82 FR 25872 - Self-Regulatory Organizations; NASDAQ BX, Inc.; 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 106 (June 5, 2017)
Federal Register Volume 82, Issue 106 (June 5, 2017)
| Page Range | 25872-25879 | |
| FR Document | 2017-11508 |
[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)] [Notices] [Pages 25872-25879] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-11508] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80814; File No. SR-BX-2017-027] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing of Proposed Rule Change To Eliminate Requirements That Will Be Duplicative of CAT May 30, 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 30, 2017, NASDAQ BX, Inc. (``BX'' 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 6950 relating to the Order Audit Trail System, Rule 8211 and Chapter IX, Section IV relating to Electronic Blue Sheets, Chapter VII, Section VII relating to account identification, and Chapter V, Section VII relating to the Consolidated Options Audit Trail System to reflect changes to these rules once members are effectively reporting to the Consolidated Audit Trail (``CAT'') and the CAT's accuracy and reliability meets certain standards as described below. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqbx.cchwallstreet.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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Rule 6950 relating to the Order Audit Trail System (``OATS''), Rule 8211 and Chapter IX, Section IV relating to Electronic Blue Sheets (``EBS''), Chapter VII, Section VII relating to account identification, and Chapter V, Section VII relating to the Consolidated Options Audit Trail System (``COATS'') to reflect changes to these rules once members are effectively reporting to the CAT, and the CAT's accuracy and reliability meets certain standards as described below.\3\ --------------------------------------------------------------------------- \3\ The Exchange initially filed the proposed rule change on May 15, 2017 (SR-BX-2017-025). On May 30, 2017, the Exchange withdrew that filing and submitted this filing. --------------------------------------------------------------------------- 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.; FINRA; 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 \4\ and Rule 608 of Regulation NMS thereunder,\5\ the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\6\ The [[Page 25873]] Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act.\7\ The Plan was published for comment in the Federal Register on May 17, 2016,\8\ and approved by the Commission, as modified, on November 15, 2016.\9\ On March 15, 2017, the Commission approved the new BX Rule 6800 Series and Chapter IX, Section 8 to implement provisions of the CAT NMS Plan that are applicable to BX members.\10\ --------------------------------------------------------------------------- \4\ 15 U.S.C. 78k-1. \5\ 17 CFR 242.608. \6\ 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. 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 (April 4, 2017). National Stock Exchange, Inc. has been renamed NYSE National, Inc. See Securities Exchange Act Release No. 79902 (Jan. 30, 2017), 82 FR 9258 (February 3, 2017). \7\ 17 CFR 242.613. \8\ Securities Exchange Act Release No. 77724 (April 27, 2016), 81 FR 30614 (May 17, 2016). \9\ Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (``Approval Order''). \10\ See Securities Exchange Act Release No. 80256 (March 15, 2017), 82 FR 14526 (March 21, 2017) (SR-BX-2017-007). --------------------------------------------------------------------------- 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 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.'' \11\ 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.'' \12\ Finally, the Plan requires the rule filing to discuss the following: --------------------------------------------------------------------------- \11\ CAT NMS Plan, Appendix C, Section C.9. \12\ See id. --------------------------------------------------------------------------- (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.\13\ --------------------------------------------------------------------------- \13\ See id. --------------------------------------------------------------------------- Changes to OATS In response to these requirements, BX is proposing to delete Rule 6950 (the ``OATS Rules'') from the BX rulebook once the CAT achieves the specific accuracy and reliability standards described below, and BX 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 BX to continue to meet its surveillance obligations,\14\ and confirmed that the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan.\15\ --------------------------------------------------------------------------- \14\ As noted in the Participants' September 23, 2016 response to comment letters on the Plan, the Participants ``worked to keep [the CAT] gap analyses up-to-date by including newly-added data fields in these duplicative systems, such as the new OATS data fields related to the tick size pilot and ATS order book changes, in the gap analyses.'' See Letter from Participants to Brent J. Fields, Secretary, Commission, dated September 23, 2016, at 21. The Participants noted that they ``will work with the Plan Processor and the industry to develop detailed Technical Specifications to ensure that by the time Industry Members are required to report to the CAT, the CAT will include all data elements necessary to facilitate the rapid retirement of duplicative systems.'' Id. \15\ BX notes that the OATS Rules were originally proposed to fulfill one of the undertakings contained in an order issued by the Commission relating to the settlement of an enforcement action against the National Association of Securities Dealers, Inc. for failure to adequately enforce its rules. See Securities Exchange Act Release No. 39729 (March 6, 1998), 63 FR 12559 (March 13, 1998). In approving the OATS Rules, the Commission concluded that OATS satisfied the conditions of the SEC's order and was consistent with the Exchange Act. See id. at 12566-67. --------------------------------------------------------------------------- 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.'' \16\ BX 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 OATS can be retired to account for information being available in the CAT. --------------------------------------------------------------------------- \16\ See id. [sic] --------------------------------------------------------------------------- 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.'' \17\ 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.'' \18\ --------------------------------------------------------------------------- \17\ See CAT NMS Plan, Appendix C, Section A.3(b), at n.102. \18\ Id. --------------------------------------------------------------------------- BX 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.'' \19\ However, BX 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 BX to conduct surveillance. Although BX is proposing to measure the appropriate error rates in the aggregate, rather than firm-by-firm, BX 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. --------------------------------------------------------------------------- \19\ Id. --------------------------------------------------------------------------- To ensure the CAT's accuracy and reliability, BX is proposing that, before OATS could be retired, the CAT would generally need to achieve a sustained error rate for Industry Member reporting 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).\20\ BX is proposing 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 [[Page 25874]] consecutive days. BX 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 for Industry Member reporting while also ensuring that single-day measurements do not unduly affect the overall measurements. --------------------------------------------------------------------------- \20\ 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, Appendix C, Section A.2(a). --------------------------------------------------------------------------- BX is proposing to use error rates in each the following categories, measured separately for options and for equities, to assess whether the threshold pre- and post-correction 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 \21\ and syntax and context checks be performed on all submitted records.\22\ If a record does not pass these basic data validations, it must be rejected and returned to the CAT Reporter to be corrected and resubmitted.\23\ 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.\24\ BX 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. --------------------------------------------------------------------------- \21\ See CAT NMS Plan, Appendix D, Section 7.2. The Plan requires the Plan Processor to confirm that file transmission and receipt are in the correct formats, including validation of header and trailers on the submitted report, confirmation of a valid Exchange [sic]-Assigned Market Participant Identifier, and verification of the number of records in the file. Id. \22\ See id. The Plan notes that syntax and context checks would include format checks (i.e., that data is entered in the specified format); data type checks (i.e., that the data type of each attribute conforms to the specifications); consistency checks (i.e., that all attributes for a record of a specified type are consistent); range/logic checks (i.e., that each attribute for every record has a value within specified limits and the values provided are associated with the event type they represent); data validity checks (i.e., that each attribute for every record has an acceptable value); completeness checks (i.e., that each mandatory attribute for every record is not null); and timeliness checks (i.e., that the records were submitted within the submission timelines). Id. \23\ See id. \24\ See id. --------------------------------------------------------------------------- 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.'' \25\ 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).'' \26\ BX is proposing that aggregate intra-firm linkage rates across all Industry Member Reporters must be at least 95% pre-correction and 98% post-correction. --------------------------------------------------------------------------- \25\ CAT NMS Plan, Appendix D, Section 3. \26\ Id. --------------------------------------------------------------------------- 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.\27\ BX 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.\28\ --------------------------------------------------------------------------- \27\ Id. \28\ This assumes linkage statistics will include both unlinked route reports and new orders where no related route report could be found. --------------------------------------------------------------------------- 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.\29\ 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.\30\ BX 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). --------------------------------------------------------------------------- \29\ See CAT NMS Plan, Appendix D, Section 3. \30\ See id. --------------------------------------------------------------------------- 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.'' \31\ BX 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. --------------------------------------------------------------------------- \31\ Id. --------------------------------------------------------------------------- In addition to these minimum error rates and matching thresholds that generally must be met before OATS can be retired, BX believes that during the minimum 180-day period during which the thresholds are calculated, BX'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 BX to continue to meet its surveillance obligations, and (iii) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. BX 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. 