82 FR 25469 - Self-Regulatory Organizations; Nasdaq ISE, 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)
Federal Register Volume 82, Issue 104 (June 1, 2017)
| Page Range | 25469-25472 | |
| FR Document | 2017-11363 |
[Federal Register Volume 82, Number 104 (Thursday, June 1, 2017)] [Notices] [Pages 25469-25472] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-11363] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80787; File No. SR-ISE-2017-46] Self-Regulatory Organizations; Nasdaq ISE, 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, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 1404 (the ``EBS Rule''), as the EBS Rule provides for the collection of information that is duplicative of the data collection requirements of the Consolidated Audit Trail (``CAT'') adopted pursuant to the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\3\ --------------------------------------------------------------------------- \3\ Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein, or in the CAT Compliance Rule Series or in the CAT NMS Plan. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at www.ise.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), Investors' Exchange LLC, Miami International Securities Exchange, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC,\4\ NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, Inc. and NYSE National, Inc.\5\ (collectively, the ``Participants'') filed with the Commission, pursuant to Section 11A of the Exchange Act \6\ and Rule 608 of Regulation NMS thereunder,\7\ CAT NMS Plan.\8\ 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,\9\ and approved by the Commission, as modified, on November 15, 2016.\10\ On March 15, 2017, the Commission approved the new Rule 900 Series to implement provisions of the CAT NMS Plan that are applicable to ISE members.\11\ --------------------------------------------------------------------------- \4\ ISE Gemini, LLC, ISE Mercury, LLC and International Securities Exchange, LLC have been renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC, and Nasdaq ISE, LLC, respectively. See Securities Exchange Act Release No. 80248 (March 15, 2017), 82 FR. 14547 (March 21, 2017); Securities Exchange Act Release No. 80326 (March 29, 2017), 82 FR 16460 (April 4, 2017); and Securities Exchange Act Release No. 80325 (March 29, 2017), 82 FR 16445 (Apr. 4, 2017). \5\ National Stock Exchange, Inc. has been renamed NYSE National, Inc. See Securities Exchange Act Release No. 79902 (January 30, 2017), 82 FR 9258 (February 3, 2017). \6\ 15 U.S.C. 78k-1. \7\ 17 CFR 242.608. \8\ 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. \9\ Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016). \10\ Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (November 23, 2016) (``Approval Order''). \11\ See Securities Exchange Act Release No. 80256 (March 15, 2017), 82 FR 14526 (March 21, 2017) (SR-ISE-2017-08). --------------------------------------------------------------------------- The Plan is designed to create, implement and maintain a CAT that [[Page 25470]] would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. Pursuant to Appendix C of the CAT NMS Plan, each Participant is required to conduct analyses of which of its existing trade and order data rules and systems require the collection of information that is duplicative of information collected for the CAT.\12\ In addition, 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.'' \13\ 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.'' \14\ ISE has determined that the EBS Rule is affected by the implementation of the CAT and, therefore, is filing this proposed rule change. --------------------------------------------------------------------------- \12\ Appendix C of CAT NMS Plan, Approval Order at 85010. \13\ Id. \14\ Id. --------------------------------------------------------------------------- The EBS Rule is the Exchange's rule regarding the automated submission of specific trading data to ISE upon request using the Electronic Blue Sheet (``EBS'') system. Rule 1404 require members to submit certain trade information as prescribed by the Exchange, including, for proprietary transactions, the clearing house number or alpha symbol of the member submitting the data, the identifying symbol assigned to the security, and the date the transaction was executed.\15\ --------------------------------------------------------------------------- \15\ The Exchange notes that both the rules of Nasdaq MRX, LLC and Nasdaq GEMX, LLC incorporate Rule 1404 by reference. --------------------------------------------------------------------------- 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 and OTC Equity Securities. Consequently, the Exchange will not need to use the EBS system or request information pursuant to the EBS Rule for NMS Securities or OTC Equity 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 eliminated immediately upon the CAT achieving the appropriate thresholds because Exchange staff may still need to request information pursuant to the EBS Rule for trading activity occurring before a member was reporting to the CAT.\16\ --------------------------------------------------------------------------- \16\ 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. --------------------------------------------------------------------------- The proposed rule change proposes to add new Supplementary Material to the EBS Rule to clarify how the Exchange will request data under these rules after members are reporting to the CAT. Specifically, the proposed Supplementary Material to the EBS Rule will note that the Exchange will request information under the EBS 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 or involved securities that are not reportable to the CAT. In essence, under the new Supplementary Material, the Exchange will make requests under these rules if and only if the information is not otherwise available through the CAT. The CAT NMS Plan states, however, that the elimination of rules that are duplicative of the requirements of the CAT and the retirement of the related systems should be effective at such time as CAT Data meets minimum standards of accuracy and reliability.