82 FR 51449 - Order Temporarily Exempting Certain Broker-Dealers From Specified Provisions of the Recordkeeping, Reporting, and Monitoring Responsibilities of Rule 13h-1 Under the Securities Exchange Act of 1934
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 213 (November 6, 2017)
Federal Register Volume 82, Issue 213 (November 6, 2017)
| Page Range | 51449-51453 | |
| FR Document | 2017-24056 |
[Federal Register Volume 82, Number 213 (Monday, November 6, 2017)] [Notices] [Pages 51449-51453] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-24056] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81993] Order Temporarily Exempting Certain Broker-Dealers From Specified Provisions of the Recordkeeping, Reporting, and Monitoring Responsibilities of Rule 13h-1 Under the Securities Exchange Act of 1934 October 31, 2017. I. Introduction On July 27, 2011, the Securities and Exchange Commission (``Commission'') adopted Rule 13h-1 (``Rule 13h-1'' or the ``Rule'') under the Securities Exchange Act of 1934 (``Exchange Act'') \1\ to assist the Commission in both identifying and obtaining information on market participants that conduct a substantial amount of trading activity, as measured by volume or market value, in national market system (``NMS'') securities (such persons are referred to as ``large traders'').\2\ The Rule requires certain large traders to identify themselves to the Commission on Form 13H. The Rule also requires, among other things, certain broker-dealers to maintain records of large trader transaction information and to report such information to the Commission upon request. Since December 1, 2011, persons whose trading activity reached or exceeded the identifying activity level specified in the Rule have been required to identify themselves to the Commission by filing Form 13H through the Commission's EDGAR system. The Commission has implemented the broker-dealer recordkeeping, reporting, and monitoring requirements of the Rule in phases through a series of exemptive orders establishing certain delayed compliance dates.\3\ Currently, certain broker-dealers are required to keep records of and report to the Commission upon request transaction data for certain of their customers that are either a large trader or an Unidentified Large Trader.\4\ Most recently, the Commission provided a temporary exemption from specified provisions of the Rule for certain broker-dealers (``Phase Three'')--provisions which otherwise would have fully implemented the entirety of the recordkeeping and reporting responsibilities of Rule 13h-1 by, in particular, requiring the capture and reporting of execution time on trades of all large traders--until November 1, 2017.\5\ --------------------------------------------------------------------------- \1\ 17 CFR 240.13h-1. \2\ See Securities Exchange Act Release No. 64976 (July 27, 2011), 76 FR 46960 (August 3, 2011) (``Large Trader Adopting Release''). The effective date of Rule 13h-1 was October 3, 2011. See also Exchange Act Rule 600(b)(46) of Regulation NMS (defining ``NMS security''). \3\ See Securities Exchange Act Release Nos. 66839 (April 20, 2012), 77 FR 25007 (April 26, 2012) (``Phase One Order'') (establishing Phase One); 69281 (April 3, 2013), 78 FR 20960 (April 8, 2013) (``Phase Two Extension Order'') (extending the compliance date for Phase Two to November 1, 2013); 70150 (August 8, 2013), 78 FR 49556 (August 14, 2013) (``Phases Two and Three Order'') (modifying Phase Two and providing for Phase Three); and 76322 (October 30, 2015), 80 FR 68590 (November 5, 2015) (``Phase Three Extension Order'') (extension of compliance date for Phase Three until November 1, 2017). \4\ Rule 13h-1(a)(9) defines ``Unidentified Large Trader'' as ``each person who has not complied with the [large trader identification requirements of the Rule] that a registered broker- dealer knows or has reason to know is a large trader.'' The Rule provides that, for purposes of determining whether a registered broker-dealer has reason to know that a person is a large trader, ``a registered broker-dealer need take into account only transactions in NMS securities effected by or through such broker- dealer.'' Rule 13h-1(a)(9). \5\ See Phase Three Extension Order, supra note 3 (extending the Phase Three compliance date until November 1, 2017). See also Phases Two and Three Order, supra note 3, 78 FR at 49560. --------------------------------------------------------------------------- The Financial Information Forum (``FIF'') and Securities Industry and Financial Markets Association (``SIFMA,'' and, together with FIF, the ``Industry Organizations'') have asked the Commission to eliminate Phase Three of the Rule, which would impose the remaining requirements on all broker-dealers and all large trader customers.