passed to allow                competitive rule filing, and, therefore, it
                                                  affected by the implementation of the                   IEX staff (or FINRA staff on behalf of                 does not impose a burden on
                                                  CAT. The EBS Rule is IEX’s rule                         IEX) to use the CAT to ensure that it is               competition.
                                                  regarding the automated submission of                   functioning at a level sufficient to
                                                                                                          ensure that IEX can rely solely on the                 C. Self-Regulatory Organization’s
                                                  specific trading data to IEX (or FINRA
                                                  on behalf of IEX) upon request using the                CAT for the data and that the CAT Plan                 Statement on Comments on the
                                                  FINRA Electronic Blue Sheet (‘‘EBS’’)                   Processor is fulfilling its obligations                Proposed Rule Change Received From
                                                  system.                                                 under the CAT NMS Plan.                                Members, Participants, or Others
                                                     Once broker-dealer reporting to the                     If the Commission approves the
                                                                                                          proposed rule change, IEX will                            Although written comments on the
                                                  CAT has begun, the CAT will contain
                                                                                                          announce the implementation date of                    proposed rule change were not solicited,
                                                  the data the Participants would
                                                  otherwise have requested via the EBS                    the proposed rule change in a                          the Participants received comments
                                                  system for purposes of NMS Securities.                  Regulatory Notice that will be published               from two commenters, the Financial
                                                  Consequently, IEX will not need to use                  once IEX concludes the thresholds for                  Information Forum (‘‘FIF’’) and the
                                                  the EBS system or request information                   accuracy and reliability described above               Securities Industry and Financial
                                                  pursuant to the EBS Rule for NMS                        have been met and that the Plan                        Markets Association (‘‘SIFMA’’),
                                                  Securities for time periods after CAT                   Processor is sufficiently meeting all of               regarding the retirement of systems
                                                  reporting has begun if the appropriate                  its obligations under the CAT NMS                      related to the CAT.28 In its comment
                                                  accuracy and reliability thresholds are                 Plan.                                                  letters, with regard to the retirement of
                                                  achieved, including an acceptable                       2. Statutory Basis                                     duplicative systems more generally, FIF
                                                  accuracy rate for customer and account                                                                         recommended that the Participants
                                                                                                             IEX believes that the proposed rule
                                                  information. However, the EBS Rule                                                                             continue the effort to incorporate
                                                                                                          change is consistent with the provisions
                                                  cannot be completely removed from the                                                                          current reporting obligations into the
                                                                                                          of Section 6(b)(5) of the Act,27 which
                                                  IEX Rulebook immediately upon the                                                                              CAT in order to replace existing
                                                                                                          require, among other things, that the IEX
                                                  CAT achieving the appropriate                                                                                  reportable systems with the CAT. In
                                                                                                          rules must be designed to prevent
                                                  thresholds because IEX staff (or FINRA                                                                         addition, FIF further recommended that,
                                                                                                          fraudulent and manipulative acts and
                                                  staff on behalf of IEX) may still need to                                                                      once a CAT Reporter achieved
                                                                                                          practices, to promote just and equitable
                                                  request information pursuant to these                                                                          satisfactory reporting data quality, the
                                                                                                          principles of trade, and, in general, to
                                                  rules for trading activity occurring                                                                           CAT Reporter should be exempt from
                                                                                                          protect investors and the public interest.
                                                  before a member was reporting to the
                                                                                                          IEX believes that the proposed rule                    reporting to any duplicative reporting
                                                  CAT.26
                                                     The proposed rule change includes                    change fulfills the obligation in the CAT              systems. FIF believed that these
                                                  new Supplementary Material .01 to                       NMS Plan for IEX to submit a proposed                  recommendations ‘‘would serve both an
                                                  clarify how IEX (or FINRA on behalf of                  rule change to eliminate or modify                     underlying regulatory objective of more
                                                  IEX) will request data under these rules                duplicative rules. IEX believes that the               immediate and accurate access to data
                                                  after members are reporting to the CAT.                 approach set forth in the proposed rule                as well as an industry objective of
                                                  Specifically, the proposed                              change strikes the appropriate balance                 reduced costs and burdens of regulatory
                                                  Supplementary Material to the rule will                 between ensuring that IEX is able to                   oversight.’’ 29 In its comments about
                                                  note that IEX (or FINRA on behalf of                    continue to fulfill its statutory                      EBS specifically, FIF stated that the
                                                  IEX) will request information under the                 obligation to protect investors and the                retirement of the EBS requirements
                                                  rule only if the information is not                     public interest by ensuring its                        should be a high priority, and that the
                                                  available in the CAT because, for                       surveillance of market activity remains                CAT should be designed to include the
                                                  example, the transactions in question                   accurate and effective while also
                                                                                                                                                                 requisite data elements to permit the
                                                  occurred before the firm was reporting                  establishing a reasonable timeframe for
                                                                                                                                                                 rapid retirement of EBS.30 Similarly,
                                                  information to the CAT. In essence,                     elimination or modification of its rules
                                                                                                                                                                 SIFMA stated that ‘‘the establishment of
                                                  under the new Supplementary Material,                   that will be rendered duplicative after
                                                                                                          implementation of the CAT.                             the CAT must be accompanied by the
                                                  IEX (or FINRA on behalf of IEX) will                                                                           prompt elimination of duplicative
                                                  make requests under these rules if and                  B. Self-Regulatory Organization’s                      systems,’’ and ‘‘recommend[ed] that the
                                                  only if the information is not otherwise                Statement on Burden on Competition                     initial technical specifications be
                                                  available through the CAT.
                                                     However, as noted above, IEX believes                  IEX does not believe that the                        designed to facilitate the immediate
                                                  that the CAT must meet certain                          proposed rule change will result in any                retirement of . . . duplicative reporting
                                                  minimum accuracy and reliability                        burden on competition that is not                      systems.’’ 31
                                                  standards before IEX could rely on the                  necessary or appropriate in furtherance
                                                  CAT Data to replace existing regulatory                 of the purposes of the Act. IEX notes                     28 Letter from William H. Hebert, FIF, to