\17\ Accordingly, as discussed in more detail below, the Exchange believes that the EBS data may be replaced by CAT Data at a date after all Industry Members are reporting to the CAT when the proposed error rate thresholds have been met, and the Exchange 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 the Exchange to continue to meet its surveillance obligations, and confirmed that the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. --------------------------------------------------------------------------- \17\ Id. [sic]. --------------------------------------------------------------------------- The Exchange believes CAT Data should not be used in place of EBS data until all Participants and Industry Members are reporting data to CAT. In this way, the Exchange will continue to have access to the necessary data to perform its regulatory duties. The CAT NMS Plan requires that a rule filing to eliminate a duplicative rule address 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.'' \18\ The Exchange believes that the submission of data to the CAT by Small Industry Members a year earlier than is required in the CAT NMS Plan, at the same time as the other Industry Members, would expedite the replacement of EBS data with CAT Data, as the Exchange believes that the CAT would then have all necessary data from the Industry Members for the Exchange to perform the regulatory surveillance that currently is performed via EBS. For this reason, the Exchange supports amending the CAT NMS Plan to require Small Industry Members to report data to the CAT two years after the Effective Date (instead of three), and intends to work with other Participants toward that end. --------------------------------------------------------------------------- \18\ Id. --------------------------------------------------------------------------- The CAT NMS Plan requires that this rule filing address ``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.'' \19\ The Exchange believes that a single cut-over from EBS to CAT is highly preferable to a firm-by-firm approach and is not proposing to exempt members from the EBS requirements on a firm-by-firm basis. The Exchange believes that providing such individual exemptions to Industry Members would be inefficient, more costly, and less reliable than the single cut-over. Providing individual exemptions would require the exchanges to create, for a brief temporary period, a cross-system regulatory function and to integrate data from EBS and the CAT to avoid creating any regulatory gaps as a result of such exemptions. Such a function would be costly to create and would give rise to a greater likelihood of data errors or other issues. Given the limited time in which such exemptions would be necessary, the Exchange does not believe that such exemptions would be an appropriate use of limited resources. Moreover, the primary benefit to a firm-by-firm exemptive approach would be to reduce the amount of time an individual firm is required to comply with EBS if it is also accurately and reliably reporting to the CAT. The Exchange believes that the overall accuracy and reliability thresholds for the CAT described above would need to be met under any conditions before [[Page 25471]] firms could stop reporting to EBS, and as discussed above, by accelerating Small Industry Members to report on the same timeframe as all other Industry Members, there is no need to exempt members from EBS requirements on a firm-by-firm basis. --------------------------------------------------------------------------- \19\ Id. --------------------------------------------------------------------------- The CAT NMS Plan also requires that a rule filing to eliminate a duplicative rule to provide ``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.'' \20\ The Exchange believes that it is critical that the CAT Data be sufficiently accurate and reliable for the Exchange to perform the regulatory functions that it now performs via EBS. Accordingly, the Exchange believes that the CAT Data should meet specific quantitative error rates, as well as certain qualitative requirements. --------------------------------------------------------------------------- \20\ Id. --------------------------------------------------------------------------- The Exchange believes that, before CAT Data may be used in place of EBS data, the CAT would need to achieve a sustained error rate 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).\21\ ISE 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. The Exchange 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. The Exchange proposes to measure the appropriate error rates in the aggregate, rather than firm- by-firm. The 2% and 5% error rates are in line with the proposed retirement threshold for other systems, such as FINRA's Order Audit Trail System (``OATS'') and the consolidated options audit trail system (``COATS''). --------------------------------------------------------------------------- \21\ 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. --------------------------------------------------------------------------- In addition to these minimum error rates before using CAT Data instead of EBS data, the Exchange believes that during the minimum 180- day period during which the thresholds are calculated, the Exchange's use of the data in the CAT 