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.'' BX 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, BX 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 BX members to report to CAT while others continue to report to OATS. Consequently, BX has concluded at this time that having data from those Small Industry Members currently reporting to OATS available two years after the Effective Date would substantially facilitate a more expeditious retirement of OATS. For this reason, BX 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). BX 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. BX 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 [[Page 25875]] firms report very few orders to OATS.\32\ 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. Consequently, BX 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, BX 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 BX would not support an amendment to the Plan to accelerate CAT reporting for ``Small Industry Members'' that are not currently OATS Reporters. --------------------------------------------------------------------------- \32\ For example, in one recent month, eight of the ten firms submitted fewer than 100 reports during the month, with four firms submitting fewer than 50. --------------------------------------------------------------------------- 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.'' As described above, BX 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. BX 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. Moreover, as discussed above, BX supports amending the Plan to accelerate the reporting requirements for Small Industry Members that are OATS Reporters to report on the same timeframe as all other OATS Reporters. If such an amendment were approved by the Commission, there would be no need to exempt members from OATS requirements on a firm-by- firm basis. Changes to EBS and Account Identification Rules The EBS rule is BX's rule regarding the automated submission of specific trading data to BX upon request using the Electronic Blue Sheet system. Rule 8211 applies to EBS reporting for equity securities, while Chapter IX, Section 4 applies EBS reporting to options. Rule 8211 and Chapter IX, Section 4 require members to submit certain trade information as prescribed by BX Regulation, 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. Chapter VII, Section VII imposes certain account identification requirements on Market Makers. Specifically, Chapter VII, Section VII requires, among other things, that each Market Maker shall file with BX Regulation and keep current a list identifying all accounts for stock, options and related securities trading in which the Market Maker may, directly or indirectly, engage in trading activities or over which it exercises investment discretion. The rule also prohibits a Market Maker from engaging in stock, options or related securities trading in an account which has not been reported pursuant to this rule. 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, BX will not need to use the EBS system or request information pursuant to these rules 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, these rules cannot be completely eliminated immediately upon the CAT achieving the appropriate thresholds because BX Regulation staff may still need to request information pursuant to these rules for trading activity occurring before a member was reporting to the CAT.\33\ In addition, these rules apply to information regarding transactions involving securities that will not be reportable to the CAT, such as fixed-income securities; thus, these rules must remain in effect with respect to those transactions indefinitely or until those transactions are captured in the CAT. --------------------------------------------------------------------------- \33\ 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 Rule 8211, Chapter VII, Section VII, and Chapter IX, Section 4 to clarify how BX will request data under these rules after members are reporting to the CAT. Specifically, the proposed Supplementary Material to these rules will note that BX Regulation will request information under these rules 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, BX Regulation 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.\34\ Accordingly, as discussed in more detail below, BX 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 BX 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 BX 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. --------------------------------------------------------------------------- \34\ Id. [sic] --------------------------------------------------------------------------- BX 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, BX 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.'' \35\ [[Page 25876]] BX 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 BX believes that the CAT would then have all necessary data from the Industry Members for BX to perform the regulatory surveillance that currently is performed via EBS. For this reason, BX 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. --------------------------------------------------------------------------- \35\ 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.'' \36\ BX 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. BX 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, BX 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. BX 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 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. --------------------------------------------------------------------------- \36\ 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.'' \37\ BX believes that it is critical that the CAT Data be sufficiently accurate and reliable for BX to perform the regulatory functions that it now performs via EBS. Accordingly, BX believes that the CAT Data should meet specific quantitative error rates, as well as certain qualitative requirements. --------------------------------------------------------------------------- \37\ Id. --------------------------------------------------------------------------- BX 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).\38\ BX 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. BX 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. BX 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 OATS and COATS. --------------------------------------------------------------------------- \38\ 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, BX believes that during the minimum 180-day period during which the thresholds are calculated, BX'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 BX to continue to meet its surveillance obligations, and (iii) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. BX 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. Changes to COATS The options exchanges utilize COATS to collect and review data regarding options orders, quotes and transactions. The Participants have provided COATS technical specifications to the Plan Processor for the CAT for use in developing the Technical Specifications for the CAT, and the Participants are working with the Plan Processor to include the necessary COATS data elements in the CAT Technical Specifications. Accordingly, although the Technical Specifications for the CAT have not yet been finalized, BX and the other options exchanges propose to eliminate COATS in accordance with the proposed timeline discussed below. BX adopted Chapter V, Section 7 to implement certain reporting requirements related to COATS, and therefore proposes to eliminate the information reporting requirements of that rule and replacing those requirements with a requirement that members report information pursuant to this rule as required by the Exchange's CAT compliance rule, Chapter IX, Section 8.\39\ Among other things, Chapter V, Section 7 requires an Options Participant to ensure that each options order received from a Customer for execution on BX Options is recorded and time-stamped immediately, and also at the time of any modification or cancellation of the order. The rule also specifies the information that must be [[Page 25877]] contained at a minimum, including a unique order identification, the underlying security, opening/closing designation, the identity of the Clearing Participant, and the Options Participant identification. --------------------------------------------------------------------------- \39\ COATS was developed to comply with an order of the Commission requiring the then-options exchanges to ``design and implement'' a consolidated audit trail to ``enable the options exchanges to reconstruct markets promptly, effectively surveil them and enforce order handling, firm quote, trade reporting and other rules.'' See Section IV.B.e.(v) of the Commission's Order Instituting Public Administrative Proceedings Pursuant to Sections 19(h)(1) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (the ``Order''). See Securities Exchange Act Release No. 43268 (September 11, 2000) and Administrative Proceeding File No. 3-10282. As noted, the Plan is designed to create, implement and maintain a CAT that would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. BX has already adopted rules to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan. Once the CAT is fully operational, it will be appropriate to delete BX's rules implemented to comply with the Order as duplicative of the CAT. Accordingly, BX believes that it would continue to be in compliance with the requirements of the Order once the CAT is fully operational and the COATS rules are deleted. --------------------------------------------------------------------------- The CAT NMS Plan states 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.\40\ As discussed in more detail below, BX and the other options exchanges believe that COATS may be retired at a date after all Industry Members are reporting to the CAT when the proposed error rate thresholds have been met, and BX 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 BX 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. --------------------------------------------------------------------------- \40\ Id. [sic] --------------------------------------------------------------------------- BX believes COATS should not be retired until all Participants and Industry Members that report data to COATS are reporting comparable data to the CAT. In this way, BX 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.'' \41\ The Exchange believes COATS should not be retired until all Participants and Industry Members that report data to COATS are reporting comparable data to the CAT. While the early submission of options data to the CAT by Small Industry Members could expedite the retirement of COATS, the Exchange believes that it premature to consider such a change and that additional analysis would be necessary to determine whether such early reporting by Small Industry Members would be feasible. --------------------------------------------------------------------------- \41\ 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.'' \42\ BX believes that a single cut-over from COATS to CAT is highly preferable to a firm-by-firm approach and is not proposing to exempt members from the COATS requirements on a firm-by-firm basis. BX and the other options exchanges believe 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 options exchanges to create, for a brief temporary period, a cross-system regulatory function and to integrate data from COATS 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, BX and the other options exchanges do not believe that such exemptions would be an appropriate use of limited resources. --------------------------------------------------------------------------- \42\ 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.'' \43\ BX 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 COATS. Accordingly, BX believes that the CAT Data should meet specific quantitative error rates, as well as certain qualitative requirements. --------------------------------------------------------------------------- \43\ Id. --------------------------------------------------------------------------- BX and the other options exchanges believe that, before COATS may be retired, 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).