\6\ Alternatively, the Industry [[Page 51450]] Organizations have asked the Commission to extend the compliance date for Phase Three for an additional period of three or five years.\7\ --------------------------------------------------------------------------- \6\ See Undated letter from William H. Herbert, Managing Director, FIF, to Heather Seidel, Acting Director, Division of Trading and Markets (``Division''), Commission (``FIF I''), available at https://www.sec.gov/comments/s7-10-10/s71010-1558852-131535.pdf; Letter from Thomas F. Price, Managing Director, Operations, Technology, and BCP, SIFMA, to Heather Seidel, Acting Director, Division, Commission, dated March 3, 2017 (``SIFMA Letter''), available at https://www.sec.gov/comments/s7-10-10/s71010-1610783-135970.pdf; and Letter from William H. Herbert, Managing Director, FIF, to Heather Seidel, Acting Director, Division, Commission, dated September 14, 2017 (``FIF II''), available at https://www.sec.gov/comments/s7-10-10/s71010-2445134-161065.pdf. and In the alternative, FIF ``recommends postponing the compliance date for five years'' and SIFMA requests an extension ``to a date no sooner than the earlier of the date of the full implementation of the CAT or November 1, 2022.'' See FIF I at 2; and SIFMA Letter at 3. In a subsequent letter, FIF requested that the Commission eliminate Phase Three or, alternatively, extend the compliance date for Phase Three to November 1, 2020 to allow for the implementation of CAT Phase 1. See FIF II at 3. \7\ See FIF II at 3 (asking the Commission, if it chooses not to eliminate Phase Three, to extend the compliance date for Phase Three until November 1, 2020 ``to allow full implementation of CAT Phase 1 for both Large and Small Industry Members''); FIF I at 2 (stating that ``If it is not possible to eliminate Phase 3 of the Rule, FIF recommends postponing the compliance date for five years''); and SIFMA Letter at 3 (requesting an extension ``to a date no sooner than the earlier of the date of the full implementation of the CAT or November 1, 2022''). --------------------------------------------------------------------------- For the reasons discussed below, the Commission believes that it is consistent with the purposes of the Exchange Act to grant a limited extension of the compliance date for Phase Three by temporarily exempting broker-dealers until November 15, 2018 from the recordkeeping and reporting obligations of the Rule that would otherwise have been implemented in Phase Three on November 1, 2017. As discussed below, the Commission approved the Consolidated Audit Trail (``CAT NMS Plan'') \8\ submitted by FINRA and the national securities exchanges (collectively, the ``SROs'') pursuant to Rule 613 under the Exchange Act.\9\ In adopting Rule 613 and later when it approved the CAT NMS Plan, the Commission contemplated that the CAT would be duplicative of the reporting requirements of Rule 13h-1 under the Exchange Act.\10\ To focus broker-dealer attention and resources on implementing the CAT in the near term, the Commission hereby is exempting temporarily, until November 15, 2018, broker-dealers from the remaining recordkeeping and reporting obligations of Rule 13h-1, beyond those previously implemented in Phases One and Two.\11\ During that time, the Commission will consider progress in implementing the CAT as it determines implementation of Phase Three. --------------------------------------------------------------------------- \8\ See Securities Exchange Act Release No. 79318 (November 15, 2016), 81 FR 84696 (November 23, 2016) (File No. 4-698) (``CAT NMS Plan Order''). \9\ 17 CFR 242.613 (``Rule 613''). See also Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722 (August 1, 2012) (``Rule 613 Adopting Release''). Rule 613 requires the SROs to submit a national market system (``NMS'') plan to create, implement, and maintain a consolidated audit trail (``CAT'') that would capture customer and order event information for orders in NMS securities, across all markets, from the time of order inception though routing, cancellation, modification, or execution in a single, consolidated data source. See Rule 613(a)(1), (c)(1), and (c)(7). Specifically, Rule 613 requires the SROs to ``jointly file . . . a national market system plan to govern the creation, implementation, and maintenance of a consolidated audit trail and Central Repository.'' See Rule 613(a)(1). As described more fully in the CAT NMS Plan Order, supra note 8, to satisfy the requirements of Rule 613, the SROs in February 2015 filed an NMS plan governing the CAT (the ``CAT NMS Plan'') that replaced and amended an