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 the Exchange to continue to meet its surveillance obligations, and (iii) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. The Exchange 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. If the Commission approves the proposed rule change, the Exchange will announce the implementation date for the proposed rule change in a Regulatory Notice that will be published once the Exchange 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 The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Exchange Act,\22\ which require, among other things, that the ISE rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and not designed to permit unfair discrimination between customers, issuers, brokers and dealer. The Exchange believes that this proposal is consistent with the Exchange Act because it fulfills the obligation in the CAT NMS Plan for the Exchange to submit a proposed rule change to eliminate or modify duplicative rules. In approving the Plan, the SEC noted that the Plan ``is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.'' \23\ As this proposal implements the Plan, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Exchange Act. --------------------------------------------------------------------------- \22\ 15 U.S.C. 78f(b)(5). \23\ Approval Order at 84697. --------------------------------------------------------------------------- Moreover, the purpose of the proposed rule change is to amend rules that require the submission of duplicative data to the exchange. The elimination of such duplicative requirements will reduce unnecessary costs and other compliance burdens for the Exchange and its members, and therefore, will enhance the efficiency of the securities markets. Furthermore, the Exchange believes that the approach set forth in the proposed rule change strikes the appropriate balance between ensuring that the Exchange 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. B. Self-Regulatory Organization's Statement on Burden on Competition Section 6(b)(8) of the Exchange Act \24\ requires that Exchange rules not impose any burden on competition that is not necessary or appropriate. The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Exchange notes that the proposed rule change implements the requirements of the CAT NMS Plan approved by the Commission regarding the elimination of rules and systems that are duplicative the CAT, and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. Similarly, all exchanges and FINRA are proposing the elimination of their EBS rules to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive rule filing and, therefore, it does not raise competition issues between and among the self-regulatory organizations and/or their members. --------------------------------------------------------------------------- \24\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- 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, ISE 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.\25\ In its comment letters, with [[Page 25472]] 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.'' \26\ 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.\27\ 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.'' \28\ --------------------------------------------------------------------------- \25\ 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. \26\ FIF Letter at 2. \27\ FIF Letter at 2. \28\ SIFMA Letter at 2. --------------------------------------------------------------------------- As discussed above in Section 3 [sic], the Exchange agrees with the commenters that the EBS reporting requirements should be replaced by the CAT reporting requirements as soon as accurate and reliable CAT Data is available. To this end, the Exchange anticipates that the CAT will be designed to collect the data necessary to permit the retirement of EBS. However, as discussed above, the Exchange disagrees with the recommendation to provide individual exemptions to those CAT Reporters who obtain satisfactory data reporting quality. 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 CommentsUse 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-ISE-2017-46 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISE-2017-46. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISE-2017-46 and should be submitted on or before June 22, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\29\ --------------------------------------------------------------------------- \29\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-11363 Filed 5-31-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices 25469
The purchase of Creation Units by a SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
Fund of Funds directly from a Fund will COMMISSION Statement of the Purpose of, and
be accomplished in accordance with the Statutory Basis for, the Proposed Rule
[Release No. 34–80787; File No. SR–ISE– Change
policies of the Fund of Funds and will
2017–46]
be based on the NAVs of the Funds. 1. Purpose
9. Applicants also request relief to Self-Regulatory Organizations; Nasdaq Bats BYX Exchange, Inc., Bats BZX
permit a Feeder Fund to acquire shares ISE, LLC; Notice of Filing of Proposed Exchange, Inc., Bats EDGA Exchange,
of another registered investment Rule Change To Eliminate Inc., Bats EDGX Exchange, Inc., BOX
company managed by the Adviser Requirements That Will Be Duplicative Options Exchange LLC, C2 Options
having substantially the same of CAT Exchange, Incorporated, Chicago Board
investment objectives as the Feeder May 26, 2017. Options Exchange, Incorporated,
Fund (‘‘Master Fund’’) beyond the Pursuant to Section 19(b)(1) of the Chicago Stock Exchange, Inc., Financial
limitations in section 12(d)(1)(A) and Securities Exchange Act of 1934 Industry Regulatory Authority, Inc.