\44\ BX 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. BX 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. BX proposes to measure the appropriate error rates in the aggregate, rather than firm-by-firm. In addition, BX proposes to measure the error rates for options only, not equity securities, as only options are subject to COATS. The 2% and 5% error rates are in line with the proposed retirement threshold for OATS. --------------------------------------------------------------------------- \44\ 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 COATS can be retired, BX believes that during the minimum 180-day period during which the thresholds are calculated, BX'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 BX to continue to meet its surveillance obligations, and (iii) the Plan Processor is sufficiently meeting all of its obligations under the CAT NMS Plan. BX 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, BX will announce the implementation date of the proposed rule change in a Regulatory Notice that will be published once BX 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 its proposal is consistent with Section 6(b) of the Act,\45\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\46\ in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. --------------------------------------------------------------------------- \45\ 15 U.S.C. 78f(b). \46\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- BX believes that the proposed rule change fulfills the obligation in the CAT NMS Plan for BX 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 [[Page 25878]] 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.'' \47\ As this proposal implements the Plan, BX believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Exchange Act. --------------------------------------------------------------------------- \47\ Approval Order at 84697. --------------------------------------------------------------------------- Moreover, the purpose of the proposed rule change is to eliminate 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 BX and its members, and therefore, will enhance the efficiency of the securities markets. Furthermore, BX believes that the approach set forth in the proposed rule change strikes the appropriate balance between ensuring that BX 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 \48\ requires that the Exchange's rules not impose any burden on competition that is not necessary or appropriate. BX 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. BX 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 BX in meeting its regulatory obligations pursuant to the Plan. Similarly, all exchanges and FINRA are proposing the elimination of their rules related to OATS, EBS and COATS 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. --------------------------------------------------------------------------- \48\ 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, two commenters, the Financial Information Forum (``FIF'') and the Securities Industry and Financial Markets Association (``SIFMA''), submitted letters to the Participants regarding the retirement of systems related to the CAT.\49\ In its comment letter, with regard to the retirement of duplicative systems more generally, FIF recommends 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 recommends that, once a CAT Reporter achieves satisfactory reporting data quality, the CAT Reporter should be exempt from reporting to any duplicative reporting systems. FIF believes 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.'' \50\ In its comments about EBS specifically, FIF states 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 the EBS system.\51\ Similarly, SIFMA states 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.'' \52\ --------------------------------------------------------------------------- \49\ Letter from William H. Hebert, FIF, to Participants re: Milestone for Participants' rule change filings to eliminate/modify duplicative rules, dated April 12, 2017 (``FIF Letter''); Letter from Kenneth E. Bentsen, Jr., SIFMA, to Participants re: Selection of Thesys as CAT Processor, dated April 4, 2017 (``SIFMA Letter''), at 2. \50\ FIF Letter at 2. \51\ Id. \52\ SIFMA Letter at 2. --------------------------------------------------------------------------- As discussed above, BX agrees with the commenters that the OATS, EBS and COATS reporting requirements should be replaced by the CAT reporting requirements as soon as accurate and reliable CAT Data is available. To this end, BX anticipates that the CAT will be designed to collect the data necessary to permit the retirement of OATS, EBS and COATS. As discussed above, BX disagrees with the recommendation to provide individual exemptions to those CAT Reporters who obtain satisfactory data reporting quality; however, BX supports amendments to the CAT NMS Plan that would accelerate reporting for Small Industry Members that are currently reporting to OATS to facilitate the retirement of that system. 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-BX-2017-027 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-BX-2017-027. 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 [[Page 25879]] 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-BX-2017-027, and should be submitted on or before June 26, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\53\ --------------------------------------------------------------------------- \53\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-11508 Filed 6-2-17; 8:45 am] BILLING CODE 8011-01-P
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shares from a Fund of Funds, and to SECURITIES AND EXCHANGE the most significant aspects of such
engage in the accompanying in-kind COMMISSION statements..
transactions with the Fund of Funds.3
A. Self-Regulatory Organization’s
The purchase of Creation Units by a [Release No. 34–80814; File No. SR–BX–
2017–027]
Statement of the Purpose of, and the
Fund of Funds directly from a Fund will
Statutory Basis for, the Proposed Rule
be accomplished in accordance with the
Self-Regulatory Organizations; Change
policies of the Fund of Funds and will
be based on the NAVs of the Funds. NASDAQ BX, Inc.; Notice of Filing of 1. Purpose
Proposed Rule Change To Eliminate
9. Applicants also request relief to Requirements That Will Be Duplicative The Exchange proposes to amend
permit a Feeder Fund to acquire shares of CAT Rule 6950 relating to the Order Audit
of another registered investment Trail System (‘‘OATS’’), Rule 8211 and
company managed by the Adviser May 30, 2017. Chapter IX, Section IV relating to
having substantially the same Pursuant to Section 19(b)(1) of the Electronic Blue Sheets (‘‘EBS’’), Chapter
investment objectives as the Feeder Securities Exchange Act of 1934 VII, Section VII relating to account
Fund (‘‘Master Fund’’) beyond the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 identification, and Chapter V, Section
limitations in section 12(d)(1)(A) and notice is hereby given that on May 30, VII relating to the Consolidated Options
permit the Master Fund, and any 2017, NASDAQ BX, Inc. (‘‘BX’’ or Audit Trail System (‘‘COATS’’) to reflect
principal underwriter for the Master ‘‘Exchange’’) filed with the Securities changes to these rules once members are
Fund, to sell shares of the Master Fund and Exchange Commission (‘‘SEC’’ or effectively reporting to the CAT, and the
to the Feeder Fund beyond the ‘‘Commission’’) the proposed rule CAT’s accuracy and reliability meets
limitations in section 12(d)(1)(B). change as described in Items I, II, and certain standards as described below.3
10. Section 6(c) of the Act permits the III below, which Items have been
prepared by the Exchange. The Background
Commission to exempt any persons or
transactions from any provision of the Commission is publishing this notice to Bats BYX Exchange, Inc.; Bats BZX
Act if such exemption is necessary or solicit comments on the proposed rule Exchange, Inc.; Bats EDGA Exchange,
appropriate in the public interest and change from interested persons. Inc.; Bats EDGX Exchange, Inc.; BOX
consistent with the protection of I. Self-Regulatory Organization’s Options Exchange LLC; C2 Options
investors and the purposes fairly Statement of the Terms of Substance of Exchange, Incorporated; Chicago Board
intended by the policy and provisions of the Proposed Rule Change Options Exchange, Incorporated;
the Act. Section 12(d)(1)(J) of the Act Chicago Stock Exchange, Inc.; FINRA;
provides that the Commission may The Exchange proposes to amend International Securities Exchange, LLC;
exempt any person, security, or Rule 6950 relating to the Order Audit Investors’ Exchange LLC; ISE Gemini,
transaction, or any class or classes of Trail System, Rule 8211 and Chapter IX, LLC; ISE Mercury, LLC; Miami
persons, securities, or transactions, from Section IV relating to Electronic Blue International Securities Exchange LLC;
any provision of section 12(d)(1) if the Sheets, Chapter VII, Section VII relating MIAX PEARL, LLC; NASDAQ BX, Inc.;
exemption is consistent with the public to account identification, and Chapter NASDAQ PHLX LLC; The NASDAQ
interest and the protection of investors. V, Section VII relating to the Stock Market LLC; National Stock
Section 17(b) of the Act authorizes the Consolidated Options Audit Trail Exchange, Inc.; New York Stock
Commission to grant an order System to reflect changes to these rules Exchange LLC; NYSE MKT LLC; and
permitting a transaction otherwise once members are effectively reporting NYSE Arca, Inc. (collectively, the
prohibited by section 17(a) if it finds to the Consolidated Audit Trail (‘‘CAT’’) ‘‘Participants’’) filed with the
that (a) the terms of the proposed and the CAT’s accuracy and reliability Commission, pursuant to Section 11A of
transaction are fair and reasonable and meets certain standards as described the Exchange Act 4 and Rule 608 of
do not involve overreaching on the part below. Regulation NMS thereunder,5 the
of any person concerned; (b) the The text of the proposed rule change National Market System Plan Governing
proposed transaction is consistent with is available on the Exchange’s Web site the Consolidated Audit Trail (the ‘‘CAT
the policies of each registered at http://nasdaqbx.cchwallstreet.com/, NMS Plan’’ or ‘‘Plan’’).6 The
investment company involved; and (c) at the principal office of the Exchange,
the proposed transaction is consistent and at the Commission’s Public 3 The Exchange initially filed the proposed rule
with the general purposes of the Act. Reference Room. change on May 15, 2017 (SR–BX–2017–025). On
May 30, 2017, the Exchange withdrew that filing
For the Commission, by the Division of II. Self-Regulatory Organization’s and submitted this filing.
Investment Management, under delegated Statement of the Purpose of, and 4 15 U.S.C. 78k–1.