earlier version of the plan. The Commission approved the CAT NMS Plan, as amended, in November 2016. See CAT NMS Plan Order, supra note 8. The purpose of the CAT NMS Plan, and the creation, implementation, and maintenance of a comprehensive audit trail for the U.S. securities markets, is to ``substantially enhance the ability of the SROs and the Commission to oversee today's securities markets and fulfill their responsibilities under the federal securities laws.'' See Rule 613 Adopting Release, supra note 9, 77 FR at 45726. As contemplated by Rule 613, the CAT ``will allow for the prompt and accurate recording of material information about all orders in NMS securities, including the identity of customers, as these orders are generated and then routed throughout the U.S. markets until execution, cancellation, or modification. This information will be consolidated and made readily available to regulators in a uniform electronic format.'' See id. \10\ See Rule 613 Adopting Release, supra note 9, 77 FR at 45734; and CAT NMS Plan Order, supra note 8, 81 FR at 84777. \11\ See infra notes 24-27 and accompanying text (describing Phases One and Two). --------------------------------------------------------------------------- II. Background A. Large Trader Status Rule 13h-1 defines a large trader as a person who ``directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any National Market System (NMS) security for or on behalf of such accounts, by or through one or more registered broker-dealers, in an aggregate amount equal to or greater than the identifying activity level'' (emphasis added), or voluntarily registers as such.\12\ The term ``identifying activity level'' is defined in the Rule to mean aggregate transactions in NMS securities that are equal to or greater than (1) during a calendar day, either 2 million shares or shares with a fair market value of $20 million; or (2) during a calendar month, either 20 million shares or shares with a fair market value of $200 million.\13\ --------------------------------------------------------------------------- \12\ See Rule 13h-1(a)(1). \13\ See Rule 13h-1(a)(7). See also Phase Three Extension Order, supra note 3 (establishing an alternative ``premium paid'' methodology for calculating equity options value). --------------------------------------------------------------------------- B. The Requirements of Rule 13h-1 1. Large Trader Self-Identification The Rule requires large traders to self-identify to the Commission on Form 13H and to periodically update their Form 13H submission,\14\ obtain a unique large trader identification number (``LTID'') from the Commission,\15\ and provide this number to their broker-dealers and identify each account to which the LTID applies.\16\ These large trader responsibilities are referred to collectively as the ``Self- Identification Requirements.'' --------------------------------------------------------------------------- \14\ See Rule 13h-1(b)(1)(i)-(iii). Form 13H and all updates to it are filed electronically through the Commission's EDGAR system. \15\ When a large trader files its initial Form 13H filing through EDGAR, the system sends an automatically generated confirmation email acknowledging acceptance of the filing. That email also contains the unique 8-digit LTID number assigned to the large trader. \16\ See Rule 13h-1(b)(2). See also Large Trader Adopting Release, supra note 2, 76 FR at 46971 (``the requirements that a large trader provide its LTID to all registered broker-dealers who effect transactions on its behalf, and identify each account to which it applies, are ongoing responsibilities that must be discharged promptly''). --------------------------------------------------------------------------- 2. Broker-Dealers' Recordkeeping and Reporting Responsibilities Regarding Unidentified Large Traders and the Customer Monitoring Safe Harbor Under Rules 13h-1(d) and (e), registered broker-dealers are responsible for, among other things, maintaining records of certain transaction information and information relating to Unidentified Large Traders and then reporting such information to the Commission upon request. Specifically, Rule 13h-1 requires that every registered broker-dealer maintain records of information specified in paragraphs (d)(2) and (d)(3) of the Rule (``Transaction Data''), including, among other things, the applicable LTID(s) and execution time of each trade, for all transactions effected directly or indirectly by or through: (1) An account such broker-dealer carries for a large trader or an Unidentified Large Trader; or (2) if the broker-dealer is a large trader, any proprietary or other account over which such broker-dealer exercises investment discretion. Additionally, where a non-broker- dealer carries an account for a large trader or an Unidentified Large Trader under the Rule, the broker-dealer effecting transactions directly or indirectly for such large trader or Unidentified Large Trader must maintain records of all Transaction Data.