permit the Master Fund, and any (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 (‘‘FINRA’’), Investors’ Exchange LLC,
principal underwriter for the Master notice is hereby given that on May 15, Miami International Securities
Fund, to sell shares of the Master Fund 2017, Nasdaq ISE, LLC (‘‘ISE’’ or Exchange, LLC, MIAX PEARL, LLC,
to the Feeder Fund beyond the ‘‘Exchange’’) filed with the Securities NASDAQ BX, Inc., Nasdaq GEMX, LLC,
limitations in section 12(d)(1)(B). Nasdaq ISE, LLC, Nasdaq MRX, LLC,4
and Exchange Commission (‘‘SEC’’ or
NASDAQ PHLX LLC, The NASDAQ
10. Section 6(c) of the Act permits the ‘‘Commission’’) the proposed rule
Stock Market LLC, New York Stock
Commission to exempt any persons or change as described in Items I, II, and
Exchange LLC, NYSE MKT LLC, NYSE
transactions from any provision of the III, below, which Items have been
Arca, Inc. and NYSE National, Inc.5
Act if such exemption is necessary or prepared by the Exchange. The
(collectively, the ‘‘Participants’’) filed
appropriate in the public interest and Commission is publishing this notice to
with the Commission, pursuant to
consistent with the protection of solicit comments on the proposed rule
Section 11A of the Exchange Act 6 and
investors and the purposes fairly change from interested persons.
Rule 608 of Regulation NMS
intended by the policy and provisions of I. Self-Regulatory Organization’s thereunder,7 CAT NMS Plan.8 The
the Act. Section 12(d)(1)(J) of the Act Statement of the Terms of Substance of Participants filed the Plan to comply
provides that the Commission may the Proposed Rule Change with Rule 613 of Regulation NMS under
exempt any person, security, or the Exchange Act. The Plan was
The Exchange proposes to amend
transaction, or any class or classes of published for comment in the Federal
Rule 1404 (the ‘‘EBS Rule’’), as the EBS
persons, securities, or transactions, from Register on May 17, 2016,9 and
Rule provides for the collection of
any provision of section 12(d)(1) if the approved by the Commission, as
information that is duplicative of the
exemption is consistent with the public modified, on November 15, 2016.10 On
data collection requirements of the
interest and the protection of investors. March 15, 2017, the Commission
Consolidated Audit Trail (‘‘CAT’’)
approved the new Rule 900 Series to
Section 17(b) of the Act authorizes the adopted pursuant to the National
implement provisions of the CAT NMS
Commission to grant an order Market System Plan Governing the
Plan that are applicable to ISE
permitting a transaction otherwise Consolidated Audit Trail (the ‘‘CAT members.11
prohibited by section 17(a) if it finds NMS Plan’’ or ‘‘Plan’’).3 The Plan is designed to create,
that (a) the terms of the proposed The text of the proposed rule change implement and maintain a CAT that
transaction are fair and reasonable and is available on the Exchange’s Web site
do not involve overreaching on the part at www.ise.com, at the principal office 4 ISE Gemini, LLC, ISE Mercury, LLC and
of any person concerned; (b) the of the Exchange, and at the International Securities Exchange, LLC have been
proposed transaction is consistent with Commission’s Public Reference Room. renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
and Nasdaq ISE, LLC, respectively. See Securities
the policies of each registered II. Self-Regulatory Organization’s Exchange Act Release No. 80248 (March 15, 2017),
investment company involved; and (c) Statement of the Purpose of, and 82 FR. 14547 (March 21, 2017); Securities Exchange
Act Release No. 80326 (March 29, 2017), 82 FR
the proposed transaction is consistent Statutory Basis for, the Proposed Rule 16460 (April 4, 2017); and Securities Exchange Act
with the general purposes of the Act. Change Release No. 80325 (March 29, 2017), 82 FR 16445
(Apr. 4, 2017).