5 17 CFR 242.608.
authority. Statutory Basis for, the Proposed Rule
6 See Letter from the Participants to Brent J.
Eduardo A. Aleman, Change
Fields, Secretary, Commission, dated September 30,
Assistant Secretary. In its filing with the Commission, the 2014; and Letter from Participants to Brent J. Fields,
[FR Doc. 2017–11510 Filed 6–2–17; 8:45 am] Exchange included statements Secretary, Commission, dated February 27, 2015.
On December 24, 2015, the Participants submitted
BILLING CODE 8011–01–P concerning the purpose of and basis for an amendment to the CAT NMS Plan. See Letter
the proposed rule change and discussed from Participants to Brent J. Fields, Secretary,
asabaliauskas on DSKBBXCHB2PROD with NOTICES
3 The requested relief would apply to direct sales any comments it received on the Commission, dated December 23, 2015.
of shares in Creation Units by a Fund to a Fund of proposed rule change. The text of these ISE Gemini, LLC, ISE Mercury, LLC and
Funds and redemptions of those shares. Applicants, International Securities Exchange, LLC have been
moreover, are not seeking relief from section 17(a)
statements may be examined at the renamed Nasdaq GEMX, LLC, Nasdaq MRX, LLC,
for, and the requested relief will not apply to, places specified in Item IV below. The and Nasdaq ISE, LLC, respectively. See Securities
transactions where a Fund could be deemed an Exchange has prepared summaries, set Exchange Act Release No. 80248 (March 15, 2017),
Affiliated Person, or a Second-Tier Affiliate, of a forth in sections A, B, and C below, of 82 FR 14547 (March 21, 2017); Securities Exchange
Fund of Funds because an Adviser or an entity Act Release No. 80326 (March 29, 2017), 82 FR
controlling, controlled by or under common control 16460 (April 4, 2017); and Securities Exchange Act
1 15 U.S.C. 78s(b)(1).
with an Adviser provides investment advisory Release No. 80325 (March 29, 2017), 82 FR 16445
services to that Fund of Funds. 2 17 CFR 240.19b–4. (April 4, 2017).
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Participants filed the Plan to comply regulatory functionality or integrating Participants established an initial Error
with Rule 613 of Regulation NMS under data from existing systems and the CAT Rate, as defined in the Plan, of 5% on
the Exchange Act.7 The Plan was would facilitate such Individual initially submitted data (i.e., data as
published for comment in the Federal Industry Member exemptions.13 submitted by a CAT Reporter before any
Register on May 17, 2016,8 and required corrections are performed). The
approved by the Commission, as Changes to OATS Participants noted in the Plan that their
modified, on November 15, 2016.9 On In response to these requirements, BX expectation was that ‘‘error rates after
March 15, 2017, the Commission is proposing to delete Rule 6950 (the reprocessing of error corrections will be
approved the new BX Rule 6800 Series ‘‘OATS Rules’’) from the BX rulebook de minimis.’’ 17 The Participants based
and Chapter IX, Section 8 to implement once the CAT achieves the specific this Error Rate on their consideration of
provisions of the CAT NMS Plan that accuracy and reliability standards ‘‘current and historical OATS Error
are applicable to BX members.10 described below, and BX has Rates, the magnitude of new reporting
The CAT NMS Plan is designed to determined that its usage of the CAT requirements on the CAT Reporters and
create, implement, and maintain a Data has not revealed material issues the fact that many CAT Reporters may
consolidated audit trail that will capture that have not been corrected, confirmed have never been obligated to report data
in a single consolidated data source that the CAT includes all data necessary to an audit trail.’’ 18
customer and order event information to allow BX to continue to meet its BX agrees with the Participants’
for orders in NMS Securities and OTC surveillance obligations,14 and conclusion that a 5% pre-correction
Equity Securities, across all markets, confirmed that the Plan Processor is threshold ‘‘strikes the balance of
from the time of order inception through sufficiently meeting all of its obligations adapting to a new reporting regime,
routing, cancellation, modification, or under the CAT NMS Plan.15 while ensuring that the data provided to
execution. Among other things, Section regulators will be capable of being used
C.9. of Appendix C to the Plan, as Specific Accuracy and Reliability to conduct surveillance and market
modified by the Commission, requires Standards reconstruction, as well as having a
each Participant to ‘‘file with the SEC The first issue the Plan requires the sufficient level of accuracy to facilitate
the relevant rule change filing to proposed rule change to discuss is the retirement of existing regulatory
eliminate or modify its duplicative rules ‘‘specific accuracy and reliability reports and systems where possible.’’ 19
within six (6) months of the SEC’s standards that will determine when However, BX believes that, when
approval of the CAT NMS Plan.’’ 11 The duplicative systems will be retired, assessing the accuracy and reliability of
Plan notes that ‘‘the elimination of such including, but not limited to, whether the data for the purposes of retiring
rules and the retirement of such systems the attainment of a certain Error Rate OATS, the error thresholds should be
[will] be effective at such time as CAT should determine when a system measured in more granular ways and
Data meets minimum standards of duplicative of the CAT can be should also include minimum error
accuracy and reliability.’’ 12 Finally, the retired.’’ 16 BX believes that relevant rates of post-correction data, which
Plan requires the rule filing to discuss error rates are the primary, but not the represents the data most likely to be
the following: sole, metric by which to determine the used by BX to conduct surveillance.
(i) specific accuracy and reliability CAT’s accuracy and reliability and will Although BX is proposing to measure
standards that will determine when serve as the baseline requirement the appropriate error rates in the
duplicative systems will be retired, needed before OATS can be retired to aggregate, rather than firm-by-firm, BX
including, but not limited to, whether account for information being available believes that the error rates for equity
the attainment of a certain Error Rate in the CAT. securities should be measured
should determine when a system As discussed in Section A.3.(b) of separately from options since options
duplicative of the CAT can be retired; Appendix C to the CAT NMS Plan, the orders are not currently reported
(ii) whether the availability of certain regularly or included in OATS.
data from Small Industry Members two 13 See id. To ensure the CAT’s accuracy and
years after the Effective Date would 14 As noted in the Participants’ September 23, reliability, BX is proposing that, before
facilitate a more expeditious retirement 2016 response to comment letters on the Plan, the OATS could be retired, the CAT would
of duplicative systems; and Participants ‘‘worked to keep [the CAT] gap
analyses up-to-date by including newly-added data
generally need to achieve a sustained
(iii) whether individual Industry fields in these duplicative systems, such as the new error rate for Industry Member reporting
Members can be exempted from OATS data fields related to the tick size pilot and in each of the categories below for a
reporting to duplicative systems once ATS order book changes, in the gap analyses.’’ See period of at least 180 days of 5% or
their CAT reporting meets specified Letter from Participants to Brent J. Fields, Secretary,
Commission, dated September 23, 2016, at 21. The
lower, measured on a pre-correction or
accuracy and reliability standards, Participants noted that they ‘‘will work with the as-submitted basis and 2% or lower on
including, but not limited to, ways in Plan Processor and the industry to develop detailed a post-correction basis (measured at
which establishing cross-system Technical Specifications to ensure that by the time T+5).20 BX is proposing to measure the
Industry Members are required to report to the CAT,
the CAT will include all data elements necessary
5% pre-correction and 2% post-
National Stock Exchange, Inc. has been renamed correction thresholds by averaging the
to facilitate the rapid retirement of duplicative
NYSE National, Inc. See Securities Exchange Act
Release No. 79902 (Jan. 30, 2017), 82 FR 9258
systems.’’ Id. error rate across the period, not require
(February 3, 2017).
15 BX notes that the OATS Rules were originally
a 5% pre-correction and 2% post-
7 17 CFR 242.613. proposed to fulfill one of the undertakings correction maximum each day for 180
asabaliauskas on DSKBBXCHB2PROD with NOTICES
8 Securities Exchange Act Release No. 77724
contained in an order issued by the Commission
relating to the settlement of an enforcement action
(April 27, 2016), 81 FR 30614 (May 17, 2016). against the National Association of Securities
17 See CAT NMS Plan, Appendix C, Section
9 Securities Exchange Act Release No. 79318 A.3(b), at n.102.
Dealers, Inc. for failure to adequately enforce its
(November 15, 2016), 81 FR 84696 (November 23, rules. See Securities Exchange Act Release No. 18 Id.
2016) (‘‘Approval Order’’). 39729 (March 6, 1998), 63 FR 12559 (March 13, 19 Id.