                                                  tools, including EBS. Consequently, the                 that the proposed rule change                          Participants re: Milestone for Participants’ rule
                                                  proposed Supplementary Material will                    implements provisions of the CAT NMS                   change filings to eliminate/modify duplicative rules
                                                                                                          Plan, and is designed to assist IEX in                 (Apr. 12, 2017) (‘‘FIF Letter’’); Letter from William
                                                  be implemented only after the                                                                                  H. Hebert, FIF, to Brent J. Fields, SEC re: Milestone
                                                                                                          meeting its regulatory obligations
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                                                  thresholds set forth above with respect                                                                        for Participants’ rule change filings to eliminate/
                                                                                                          pursuant to the Plan. IEX also notes that              modify duplicative rules (Apr. 12, 2017); and Letter
                                                    26 Firms are required to maintain the trade           the Proposed Rule Series implementing                  from Kenneth E. Bentsen, Jr., SIFMA, to
                                                  information for pre-CAT transactions in equities        provisions of the CAT NMS Plan will                    Participants re: Selection of Thesys as CAT
                                                  and options pursuant to applicable rules, such as       apply equally to all firms that trade                  Processor (Apr. 4, 2017) (‘‘SIFMA Letter’’) at 2.
                                                  books and records retention requirements, for the
                                                  relevant time period, which is generally three or six
                                                                                                          NMS Securities. In addition, all national                 29 FIF Letter at 2.

                                                                                                                                                                    30 FIF Letter at 2.
                                                  years, depending upon the record. See 17 CFR
                                                  240.17a–3(a), 240.17a–4.                                 27 15   U.S.C. 78f(b)(6).                                31 SIFMA Letter at 2.