For the Commission, by the Division of In its filing with the Commission, the 5 National Stock Exchange, Inc. has been renamed
Investment Management, under delegated Exchange included statements NYSE National, Inc. See Securities Exchange Act
authority. concerning the purpose of and basis for Release No. 79902 (January 30, 2017), 82 FR 9258
(February 3, 2017).
Eduardo A. Aleman, the proposed rule change and discussed 6 15 U.S.C. 78k–1.
Assistant Secretary. any comments it received on the 7 17 CFR 242.608.
[FR Doc. 2017–11242 Filed 5–31–17; 8:45 am] proposed rule change. The text of these 8 See Letter from the Participants to Brent J.
statements may be examined at the Fields, Secretary, Commission, dated September 30,
BILLING CODE 8011–01–P
places specified in Item IV below. The 2014; and Letter from Participants to Brent J. Fields,
Secretary, Commission, dated February 27, 2015.
Exchange has prepared summaries, set On December 24, 2015, the Participants submitted
forth in sections A, B, and C below, of an amendment to the CAT NMS Plan. See Letter
the most significant aspects of such from Participants to Brent J. Fields, Secretary,
mstockstill on DSK30JT082PROD with NOTICES
statements. Commission, dated December 23, 2015.
9 Securities Exchange Act Release No. 77724
(April 27, 2016), 81 FR 30614 (May 17, 2016).
1 15U.S.C. 78s(b)(1). 10 Securities Exchange Act Release No. 79318
2 17CFR 240.19b–4. (Nov. 15, 2016), 81 FR 84696 (November 23, 2016)
Fund of Funds because an Adviser or an entity 3 Unless otherwise specified, capitalized terms (‘‘Approval Order’’).
controlling, controlled by or under common control used in this rule filing are defined as set forth 11 See Securities Exchange Act Release No. 80256
with an Adviser provides investment advisory herein, or in the CAT Compliance Rule Series or in (March 15, 2017), 82 FR 14526 (March 21, 2017)
services to that Fund of Funds. the CAT NMS Plan. (SR–ISE–2017–08).