10 See Securities Exchange Act Release No. 80256
1998). In approving the OATS Rules, the 20 The Plan requires that the Plan Processor must
(March 15, 2017), 82 FR 14526 (March 21, 2017) Commission concluded that OATS satisfied the ensure that regulators have access to corrected and
(SR–BX–2017–007). conditions of the SEC’s order and was consistent linked order and Customer data by 8:00 a.m.
11 CAT NMS Plan, Appendix C, Section C.9. with the Exchange Act. See id. at 12566–67. Eastern Time on T+5. See CAT NMS Plan,
12 See id. 16 See id. [sic] Appendix C, Section A.2(a).
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![25874 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
consecutive days. BX believes that correction or 2% post-correction across same match rate for orders linked to
measuring each of the thresholds over all CAT Reporters. trade reports.
the course of 180 days will ensure that • Intra-Firm Linkages. The Plan In addition to these minimum error
the CAT consistently meets minimum requires that ‘‘the Plan Processor must rates and matching thresholds that
accuracy and reliability thresholds for be able to link all related order events generally must be met before OATS can
Industry Member reporting while also from all CAT Reporters involved in the be retired, BX believes that during the
ensuring that single-day measurements lifecycle of an order.’’ 25 At a minimum, minimum 180-day period during which
do not unduly affect the overall this requirement includes the creation the thresholds are calculated, BX’s use
measurements. of an order lifecycle between ‘‘[a]ll order of the data in the CAT must confirm that
BX is proposing to use error rates in events handled within an individual (i) usage over that time period has not
each the following categories, measured CAT Reporter, including orders routed revealed material issues that have not
separately for options and for equities, been corrected, (ii) the CAT includes all
to internal desks or departments with
to assess whether the threshold pre- and data necessary to allow BX to continue
different functions (e.g., an internal
post-correction error rates are being met: to meet its surveillance obligations, and
ATS).’’ 26 BX is proposing that aggregate
• Rejection Rates and Data intra-firm linkage rates across all
(iii) the Plan Processor is sufficiently
Validations. Data validations for the meeting all of its obligations under the
Industry Member Reporters must be at
CAT, while not expected to be designed CAT NMS Plan. BX believes this time
least 95% pre-correction and 98% post-
the same as OATS, must be functionally period to use the CAT Data is necessary
correction.
equivalent to OATS in accordance with to reveal any errors that may manifest
the CAT NMS Plan (i.e., the same types • Inter-Firm Linkages. The order themselves only after surveillance
of basic data validations must be linkage requirements in the Plan also patterns and other queries have been
performed by the Plan Processor to require that the Plan Processor be able run and to confirm that the Plan
comply with the CAT NMS Plan to create the lifecycle between orders Processor is meeting its obligations and
requirements). Appendix D of the Plan, routed between broker-dealers.27 BX is performing its functions adequately.
for example, requires that certain file proposing that at least a 95% pre-
correction and 98% post-correction Small Industry Member Data
validations 21 and syntax and context Availability
checks be performed on all submitted aggregate match rate be achieved for
orders routed between two Industry The second issue the Plan requires the
records.22 If a record does not pass these
Member Reporters.28 proposed rule change to address is
basic data validations, it must be
• Order Linkage Rates. In addition to ‘‘whether the availability of certain data
rejected and returned to the CAT
creating linkages within and between from Small Industry Members two years
Reporter to be corrected and
broker-dealers, the Plan also includes after the Effective Date would facilitate
resubmitted.23 The specific validations a more expeditious retirement of
can be determined only after the Plan requirements that the Plan Processor be
able to create lifecycles to link various duplicative systems.’’
Processor has finalized the Industry BX believes that there is no effective
Member Technical Specifications; pieces of related orders.29 For example,
way to retire OATS until all current
however, the Plan also requires the Plan the Plan requires linkages between
OATS reporters are reporting to the
Processor to provide daily statistics on customer orders and ‘‘representative’’
CAT. Although Technical Specifications
rejection rates after the data has been orders created in firm accounts for the
for Industry Members are not yet
processed, including the number of files purpose of facilitating a customer order,
available, BX believes it would be
rejected and accepted, the number of various legs of option/equity complex
inefficient, less reliable, and more costly
order events accepted and rejected, and orders, riskless principal orders, and
to attempt to marry the OATS and CAT
the number of each type of report orders worked through average price
databases for a temporary period to
rejected.24 BX is proposing that, over the accounts.30 BX is proposing that there
allow some BX members to report to
180-day period, aggregate rejection rates be at least a 95% pre-correction and CAT while others continue to report to
(measured separately for equities and 98% post-correction linkage rate for OATS. Consequently, BX has concluded
options) must be no more than 5% pre- multi-legged orders (e.g., related equity/ at this time that having data from those
options orders, VWAP orders, riskless Small Industry Members currently
21 See CAT NMS Plan, Appendix D, Section 7.2. principal transactions). reporting to OATS available two years
The Plan requires the Plan Processor to confirm that
file transmission and receipt are in the correct
• Exchange and TRF/ORF Match after the Effective Date would
formats, including validation of header and trailers Rates. The Plan requires that an order substantially facilitate a more
on the submitted report, confirmation of a valid lifecycle be created to link ‘‘[o]rders expeditious retirement of OATS. For
Exchange [sic]-Assigned Market Participant routed from broker-dealers to
Identifier, and verification of the number of records
this reason, BX supports an amendment
in the file. Id.
exchanges’’ and ‘‘[e]xecuted orders and to the Plan that would require current
22 See id. The Plan notes that syntax and context trade reports.’’ 31 BX is proposing at OATS Reporters that are ‘‘Small
checks would include format checks (i.e., that data least a 95% pre-correction and 98% Industry Members’’ to report two years
is entered in the specified format); data type checks post-correction aggregate match rate to after the Effective Date (instead of
(i.e., that the data type of each attribute conforms each equity exchange for orders routed
to the specifications); consistency checks (i.e., that three). BX intends to work with the
all attributes for a record of a specified type are from Industry Members to an exchange other Participants to submit a proposed
consistent); range/logic checks (i.e., that each and, for over-the-counter executions, the amendment to the Plan to require Small
attribute for every record has a value within
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Industry Members that are OATS
specified limits and the values provided are
associated with the event type they represent); data
25 CAT NMS Plan, Appendix D, Section 3. Reporters to report two years after the
26 Id.
validity checks (i.e., that each attribute for every Effective Date.
27 Id.
record has an acceptable value); completeness BX has identified approximately 300
28 This assumes linkage statistics will include
checks (i.e., that each mandatory attribute for every member firms that currently report to
record is not null); and timeliness checks (i.e., that both unlinked route reports and new orders where
the records were submitted within the submission no related route report could be found. OATS and meet the definition of ‘‘Small
timelines). Id. 29 See CAT NMS Plan, Appendix D, Section 3. Industry Member;’’ however, only ten of
23 See id. 30 See id. these firms submit information to OATS
24 See id. 31 Id. on their own behalf, and eight of the ten
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![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25875
firms report very few orders to OATS.32 Commission, there would be no need to these rules apply to information
The vast majority of these 300 firms use exempt members from OATS regarding transactions involving
third parties to fulfill their reporting requirements on a firm-by-firm basis. securities that will not be reportable to
obligations, and many of these third the CAT, such as fixed-income
Changes to EBS and Account
parties will begin reporting to CAT in Identification Rules securities; thus, these rules must remain
November 2018. Consequently, BX in effect with respect to those
believes that the burden on current The EBS rule is BX’s rule regarding transactions indefinitely or until those
OATS Reporters that are ‘‘Small the automated submission of specific transactions are captured in the CAT.