\17\ These recordkeeping obligations are referred to [[Page 51451]] collectively as the ``Recordkeeping Responsibilities.'' --------------------------------------------------------------------------- \17\ See Rule 13h-1(d)(1)(iii). --------------------------------------------------------------------------- The Rule also requires that, upon Commission request, every registered broker-dealer that is itself a large trader or carries an account for a large trader or an Unidentified Large Trader must electronically report Transaction Data to the Commission through the Electronic Blue Sheets (``EBS'') system for all transactions effected directly or indirectly by or through accounts carried by such broker- dealer for large traders or Unidentified Large Traders equal to or greater than the reporting activity level.\18\ Additionally, where a non-broker-dealer carries an account for a large trader or an Unidentified Large Trader, the broker-dealer effecting such transactions directly or indirectly for the large trader or Unidentified Large Trader must electronically report Transaction Data to the Commission through the EBS system for such transactions equal to or greater than the reporting activity level.\19\ The Rule requires that reporting broker-dealers submit the requested Transaction Data no later than the day and time specified in the Commission's request.\20\ These reporting obligations are referred to collectively as the ``Reporting Responsibilities.'' --------------------------------------------------------------------------- \18\ See Rule 13h-1(e). \19\ See id. \20\ See id. --------------------------------------------------------------------------- Rule 13h-1(f) provides a safe harbor that is designed to reduce broker-dealers' recordkeeping and reporting burdens with respect to Unidentified Large Traders by, among other things, providing relief for when a broker-dealer shall be deemed to know or have reason to know that a person is a large trader and thus subject to reporting obligations related to Unidentified Large Traders under Rule 3h-1. Under the safe harbor, a registered broker-dealer is deemed not to know or have reason to know that a person is a large trader if the broker- dealer does not have actual knowledge that a person is a large trader and it establishes policies and procedures reasonably designed to identify customers whose transactions effected through an account or group of accounts carried by such broker-dealer or through which such broker-dealer executes transactions, as applicable, equal or exceed the identifying activity level and, if so, to treat such persons as Unidentified Large Traders and notify them of their potential reporting obligations under this Rule.\21\ --------------------------------------------------------------------------- \21\ See Rule 13h-1(f). --------------------------------------------------------------------------- C. Phased Implementation of Rule 13h-1 When the Commission adopted the Rule, it characterized the large trader reporting requirements as ``relatively modest steps'' to ``address the Commission's near-term need for access to more information about large traders and their trading activities. . . .'' \22\ After the Commission adopted the Rule, industry commenters began to identify specific implementation challenges and offered more detailed estimates of the cost of compliance for broker-dealers with the Recordkeeping and Reporting Responsibilities.\23\ Such concerns led the Commission to implement the Recordkeeping and Reporting Responsibilities in phases.\24\ --------------------------------------------------------------------------- \22\ See Large Trader Adopting Release, supra note 2, 76 FR at 46963. \23\ See, e.g., Phase Three Extension Order, supra note 3, 80 FR at 68594. \24\ See id. See also supra note 3 (citing to the applicable releases). --------------------------------------------------------------------------- In Phase One, which began on November 30, 2012, the Commission temporarily exempted from the Recordkeeping and Reporting Responsibilities all broker-dealers, except clearing brokers for large traders (including the large trader itself if it is a self-clearing broker-dealer), with respect to large trader transactions that were either (1) proprietary trades by a U.S. registered broker-dealer, or (2) effected through a ``sponsored access'' arrangement.