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![25470 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
would capture customer and order event the appropriate thresholds because retirement of duplicative systems.’’ 18
information for orders in NMS Exchange staff may still need to request The Exchange believes that the
Securities and OTC Equity Securities, information pursuant to the EBS Rule submission of data to the CAT by Small
across all markets, from the time of for trading activity occurring before a Industry Members a year earlier than is
order inception through routing, member was reporting to the CAT.16 required in the CAT NMS Plan, at the
cancellation, modification, or execution The proposed rule change proposes to same time as the other Industry
in a single consolidated data source. add new Supplementary Material to the Members, would expedite the
Pursuant to Appendix C of the CAT EBS Rule to clarify how the Exchange replacement of EBS data with CAT Data,
NMS Plan, each Participant is required will request data under these rules after as the Exchange believes that the CAT
to conduct analyses of which of its members are reporting to the CAT. would then have all necessary data from
existing trade and order data rules and Specifically, the proposed the Industry Members for the Exchange
systems require the collection of Supplementary Material to the EBS Rule to perform the regulatory surveillance
information that is duplicative of will note that the Exchange will request that currently is performed via EBS. For
information collected for the CAT.12 In information under the EBS Rule only if this reason, the Exchange supports
addition, among other things, Section the information is not available in the amending the CAT NMS Plan to require
C.9 of Appendix C to the Plan, as CAT because, for example, the Small Industry Members to report data
modified by the Commission, requires transactions in question occurred before to the CAT two years after the Effective
each Participant to ‘‘file with the SEC the firm was reporting information to Date (instead of three), and intends to
the relevant rule change filing to the CAT or involved securities that are work with other Participants toward
eliminate or modify its duplicative rules not reportable to the CAT. In essence, that end.
within six (6) months of the SEC’s under the new Supplementary Material, The CAT NMS Plan requires that this
approval of the CAT NMS Plan.’’ 13 The the Exchange will make requests under rule filing address ‘‘whether individual
Plan notes that ‘‘the elimination of such these rules if and only if the information Industry Members can be exempted
rules and the retirement of such systems is not otherwise available through the from reporting to duplicative systems
[will] be effective at such time as CAT CAT. once their CAT reporting meets
Data meets minimum standards of The CAT NMS Plan states, however, specified accuracy and reliability
accuracy and reliability.’’ 14 ISE has that the elimination of rules that are standards, including, but not limited to,
determined that the EBS Rule is affected duplicative of the requirements of the ways in which establishing cross-system
by the implementation of the CAT and, CAT and the retirement of the related regulatory functionality or integrating
therefore, is filing this proposed rule systems should be effective at such time data from existing systems and the CAT
change. as CAT Data meets minimum standards would facilitate such Individual
The EBS Rule is the Exchange’s rule of accuracy and reliability.17 Industry Member exemptions.’’ 19 The
regarding the automated submission of Accordingly, as discussed in more detail Exchange believes that a single cut-over
specific trading data to ISE upon request below, the Exchange believes that the from EBS to CAT is highly preferable to
using the Electronic Blue Sheet (‘‘EBS’’) EBS data may be replaced by CAT Data a firm-by-firm approach and is not
system. Rule 1404 require members to at a date after all Industry Members are proposing to exempt members from the
submit certain trade information as reporting to the CAT when the proposed EBS requirements on a firm-by-firm
prescribed by the Exchange, including, error rate thresholds have been met, and basis. The Exchange believes that
for proprietary transactions, the clearing the Exchange has determined that its providing such individual exemptions
house number or alpha symbol of the usage of the CAT Data has not revealed to Industry Members would be
member submitting the data, the material issues that have not been inefficient, more costly, and less reliable
identifying symbol assigned to the corrected, confirmed that the CAT than the single cut-over. Providing
security, and the date the transaction includes all data necessary to allow the individual exemptions would require
was executed.15 Exchange to continue to meet its the exchanges to create, for a brief
Once broker-dealer reporting to the surveillance obligations, and confirmed temporary period, a cross-system
CAT has begun, the CAT will contain that the Plan Processor is sufficiently regulatory function and to integrate data
the data the Participants would meeting all of its obligations under the from EBS and the CAT to avoid creating
otherwise have requested via the EBS CAT NMS Plan. any regulatory gaps as a result of such
system for purposes of NMS Securities The Exchange believes CAT Data exemptions. Such a function would be
and OTC Equity Securities. should not be used in place of EBS data costly to create and would give rise to
Consequently, the Exchange will not until all Participants and Industry a greater likelihood of data errors or
need to use the EBS system or request Members are reporting data to CAT. In other issues. Given the limited time in
information pursuant to the EBS Rule this way, the Exchange will continue to which such exemptions would be
for NMS Securities or OTC Equity have access to the necessary data to necessary, the Exchange does not
Securities for time periods after CAT perform its regulatory duties. believe that such exemptions would be
reporting has begun if the appropriate The CAT NMS Plan requires that a an appropriate use of limited resources.