Industry Members’’ would not be trading data to BX upon request using The proposed rule change proposes to
significant if those firms are required to the Electronic Blue Sheet system. Rule add new Supplementary Material to
report to CAT beginning in November 8211 applies to EBS reporting for equity Rule 8211, Chapter VII, Section VII, and
2018 rather than November 2019. The securities, while Chapter IX, Section 4 Chapter IX, Section 4 to clarify how BX
burdens, however, are significantly applies EBS reporting to options. Rule will request data under these rules after
greater for those firms that are not 8211 and Chapter IX, Section 4 require members are reporting to the CAT.
reporting to OATS currently; therefore, members to submit certain trade Specifically, the proposed
BX does not believe it would be information as prescribed by BX Supplementary Material to these rules
necessary or appropriate to accelerate Regulation, including, for proprietary will note that BX Regulation will
CAT reporting for ‘‘Small Industry transactions, the clearing house number request information under these rules
Members’’ that are not currently or alpha symbol of the member only if the information is not available
reporting to OATS, and BX would not submitting the data, the identifying in the CAT because, for example, the
support an amendment to the Plan to symbol assigned to the security, and the transactions in question occurred before
accelerate CAT reporting for ‘‘Small date the transaction was executed. the firm was reporting information to
Chapter VII, Section VII imposes
Industry Members’’ that are not the CAT or involved securities that are
certain account identification
currently OATS Reporters. not reportable to the CAT. In essence,
requirements on Market Makers.
under the new Supplementary Material,
Individual Industry Member Specifically, Chapter VII, Section VII
BX Regulation will make requests under
Exemptions requires, among other things, that each
these rules if and only if the information
The final issue the Plan requires the Market Maker shall file with BX
is not otherwise available through the
proposed rule change to address is Regulation and keep current a list
CAT.
‘‘whether individual Industry Members identifying all accounts for stock,
options and related securities trading in The CAT NMS Plan states, however,
can be exempted from reporting to that the elimination of rules that are
duplicative systems once their CAT which the Market Maker may, directly
or indirectly, engage in trading activities duplicative of the requirements of the
reporting meets specified accuracy and CAT and the retirement of the related
reliability standards, including, but not or over which it exercises investment
discretion. The rule also prohibits a systems should be effective at such time
limited to, ways in which establishing as CAT Data meets minimum standards
cross-system regulatory functionality or Market Maker from engaging in stock,
options or related securities trading in of accuracy and reliability.34
integrating data from existing systems Accordingly, as discussed in more detail
and the CAT would facilitate such an account which has not been reported
pursuant to this rule. below, BX believes that the EBS data
Individual Industry Member may be replaced by CAT Data at a date
Once broker-dealer reporting to the
exemptions.’’ after all Industry Members are reporting
CAT has begun, the CAT will contain
As described above, BX believes that to the CAT when the proposed error rate
the data the Participants would
a single cut-over from OATS to CAT is thresholds have been met, and BX has
otherwise have requested via the EBS
highly preferable to a firm-by-firm determined that its usage of the CAT
system for purposes of NMS Securities
approach and is not proposing to Data has not revealed material issues
and OTC Equity Securities.
exempt members from the OATS that have not been corrected, confirmed
Consequently, BX will not need to use
requirements on a firm-by-firm basis. that the CAT includes all data necessary
the EBS system or request information
The primary benefit to a firm-by-firm to allow BX to continue to meet its
pursuant to these rules for NMS
exemptive approach would be to reduce surveillance obligations, and confirmed
Securities or OTC Equity Securities for
the amount of time an individual firm that the Plan Processor is sufficiently
time periods after CAT reporting has
is required to report to a legacy system meeting all of its obligations under the
begun if the appropriate accuracy and
(e.g., OATS) if it is also accurately and CAT NMS Plan.
reliability thresholds are achieved,
reliably reporting to the CAT. BX BX believes CAT Data should not be
including an acceptable accuracy rate
believes that the overall accuracy and used in place of EBS data until all
for customer and account information.
reliability thresholds for the CAT Participants and Industry Members are
However, these rules cannot be
described above would need to be met reporting data to CAT. In this way, BX
completely eliminated immediately
under any conditions before firms could will continue to have access to the
upon the CAT achieving the appropriate
stop reporting to OATS. Moreover, as necessary data to perform its regulatory
thresholds because BX Regulation staff
discussed above, BX supports amending duties.
may still need to request information
the Plan to accelerate the reporting The CAT NMS Plan requires that a
pursuant to these rules for trading
requirements for Small Industry
asabaliauskas on DSKBBXCHB2PROD with NOTICES
activity occurring before a member was rule filing to eliminate a duplicative
Members that are OATS Reporters to rule address whether ‘‘the availability of
reporting to the CAT.33 In addition,
report on the same timeframe as all certain data from Small Industry
other OATS Reporters. If such an 33 Firms are required to maintain the trade Members two years after the Effective
amendment were approved by the information for pre-CAT transactions in equities Date would facilitate a more expeditious
and options pursuant to applicable rules, such as retirement of duplicative systems.’’ 35
32 For example, in one recent month, eight of the books and records retention requirements, for the
ten firms submitted fewer than 100 reports during relevant time period, which is generally three or six
34 Id. [sic]
the month, with four firms submitting fewer than years depending upon the record. See 17 CFR
50. 240.17a–3(a), 240.17a–4. 35 Id.
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![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25877
contained at a minimum, including a would facilitate such Individual and reliability thresholds while also
unique order identification, the Industry Member exemptions.’’ 42 BX ensuring that single-day measurements
underlying security, opening/closing believes that a single cut-over from do not unduly affect the overall
designation, the identity of the Clearing COATS to CAT is highly preferable to measurements. BX proposes to measure
Participant, and the Options Participant a firm-by-firm approach and is not the appropriate error rates in the
identification. proposing to exempt members from the aggregate, rather than firm-by-firm. In
The CAT NMS Plan states that the COATS requirements on a firm-by-firm addition, BX proposes to measure the
elimination of rules that are duplicative basis. BX and the other options error rates for options only, not equity
of the requirements of the CAT and the exchanges believe that providing such securities, as only options are subject to
retirement of the related systems should individual exemptions to Industry COATS. The 2% and 5% error rates are
be effective at such time as CAT Data Members would be inefficient, more in line with the proposed retirement
meets minimum standards of accuracy costly, and less reliable than the single threshold for OATS.
and reliability.40 As discussed in more cut-over. Providing individual In addition to these minimum error
detail below, BX and the other options exemptions would require the options rates before COATS can be retired, BX
exchanges believe that COATS may be exchanges to create, for a brief believes that during the minimum 180-
retired at a date after all Industry temporary period, a cross-system day period during which the thresholds
Members are reporting to the CAT when regulatory function and to integrate data are calculated, BX’s use of the data in
the proposed error rate thresholds have from COATS and the CAT to avoid the CAT must confirm that (i) usage
been met, and BX has determined that creating any regulatory gaps as a result over that time period has not revealed
its usage of the CAT Data has not of such exemptions. Such a function material issues that have not been
revealed material issues that have not would be costly to create and would corrected, (ii) the CAT includes all data
been corrected, confirmed that the CAT give rise to a greater likelihood of data necessary to allow BX to continue to
includes all data necessary to allow BX errors or other issues. Given the limited meet its surveillance obligations, and
to continue to meet its surveillance time in which such exemptions would (iii) the Plan Processor is sufficiently
obligations, and confirmed that the Plan be necessary, BX and the other options meeting all of its obligations under the
Processor is sufficiently meeting all of exchanges do not believe that such CAT NMS Plan. BX believes this time
its obligations under the CAT NMS exemptions would be an appropriate period to use the CAT Data is necessary
Plan. use of limited resources. to reveal any errors that may manifest
BX believes COATS should not be The CAT NMS Plan also requires that themselves only after surveillance
retired until all Participants and a rule filing to eliminate a duplicative patterns and other queries have been
Industry Members that report data to rule to provide ‘‘specific accuracy and run and to confirm that the Plan
COATS are reporting comparable data to reliability standards that will determine Processor is meeting its obligations and
the CAT. In this way, BX will continue when duplicative systems will be performing its functions adequately.
to have access to the necessary data to retired, including, but not limited to, If the Commission approves the
perform its regulatory duties. whether the attainment of a certain proposed rule change, BX will
The CAT NMS Plan requires that a Error Rate should determine when a announce the implementation date of
rule filing to eliminate a duplicative system duplicative of the CAT can be the proposed rule change in a
rule address whether ‘‘the availability of retired.’’ 43 BX believes that it is critical Regulatory Notice that will be published
certain data from Small Industry that the CAT Data be sufficiently once BX concludes the thresholds for
Members two years after the Effective accurate and reliable for the Exchange to accuracy and reliability described above
Date would facilitate a more expeditious perform the regulatory functions that it have been met and that the Plan
retirement of duplicative systems.’’ 41 now performs via COATS. Accordingly, Processor is sufficiently meeting all of
The Exchange believes COATS should BX believes that the CAT Data should its obligations under the CAT NMS
not be retired until all Participants and meet specific quantitative error rates, as Plan.