\25\ In Phase Two, which began on November 1, 2013, the Commission further implemented the Rule by subjecting transactions effected pursuant to ``direct market access'' arrangements to the Recordkeeping and Reporting Responsibilities.\26\ Specifically, Phase Two temporarily exempted broker-dealers, until November 1, 2015, from the Recordkeeping and Reporting Responsibilities, except for: (1) The clearing broker- dealer for a large trader, with respect to (a) proprietary transactions by the large trader broker-dealer; (b) transactions effected pursuant to a ``sponsored access'' arrangement; and (c) transactions effected pursuant to a ``direct market access'' arrangement; and (2) a broker- dealer that carries an account for a large trader, with respect to transactions other than those set forth above, and for Transaction Data other than the execution time.\27\ In other words, the Recordkeeping and Reporting Responsibilities under Phase Two require capture and reporting of LTID numbers for all large traders, but require capture and reporting of execution time only for the three specific categories of large trader activity outlined above. --------------------------------------------------------------------------- \25\ See Phase One Order, supra note 3, 77 FR at 25008-9. A ``sponsored access'' arrangement is an arrangement where a broker- dealer permits a customer to enter orders into a trading center without using the broker-dealer's trading system (i.e., using the customer's own technology or that of a third party provider). \26\ See Phases Two and Three Order, supra note 3, 78 FR at 49559-60. See also Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792, 69793 (November 15, 2010) (File No. S7-03-10) (``Generally, direct market access refers to an arrangement whereby a broker-dealer permits customers to enter orders into a trading center but such orders flow through the broker-dealer's trading systems prior to reaching the trading center.''). \27\ See Phases Two and Three Order, supra note 3, 78 FR at 49558-9. --------------------------------------------------------------------------- Phase Three, scheduled to commence on November 1, 2017, would require compliance with the entirety of the Recordkeeping and Reporting Responsibilities for all broker-dealers, covering the remaining types of large traders and transactions not covered by Phases One and Two.\28\ Notably, implementation of Phase Three would require the capture and reporting of execution time for all large trader transactions, not just for the three specific categories of large trader activity already implemented through Phases One and Two. --------------------------------------------------------------------------- \28\ See id. at 78 FR at 49560; and Phase Three Extension Order, supra note 3. --------------------------------------------------------------------------- D. Adoption of Rule 613 and Implementation of the CAT The Commission adopted Rule 613 to create a CAT that would allow regulators to more efficiently and accurately track activity in NMS securities.\29\ Rule 613 requires the SROs to jointly submit an NMS plan to create, implement and maintain a consolidated audit trail.\30\ In November 2016, the Commission approved the SROs' proposed CAT NMS Plan.\31\ --------------------------------------------------------------------------- \29\ See Rule 613 Adopting Release, supra note 9. \30\ See Rule 613(a)(1). \31\ See CAT NMS Plan Order, supra note 8. --------------------------------------------------------------------------- When the Commission adopted Rule 613 it stated that, while certain aspects of Rule 13h-1 are not addressed by Rule 613, Rule 613 may supersede certain of the broker-dealer Recordkeeping and Reporting Responsibilities of Rule 13h-1.\32\ Specifically, the Commission stated ``[t]o the extent that . . . data reported to the central repository under Rule 613 obviates the need for the EBS system, the Commission expects that the separate [trade] reporting requirements of Rule 13h-1 related to the EBS system would be eliminated.'' \33\ Further, when it approved the CAT NMS Plan, the Commission noted that ``CAT will provide Commission Staff with much of [[Page 51452]] the equity and option data that is currently obtained through equity and option cleared reports and EBS, including the additional transaction data captured in connection with Rule 13h-1 concerning large traders.'' \34\ --------------------------------------------------------------------------- \32\ See Rule 613 Adopting Release, supra note 9, 77 FR at 45734. \33\ Id. at text accompanying n.95. \34\ See CAT NMS Plan Order, supra note 8, 81 FR at 84777 (citations omitted). --------------------------------------------------------------------------- III. Exemptive