accuracy and reliability thresholds are rule filing to eliminate a duplicative Moreover, the primary benefit to a firm-
achieved, including an acceptable rule address whether ‘‘the availability of by-firm exemptive approach would be
accuracy rate for customer and account certain data from Small Industry to reduce the amount of time an
information. However, the EBS Rule Members two years after the Effective individual firm is required to comply
cannot be completely eliminated Date would facilitate a more expeditious with EBS if it is also accurately and
immediately upon the CAT achieving reliably reporting to the CAT. The
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16 Firms are required to maintain the trade Exchange believes that the overall
12 Appendix C of CAT NMS Plan, Approval Order information for pre-CAT transactions in equities accuracy and reliability thresholds for
at 85010. and options pursuant to applicable rules, such as
13 Id.
the CAT described above would need to
books and records retention requirements, for the
14 Id. relevant time period, which is generally three or six be met under any conditions before
15 The Exchange notes that both the rules of years depending upon the record. See 17 CFR
Nasdaq MRX, LLC and Nasdaq GEMX, LLC 240.17a–3(a), 240.17a–4. 18 Id.
incorporate Rule 1404 by reference. 17 Id. [sic]. 19 Id.
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![25472 Federal Register / Vol. 82, No. 104 / Thursday, June 1, 2017 / Notices
regard to the retirement of duplicative rule change, or (b) institute proceedings For the Commission, by the Division of
systems more generally, FIF to determine whether the proposed rule Trading and Markets, pursuant to delegated
recommended that the Participants change should be disapproved. authority.29
continue the effort to incorporate Eduardo A. Aleman,
current reporting obligations into the IV. Solicitation of Comments Assistant Secretary.
CAT in order to replace existing Interested persons are invited to [FR Doc. 2017–11363 Filed 5–31–17; 8:45 am]
reportable systems with the CAT. In submit written data, views, and BILLING CODE 8011–01–P
addition, FIF further recommended that, arguments concerning the foregoing,
once a CAT Reporter achieved
including whether the proposed rule
satisfactory reporting data quality, the SECURITIES AND EXCHANGE
change is consistent with the Act.
CAT Reporter should be exempt from COMMISSION
Comments may be submitted by any of
reporting to any duplicative reporting
systems. FIF believed that these the following methods:
[Release No. 34–80769; File No. SR–Phlx–
recommendations ‘‘would serve both an Electronic Comments 2017–41]
underlying regulatory objective of more
immediate and accurate access to data • Use the Commission’s Internet Self-Regulatory Organizations;
as well as an industry objective of comment form (http://www.sec.gov/ NASDAQ PHLX LLC; Notice of Filing
reduced costs and burdens of regulatory rules/sro.shtml); or and Immediate Effectiveness of
oversight.’’ 26 In its comments about • Send an email to rule-comments@ Proposed Rule Change To Amend Rule
EBS specifically, FIF stated that the sec.gov. Please include File Number SR– 1012
retirement of the EBS requirements ISE–2017–46 on the subject line.
should be a high priority, and that the May 25, 2017.