Industry Members that report data to well as certain qualitative requirements.
COATS are reporting comparable data to BX and the other options exchanges 2. Statutory Basis
the CAT. While the early submission of believe that, before COATS may be The Exchange believes that its
options data to the CAT by Small retired, the CAT would need to achieve proposal is consistent with Section 6(b)
Industry Members could expedite the a sustained error rate for a period of at of the Act,45 in general, and furthers the
retirement of COATS, the Exchange least 180 days of 5% or lower measured objectives of Section 6(b)(5) of the Act,46
believes that it premature to consider on a pre-correction or as-submitted in particular, in that it is designed to
such a change and that additional basis, and 2% or lower on a post- promote just and equitable principles of
analysis would be necessary to correction basis (measured at T+5).44 BX trade, to remove impediments to and
determine whether such early reporting proposes to measure the 5% pre- perfect the mechanism of a free and
by Small Industry Members would be correction and 2% post-correction open market and a national market
feasible. thresholds by averaging the error rate system, and, in general to protect
The CAT NMS Plan requires that this across the period, not require a 5% pre- investors and the public interest.
rule filing address ‘‘whether individual correction and 2% post-correction BX believes that the proposed rule
Industry Members can be exempted maximum each day for 180 consecutive change fulfills the obligation in the CAT
from reporting to duplicative systems days. BX believes that measuring each NMS Plan for BX to submit a proposed
asabaliauskas on DSKBBXCHB2PROD with NOTICES
once their CAT reporting meets of the thresholds over the course of 180 rule change to eliminate or modify
specified accuracy and reliability days will ensure that the CAT duplicative rules. In approving the Plan,
standards, including, but not limited to, consistently meets minimum accuracy the SEC noted that the Plan ‘‘is
ways in which establishing cross-system necessary and appropriate in the public
42 Id.
regulatory functionality or integrating 43 Id.
interest, for the protection of investors
data from existing systems and the CAT 44 The Plan requires that the Plan Processor must
and the maintenance of fair and orderly
ensure that regulators have access to corrected and
40 Id. [sic] 45 15 U.S.C. 78f(b).
linked order and Customer data by 8:00 a.m.
41 Id. Eastern Time on T+5. See CAT NMS Plan, at C–15. 46 15 U.S.C. 78f(b)(5).
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![25878 Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices
markets, to remove impediments to, and C. Self-Regulatory Organization’s CAT Reporters who obtain satisfactory
perfect the mechanism of a national Statement on Comments on the data reporting quality; however, BX
market system, or is otherwise in Proposed Rule Change Received From supports amendments to the CAT NMS
furtherance of the purposes of the Members, Participants, or Others Plan that would accelerate reporting for
Act.’’ 47 As this proposal implements the Although written comments on the Small Industry Members that are
Plan, BX believes that this proposal proposed rule change were not solicited, currently reporting to OATS to facilitate
furthers the objectives of the Plan, as two commenters, the Financial the retirement of that system.
identified by the SEC, and is therefore Information Forum (‘‘FIF’’) and the III. Date of Effectiveness of the
consistent with the Exchange Act. Securities Industry and Financial Proposed Rule Change and Timing for
Moreover, the purpose of the Markets Association (‘‘SIFMA’’), Commission Action
proposed rule change is to eliminate submitted letters to the Participants
Within 45 days of the date of
regarding the retirement of systems
rules that require the submission of publication of this notice in the Federal
related to the CAT.49 In its comment
duplicative data to the exchange. The letter, with regard to the retirement of Register or within such longer period (i)
elimination of such duplicative duplicative systems more generally, FIF as the Commission may designate up to
requirements will reduce unnecessary recommends that the Participants 90 days of such date if it finds such
costs and other compliance burdens for continue the effort to incorporate longer period to be appropriate and
BX and its members, and therefore, will current reporting obligations into the publishes its reasons for so finding or
enhance the efficiency of the securities CAT in order to replace existing (ii) as to which the Exchange consents,
markets. Furthermore, BX believes that reportable systems with the CAT. In the Commission shall: (a) By order
the approach set forth in the proposed addition, FIF further recommends that, approve or disapprove such proposed
rule change strikes the appropriate once a CAT Reporter achieves rule change, or (b) institute proceedings
balance between ensuring that BX is satisfactory reporting data quality, the to determine whether the proposed rule
able to continue to fulfill its statutory CAT Reporter should be exempt from change should be disapproved.
obligation to protect investors and the reporting to any duplicative reporting IV. Solicitation of Comments
public interest by ensuring its systems. FIF believes that these
Interested persons are invited to
surveillance of market activity remains recommendations ‘‘would serve both an
submit written data, views, and
accurate and effective while also underlying regulatory objective of more
arguments concerning the foregoing,
establishing a reasonable timeframe for immediate and accurate access to data
including whether the proposed rule
elimination or modification of its rules as well as an industry objective of
change is consistent with the Act.
that will be rendered duplicative after reduced costs and burdens of regulatory
Comments may be submitted by any of
implementation of the CAT. oversight.’’ 50 In its comments about
the following methods:
EBS specifically, FIF states that the
B. Self-Regulatory Organization’s retirement of the EBS requirements Electronic Comments
Statement on Burden on Competition should be a high priority, and that the • Use the Commission’s Internet
CAT should be designed to include the comment form (http://www.sec.gov/
Section 6(b)(8) of the Exchange Act 48 requisite data elements to permit the rules/sro.shtml); or
requires that the Exchange’s rules not rapid retirement of the EBS system.51 • Send an email to rule-comments@
impose any burden on competition that Similarly, SIFMA states that ‘‘the sec.gov. Please include File Number SR–
is not necessary or appropriate. BX does establishment of the CAT must be BX–2017–027 on the subject line.
not believe that the proposed rule accompanied by the prompt elimination
change will result in any burden on of duplicative systems,’’ and Paper Comments
competition that is not necessary or ‘‘recommend[ed] that the initial • Send paper comments in triplicate
appropriate in furtherance of the technical specifications be designed to to Brent J. Fields, Secretary, Securities
purposes of the Exchange Act. BX notes facilitate the immediate retirement of and Exchange Commission, 100 F Street
that the proposed rule change . . . duplicative reporting systems.’’ 52 NE., Washington, DC 20549–1090.
implements the requirements of the As discussed above, BX agrees with All submissions should refer to File
CAT NMS Plan approved by the the commenters that the OATS, EBS and Number SR–BX–2017–027. This file
Commission regarding the elimination COATS reporting requirements should number should be included on the
of rules and systems that are duplicative be replaced by the CAT reporting subject line if email is used. To help the
the CAT, and is designed to assist BX in requirements as soon as accurate and Commission process and review your
reliable CAT Data is available. To this comments more efficiently, please use
meeting its regulatory obligations
end, BX anticipates that the CAT will be only one method. The Commission will
pursuant to the Plan. Similarly, all
designed to collect the data necessary to post all comments on the Commission’s
exchanges and FINRA are proposing the permit the retirement of OATS, EBS and
elimination of their rules related to Internet Web site (http://www.sec.gov/
COATS. As discussed above, BX rules/sro.shtml). Copies of the
OATS, EBS and COATS to implement disagrees with the recommendation to
the requirements of the CAT NMS Plan. submission, all subsequent
provide individual exemptions to those amendments, all written statements
Therefore, this is not a competitive rule
with respect to the proposed rule
filing and, therefore, it does not raise 49 Letter from William H. Hebert, FIF, to
asabaliauskas on DSKBBXCHB2PROD with NOTICES
change that are filed with the
competition issues between and among Participants re: Milestone for Participants’ rule
Commission, and all written
the self-regulatory organizations and/or change filings to eliminate/modify duplicative
rules, dated April 12, 2017 (‘‘FIF Letter’’); Letter communications relating to the
their members. from Kenneth E. Bentsen, Jr., SIFMA, to proposed rule change between the
Participants re: Selection of Thesys as CAT Commission and any person, other than
Processor, dated April 4, 2017 (‘‘SIFMA Letter’’), at
2. those that may be withheld from the
50 FIF Letter at 2. public in accordance with the
47 Approval Order at 84697. 51 Id. provisions of 5 U.S.C. 552, will be
48 15 U.S.C. 78f(b)(8). 52 SIFMA Letter at 2. available for Web site viewing and
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![Federal Register / Vol. 82, No. 106 / Monday, June 5, 2017 / Notices 25879
printing in the Commission’s Public a new NYSE Arca Rule 10.18 and a new the same as those adopted by BATS and
Reference Room, 100 F Street NE., NYSE Arca Equities Rule 10.16 NASDAQ, with the following
Washington, DC 20549 on official governing supplemental expedited exceptions discussed below: (1)
business days between the hours of suspension proceedings; and (3) Conforming references to reflect the
10:00 a.m. and 3:00 p.m. Copies of such amendments to NYSE Arca Rule 10.17 Exchange’s equities and options
filing also will be available for and NYSE Arca Equities 10.15 to permit membership and disciplinary process;
inspection and copying at the principal release to the public of suspension and (2) the call for review process in
office of the Exchange. All comments notices and orders issued pursuant to proposed Rule NYSE Arca Rule 10.18(f)
received will be posted without change; proposed NYSE Arca Rule 10.18 and and NYSE Arca Equities Rule 10.16(f).