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                                                  25404                          Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices

                                                  III. Date of Effectiveness of the                       office of the Exchange. All comments                  II. Self-Regulatory Organization’s
                                                  Proposed Rule Change and Timing for                     received will be posted without change;               Statement of the Purpose of, and
                                                  Commission Action                                       the Commission does not edit personal                 Statutory Basis for, the Proposed Rule
                                                     Within 45 days of the date of                        identifying information from                          Change
                                                  publication of this notice in the Federal               submissions. You should submit only                      In its filing with the Commission, the
                                                  Register or within such longer period (i)               information that you wish to make                     Exchange included statements
                                                  as the Commission may designate up to                   available publicly. All submissions                   concerning the purpose of and basis for
                                                  90 days of such date if it finds such                   should refer to File Number SR–IEX–                   the proposed rule change and discussed
                                                  longer period to be appropriate and                     2017–18, and should be submitted on or                any comments it received on the
                                                  publishes its reasons for so finding or                 before June 22, 2017.                                 proposed rule change. The text of these
                                                  (ii) as to which the Exchange consents,                   For the Commission, by the Division of              statements may be examined at the
                                                  the Commission shall: (a) By order                      Trading and Markets, pursuant to delegated            places specified in Item IV below. The
                                                  approve or disapprove such proposed                     authority.32                                          Exchange has prepared summaries, set
                                                  rule change, or (b) institute proceedings               Eduardo A. Aleman,                                    forth in sections A, B, and C below, of
                                                  to determine whether the proposed rule                  Assistant Secretary.                                  the most significant aspects of such
                                                  change should be disapproved.                           [FR Doc. 2017–11364 Filed 5–31–17; 8:45 am]           statements.
                                                  IV. Solicitation of Comments                            BILLING CODE 8011–01–P                                A. Self-Regulatory Organization’s
                                                                                                                                                                Statement of the Purpose of, and
                                                    Interested persons are invited to                                                                           Statutory Basis for, the Proposed Rule
                                                  submit written data, views, and                         SECURITIES AND EXCHANGE                               Change
                                                  arguments concerning the foregoing,                     COMMISSION
                                                  including whether the proposed rule                                                                           1. Purpose
                                                  change is consistent with the Act.                      [Release No. 34–80785; File No. SR–CBOE–
                                                                                                                                                                   Bats BYX Exchange, Inc., Bats BZX
                                                  Comments may be submitted by any of                     2017–040]
                                                                                                                                                                Exchange, Inc., Bats EDGA Exchange,
                                                  the following methods:                                  Self-Regulatory Organizations;                        Inc., Bats EDGX Exchange, Inc., BOX
                                                  Electronic Comments                                     Chicago Board Options Exchange,                       Options Exchange LLC, C2 Options
                                                                                                          Incorporated; Notice of Filing and                    Exchange, Incorporated, Chicago Board
                                                    • Use the Commission’s Internet                                                                             Options Exchange, Incorporated,
                                                  comment form (http://www.sec.gov/                       Immediate Effectiveness of a Proposed
                                                                                                          Rule Change To Establish the Fees for                 Chicago Stock Exchange, Inc., Financial
                                                  rules/sro.shtml); or                                                                                          Industry Regulatory Authority, Inc.
                                                    • Send an email to rule-comments@                     Industry Members Related to the
                                                                                                          National Market System Plan                           (‘‘FINRA’’), Investors’ Exchange LLC,
                                                  sec.gov. Please include File Number SR–                                                                       Miami International Securities
                                                  IEX–2017–18 on the subject line.                        Governing the Consolidated Audit Trail
                                                                                                                                                                Exchange, LLC, MIAX PEARL, LLC,
                                                  Paper Comments                                          May 26, 2017.                                         NASDAQ BX, Inc., Nasdaq GEMX, LLC,
                                                                                                             Pursuant to Section 19(b)(1) of the                Nasdaq ISE, LLC, Nasdaq MRX, LLC,3
                                                     • Send paper comments in triplicate                  Securities Exchange Act of 1934 (the                  NASDAQ PHLX LLC, The NASDAQ
                                                  to Brent J. Fields, Secretary, Securities               ‘‘Act’’),1 and Rule 19b–4 thereunder,2                Stock Market LLC, New York Stock
                                                  and Exchange Commission, 100 F Street                   notice is hereby given that on May 16,                Exchange LLC, NYSE MKT LLC, NYSE
                                                  NE., Washington, DC 20549–1090.                         2017, Chicago Board Options Exchange,                 Arca, Inc. and NYSE National, Inc.4
                                                  All submissions should refer to File                    Incorporated (the ‘‘Exchange’’ or                     (collectively, the ‘‘Participants’’) filed
                                                  Number SR–IEX–2017–18. This file                        ‘‘CBOE’’) filed with the Securities and               with the Commission, pursuant to
                                                  number should be included on the                        Exchange Commission (the                              Section 11A of the Exchange Act 5 and
                                                  subject line if email is used. To help the              ‘‘Commission’’) the proposed rule                     Rule 608 of Regulation NMS
                                                  Commission process and review your                      change as described in Items I, II, and               thereunder,6 the CAT NMS Plan.7 The
                                                  comments more efficiently, please use                   III below, which Items have been                      Participants filed the Plan to comply
                                                  only one method. The Commission will                    prepared by the Exchange. The                         with Rule 613 of Regulation NMS under
                                                  post all comments on the Commission’s                   Commission is publishing this notice to               the Exchange Act. The Plan was
                                                  Internet Web site (http://www.sec.gov/                  solicit comments on the proposed rule                 published for comment in the Federal
                                                  rules/sro.shtml). Copies of the                         change from interested persons.
                                                  submission, all subsequent                                                                                       3 ISE Gemini, LLC, ISE Mercury, LLC and