CAT should be designed to include the Paper Comments Pursuant to Section 19(b)(1) of the
requisite data elements to permit the Securities Exchange Act of 1934
rapid retirement of EBS.27 Similarly, • Send paper comments in triplicate (‘‘Act’’),1 and Rule 19b–4 thereunder,2
SIFMA stated that ‘‘the establishment of to Secretary, Securities and Exchange notice is hereby given that on May 22,
the CAT must be accompanied by the Commission, 100 F Street NE., 2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
prompt elimination of duplicative Washington, DC 20549–1090. ‘‘Exchange’’) filed with the Securities
systems,’’ and ‘‘recommend[ed] that the and Exchange Commission (‘‘SEC’’ or
All submissions should refer to File
initial technical specifications be ‘‘Commission’’) the proposed rule
Number SR–ISE–2017–46. This file change as described in Items I, II, and
designed to facilitate the immediate number should be included on the
retirement of . . . duplicative reporting III, below, which Items have been
subject line if email is used. To help the prepared by the Exchange. The
systems.’’ 28 Commission process and review your
As discussed above in Section 3 [sic], Commission is publishing this notice to
comments more efficiently, please use solicit comments on the proposed rule
the Exchange agrees with the
commenters that the EBS reporting only one method. The Commission will change from interested persons.
requirements should be replaced by the post all comments on the Commission’s
Internet Web site (http://www.sec.gov/ I. Self-Regulatory Organization’s
CAT reporting requirements as soon as Statement of the Terms of Substance of
accurate and reliable CAT Data is rules/sro.shtml).
the Proposed Rule Change
available. To this end, the Exchange Copies of the submission, all
anticipates that the CAT will be subsequent amendments, all written The Exchange proposes to amend
designed to collect the data necessary to statements with respect to the proposed Rule 1012, Series of Options Open for
permit the retirement of EBS. However, rule change that are filed with the Trading, with respect to long term
as discussed above, the Exchange Commission, and all written options.
disagrees with the recommendation to communications relating to the The text of the proposed rule change
provide individual exemptions to those proposed rule change between the is available on the Exchange’s Web site
CAT Reporters who obtain satisfactory Commission and any person, other than at http://nasdaqphlx.cchwallstreet.
data reporting quality. those that may be withheld from the com/, at the principal office of the
public in accordance with the Exchange, and at the Commission’s
III. Date of Effectiveness of the
provisions of 5 U.S.C. 552, will be Public Reference Room.
Proposed Rule Change and Timing for
Commission Action available for Web site viewing and II. Self-Regulatory Organization’s
printing in the Commission’s Public Statement of the Purpose of, and
Within 45 days of the date of
publication of this notice in the Federal Reference Room, 100 F Street NE., Statutory Basis for, the Proposed Rule
Register or within such longer period (i) Washington, DC 20549, on official Change
as the Commission may designate up to business days between the hours of
In its filing with the Commission, the
90 days of such date if it finds such 10:00 a.m. and 3:00 p.m. Copies of the Exchange included statements
longer period to be appropriate and filing also will be available for concerning the purpose of and basis for
publishes its reasons for so finding or inspection and copying at the principal the proposed rule change and discussed
(ii) as to which the Exchange consents, office of the Exchange. All comments any comments it received on the
the Commission shall: (a) By order received will be posted without change; proposed rule change. The text of these
approve or disapprove such proposed the Commission does not edit personal statements may be examined at the
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identifying information from places specified in Item IV below. The
modify duplicative rules (Apr. 12, 2017); and Letter submissions. You should submit only Exchange has prepared summaries, set
from Kenneth E. Bentsen, Jr., SIFMA, to information that you wish to make forth in sections A, B, and C below, of
Participants re: Selection of Thesys as CAT available publicly. All submissions
Processor (Apr. 4, 2017) (‘‘SIFMA Letter’’) at 2.
26 FIF Letter at 2.
should refer to File Number SR–ISE– 29 17 CFR 200.30–3(a)(12).
27 FIF Letter at 2. 2017–46 and should be submitted on or 1 15 U.S.C. 78s(b)(1).
28 SIFMA Letter at 2. before June 22, 2017. 2 17 CFR 240.19b–4.
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Document Created: 2017-06-01 03:05:22
Document Modified: 2017-06-01 03:05:22
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 25469 |
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