the Commission does not edit personal NYSE Arca Equities Rule 10.16, The Exchange believes that having
identifying information from respectively. The proposed rule change consistent rules for issuing a cease and
submissions. You should submit only is available on the Exchange’s Web site desist order on an expedited basis as
information that you wish to make at www.nyse.com, at the principal office other self-regulatory organizations
available publicly. All submissions of the Exchange, and at the (‘‘SROs’’) to halt certain disruptive and
should refer to File Number SR–BX– Commission’s Public Reference Room. manipulative quoting and trading
2017–027, and should be submitted on activity would enhance the Exchange’s
or before June 26, 2017. II. Self-Regulatory Organization’s
ability to protect investors and market
Statement of the Purpose of, and
For the Commission, by the Division of integrity.
Statutory Basis for, the Proposed Rule
Trading and Markets, pursuant to delegated
authority.53 Change Background
Eduardo A. Aleman, In its filing with the Commission, the As a national securities exchange
Assistant Secretary. self-regulatory organization included registered pursuant to Section 6 of the
[FR Doc. 2017–11508 Filed 6–2–17; 8:45 am] statements concerning the purpose of, Act, the Exchange is required to be
BILLING CODE 8011–01–P
and basis for, the proposed rule change organized and to have the capacity to
and discussed any comments it received enforce compliance by its member
on the proposed rule change. The text organizations and persons associated
SECURITIES AND EXCHANGE of those statements may be examined at with its member organizations, with the
COMMISSION the places specified in Item IV below. Act, the rules and regulations
The Exchange has prepared summaries, thereunder, and the Exchange’s Rules.4
[Release No. 34–80806; File No. SR– set forth in sections A, B, and C below,
NYSEArca–2017–53]
Further, the Exchange’s Rules are
of the most significant parts of such required to be ‘‘designed to prevent
Self-Regulatory Organizations; NYSE statements. fraudulent and manipulative acts and
Arca, Inc.; Notice of Filing and A. Self-Regulatory Organization’s practices, to promote just and equitable
Immediate Effectiveness of Proposed Statement of the Purpose of, and principles of trade . . . and, in general,
Rule Change Adopting New NYSE Arca Statutory Basis for, the Proposed Rule to protect investors and the public
Rule 11.21 and NYSE Arca Equities Change interest.’’ 5
Rule 5220, NYSE Arca Rule 10.18 and In fulfilling these requirements, the
NYSE Arca Equities Rule 10.16, and 1. Purpose Exchange has developed a
Amending NYSE Arca Rule 10.17 and The Exchange proposes (1) a new comprehensive regulatory program that
NYSE Arca Equities 10.15 NYSE Arca Rule 11.21 and NYSE Arca
Securities Exchange Act Release No. 77606 (April
Equities Rule 5220 that define and
May 30, 2017. 13, 2016), 81 FR 23026 (April 19, 2016) (SR–
prohibit two types of disruptive quoting BatsEDGA–2016–03) (adopting identical rules for
Pursuant to Section 19(b)(1) of the
and trading activity on the Exchange; (2) Bats EDGA Exchange, Inc.); Securities Exchange Act
Securities Exchange Act of 1934 Release No. 77602 (April 13, 2016), 81 FR 23046
a new NYSE Arca Rule 10.18 and NYSE
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 (April 19, 2016) (SR–BatsBYX–2016–03) (adopting
Arca Equities Rule 10.16 governing
notice is hereby given that on May 17, identical rules for Bats BYX Exchange, Inc.);
supplemental expedited suspension Securities Exchange Act Release No. 77589 (April
2017, NYSE Arca, Inc. (the ‘‘Exchange’’
proceedings; and (3) amendments to 12, 2016), 81 FR 22691 (April 18, 2016) (SR–
or ‘‘NYSE Arca’’) filed with the BatsEDGX–2016–04) (adopting identical rules for
NYSE Arca Rule 10.17 and NYSE Arca
Securities and Exchange Commission Bats EDGX Exchange, Inc.). On May 19, 2016,
Equities 10.15 to permit release to the
(‘‘SEC’’ or ‘‘Commission’’) the proposed NASDAQ filed a substantially similar proposed rule
public of suspension notices and orders change with the SEC for immediate effectiveness.
rule change as described in Items I, II,
issued pursuant to proposed NYSE Arca See Securities Exchange Act Release No. 77913
and III below, which Items have been (May 25, 2016), 81 FR 35081 (June 1, 2016) (SR–
Rule 10.18 and NYSE Arca Equities
prepared by the Exchange. The NASDAQ–2016–074). NASDAQ has also extended
Rule 10.16, respectively.
Commission is publishing this notice to The proposed rule change is based on
the rule to other exchanges. See, e.g., Securities
solicit comments on the proposed rule Exchange Act Release No. 78208 (June 30, 2016), 81
rules recently adopted by Bats BZX FR 44366 (July 7, 2016) (SR–NASDAQ–2016–092).
change from interested persons. Exchange, Inc., formerly known as Similarly, the Financial Industry Regulatory
I. Self-Regulatory Organization’s BATS Exchange, Inc. (‘‘BATS’’), and Authority, Inc. (‘‘FINRA’’) also recently prohibited
disruptive quoting and trading and amended its
Statement of the Terms of Substance of The Nasdaq Stock Market LLC procedural rules. See Securities Exchange Act
the Proposed Rule Change (‘‘NASDAQ’’).3 The proposed rules are Release No. 76361 (November 21, 2016), 81 FR
85650 (November 28, 2016) (SR–FINRA–2016–043).
asabaliauskas on DSKBBXCHB2PROD with NOTICES
The Exchange propose (1) a new 3 On February 18, 2016, the SEC approved a See also Securities Exchange Act Release No. 79182
NYSE Arca Rule 11.21 and a new NYSE proposed rule change filed by BATS to adopt new (October 28, 2016), 81 FR 76639 (November 3, 2016)
Arca Equities Rule 5220 that define and BATS Rule 12.15, which prohibits certain types of (SR–MIAX–2016–40) (adopting identical rules for
prohibit two types of disruptive quoting disruptive quoting and trading activities, and BATS Miami International Securities Exchange LLC);
Rule 8.17, which permits BATS to conduct a new Securities Exchange Act Release No. 79646
and trading activity on the Exchange; (2) (December 21, 2016), 81 FR 95713 (December 28,
expedited suspension proceeding when it believes
BATS Rule 12.15 has been violated. See Securities 2016) (SR–BOX–2016–59) (adopting identical rules
53 17 CFR 200.30–3(a)(12). for BOX Options Exchange LLC).
Exchange Act Release No. 77171 (February 18,
1 15 U.S.C. 78s(b)(1). 4 15 U.S.C. 78f(b)(1).
2016), 81 FR 9017 (February 23, 2016) (SR–BATS–
2 17 CFR 240.19b–4. 2015–101) (‘‘BATS Approval Order’’); see also 5 15 U.S.C. 78f(b)(1).
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Document Created: 2018-11-14 10:01:30
Document Modified: 2018-11-14 10:01:30
| 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 25872 |
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