                                                  amendments, all written statements                      I. Self-Regulatory Organization’s                     International Securities Exchange, LLC have been
                                                  with respect to the proposed rule                       Statement of the Terms of Substance of                renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
                                                                                                          the Proposed Rule Change                              and Nasdaq ISE, LLC, respectively. See Securities
                                                  change that are filed with the                                                                                Exchange Act Rel. No. 80248 (Mar. 15, 2017), 82 FR
                                                  Commission, and all written                               The Exchange proposes to amend its                  14547 (Mar. 21, 2017); Securities Exchange Act Rel.
                                                  communications relating to the                          Fees Schedule to establish the fees for               No. 80326 (Mar. 29, 2017), 82 FR 16460 (Apr. 4,
                                                                                                                                                                2017); and Securities Exchange Act Rel. No. 80325
                                                  proposed rule change between the                        Industry Members related to the CAT                   (Mar. 29, 2017), 82 FR 16445 (Apr. 4, 2017).
                                                  Commission and any person, other than                   NMS Plan. The text of the proposed rule                  4 National Stock Exchange, Inc. has been renamed
                                                  those that may be withheld from the                     change is available on the Exchange’s                 NYSE National, Inc. See Securities Exchange Act
                                                  public in accordance with the                           Web site (http://www.cboe.com/                        Rel. No. 79902 (Jan. 30, 2017), 82 FR 9258 (Feb. 3,
                                                  provisions of 5 U.S.C. 552, will be                                                                           2017).
                                                                                                          AboutCBOE/                                               5 15 U.S.C. 78k–1.
                                                  available for Web site viewing and                      CBOELegalRegulatoryHome.aspx), at
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                                                                                                                                                                   6 17 CFR 242.608.
                                                  printing in the Commission’s Public                     the Exchange’s Office of the Secretary,                  7 See Letter from the Participants to Brent J.
                                                  Reference Room, 100 F Street NE.,                       and at the Commission’s Public                        Fields, Secretary, Commission, dated September 30,
                                                  Washington, DC 20549 on official                        Reference Room.                                       2014; and Letter from Participants to Brent J. Fields,
                                                  business days between the hours of                                                                            Secretary, Commission, dated February 27, 2015.
                                                                                                                                                                On December 24, 2015, the Participants submitted
                                                  10:00 a.m. and 3:00 p.m. Copies of such                   32 17 CFR 200.30–3(a)(12).                          an amendment to the CAT NMS Plan. See Letter
                                                  filing also will be available for                         1 15 U.S.C. 78s(b)(1).                              from Participants to Brent J. Fields, Secretary,
                                                  inspection and copying at the principal                   2 17 CFR 240.19b–4.                                 Commission, dated December 23, 2015.



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Document Created: 2017-06-01 03:04:57
Document Modified: 2017-06-01 03:04:57
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 25400 

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