Relief Pursuant to Section 13(h)(6) of the Exchange Act and Rule 13h-1(g) thereunder,\35\ the Commission, by order, may exempt from the provisions of Rule 13h-1, upon specified terms and conditions or for stated periods, any person or class of persons or any transaction or class of transactions from the provisions of Rule 13h-1 to the extent that such exemption is consistent with the purposes of the Exchange Act. --------------------------------------------------------------------------- \35\ See 15 U.S.C. 78m and Rule 13h-1(g), respectively. --------------------------------------------------------------------------- As noted above, the Industry Organizations have requested that the Commission eliminate Phase Three of the implementation of the Rule.\36\ In the alternative, FIF recommends postponing the compliance date for Phase Three for five years \37\ or until November 1, 2020,\38\ and SIFMA requested an extension of the compliance date until the earlier of full implementation of the CAT or November 1, 2022.\39\ The Industry Organizations both expressed the view that granting exemptive relief would allow the industry to focus resources on implementing the CAT.\40\ In addition, SIFMA asserted that ``the reporting structure that would ultimately be developed and implemented under Phase III would become redundant when the Consolidated Audit Trail (CAT) is instituted.'' \41\ SIFMA further stated that ``[c]ertain aspects of Phase III implementation continue to be infeasible except at a prohibitive cost and involving significant industry coordination for the development of new operational flows and processing standards that is disproportionate to the anticipated relatively short-lived corresponding benefit. Specifically, with the progress on CAT . . . the useful life of a costly and specialized Phase III solution is now described in months.'' \42\ FIF stated that the implementation of Phase Three would represent ``significant duplicative costs to the broker- dealer community because [the Phase Three] recordkeeping and reporting obligations are already included in the CAT.'' \43\ --------------------------------------------------------------------------- \36\ See FIF I, supra note 6, at 2; and SIFMA Letter, supra note 6, at 3. \37\ See FIF I, supra note 6, at 2. \38\ See FIF II, supra note 6, at 3. \39\ See SIFMA Letter, supra note 6, at 3. \40\ See FIF I, supra note 6, at 1-2; and SIFMA Letter, supra note 6, at 2. See also FIF II, supra note 6, at 1 (stating that mandating implementation of Phase Three would ``divert scarce resources from the [i]mplementation of CAT''). \41\ SIFMA Letter, supra note 6, at 2. See also FIF II at 2 (expressing the view that the implementation of Phase Three ``would be redundant of the CAT initiative''). \42\ SIFMA Letter, supra note 6, at 2. SIFMA stated that it had previously described the significant implementation challenges that would need to be resolved to meet the compliance requirements of Phase Three. Id. at 1. Quoting its February 13, 2013, letter to the Commission, SIFMA stated that ```it would require a massive restructuring of most of the current execution and clearing flows and systems at considerable cost to aggregate all of [the relevant reporting] information at one broker-dealer' and that `individual broker-dealers must make significant internal changes to their systems, the fundamental restructuring of certain industry standard clearing processes may be required, and concerted and coordinated development activities will be required throughout the broker-dealer industry.' '' Id. at 1-2, citing Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA, to David S. Shillman, Associate Director, Division, Commission, dated February 13, 2013, available at https://www.sec.gov/comments/s7-10-10/s71010-102.pdf. SIFMA stated that ``[t]hese challenges continue to persist and are no less burdensome today,'' and asserted that the reporting structure that would be developed and implemented under Phase Three would become redundant when the CAT is instituted. SIFMA Letter, supra note 6, at 2. See also FIF II, supra note 6, at 2 (referencing FIF's previous descriptions of the implementation challenges associated with Phase Three). \43\ See FIF II, supra note 6, at 2. --------------------------------------------------------------------------- The Commission notes that there has been significant progress on the implementation of the CAT since it issued the Phase Three Extension Order on October 30, 2015. As noted above, the Commission approved the CAT NMS Plan submitted by the SROs on November 15, 2016,\44\ and to date the SROs have taken a series of steps to implement the CAT in accordance with the CAT NMS Plan. Among other things, the Plan Processor for the CAT NMS Plan has been selected,\45\ draft technical specifications for the SROs' submission of order and quote data to the CAT have been developed,\46\ and compliance rules requiring SRO members to synchronize their business clocks used to report information required under the CAT NMS Plan to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology have been adopted.\47\ In addition, the SROs have adopted rules requiring member compliance with relevant portions of the CAT NMS Plan,\48\ and they have filed proposed rule changes that are designed to eliminate systems that are duplicative of the CAT.\49\ --------------------------------------------------------------------------- \44\ See CAT NMS Plan Order, supra note 8. \45\ See Letter from the Selection Committee of the CAT NMS Plan to Brent J. Fields, Secretary, Commission, dated January 18, 2017, available at https://www.sec.gov/divisions/marketreg/rule613-info-notice-of-plan-processor-selection.pdf. \46\ See CAT NMS Plan, Appendix C, Section 10(b). \47\ See, e.g., NYSE Rules 6820(a) and 6895(b), CBOE Rules 6.86(a) and 6.96(b), and Nasdaq Rules 6820(a) and 6895(b). In accordance with an exemption to the CAT NMS Plan, the SROs' compliance rules require members that were capturing time in milliseconds on March 8, 2017, to have synchronized their business clocks on or before March 15, 2017. The compliance rules require members that did not capture time in milliseconds on March 8, 2017, to synchronize their business clocks on or before February 19, 2018. See Securities Exchange Act Release No. 80142 (March 2, 2017), 82 FR 13034 (March 8, 2017) (Order Granting Limited Exemptive Relief from the CAT NMS Plan requirement that members synchronize their business clocks no later than March 15, 2017). \48\ See Securities Exchange Act Release No. 80256 (March 15, 2017), 82 FR 14526 (March 21, 2017) (order approving File Nos. SR- BatsBYX-2017-02; SR-BatsBZX-2017-08; SR-BatsEDGA-2017-03; SR- BatsEDGX-2017-08; SR-BOX-2017-07; SR-C2-2017-007; SR-CBOE-2017-012; SR-CHX-2017-03; SR-ISE-2017-08; SR-IEX-2017-04; SR-ISEGemini-2017- 04; SR-ISEMercury-2017-03; SR-MIAX-2017-03; SR-PEARL-2017-04; SR- NASDAQ-2017-008; SRBX-2017-007; SR-PHLX-2017-07; SR-NYSE-2017-01; SR-NYSEArca-2017-03; SR-NYSEArca-2017-04; SR-NYSEMKT-2017-02; and SR-NSX-2017-03). \49\ See, e.g., Securities Exchange Act Release Nos. 80783 (May 26, 2017), 82 FR 2542 (June 1, 2017) (SR-FINRA-2017-13); 80789 (May 26, 2017), 82 FR 25492 (June 1, 2017) (SR-BOX-2017-17); 80813 (May 30, 2017), 82 FR 25820 (June 5, 2017) (SR-Nasdaq-2017-055). --------------------------------------------------------------------------- In light of the fact that the CAT NMS Plan has now been approved and the CAT is being built and implemented, the Commission believes that it is appropriate to issue this temporary exemption so that broker-dealer resources can be focused on CAT.\50\ Reporting pursuant to the CAT NMS Plan will provide the Commission with information concerning the trading in equity and listed options transactions of all types of large traders that would otherwise be reported pursuant to Rule 13h-1. In particular, the CAT will capture detailed information on each order, including the time of execution for orders executed in whole or in part \51\ as well as information concerning allocation to subaccounts.\52\ Accordingly, because the CAT will capture the order execution information that would be covered in Phase Three, the Commission believes that a temporary exemption is appropriate to defer the burdens that would be imposed on the industry to implement Phase Three and instead focus finite broker-dealer resources on completing and implementing the CAT in the near term. The Commission notes that, prior [[Page 51453]] to the Commission's issuance of the Phase Three Extension Order, FIF and SIFMA requested a permanent exemption or alternatively a five year deferment of the compliance date for Phase Three.\53\ In the Phase Three Extension Order, the Commission provided a two year exemption, until November 1, 2017. At that time, the Commission stated its belief that ``two years will give the Commission enough time to evaluate future developments, including any investment in or progress on a CAT.'' Further, FIF and SIFMA now have requested a permanent exemption, or alternatively a three or five year deferment of the compliance date for Phase Three.\54\ The Commission believes at this time that an extension to November 15, 2018 responds to requests from FIF and SIFMA to extend the Phase Three compliance date, but having a short exemption instead will allow broker-dealers to focus on implementing the CAT in the near term and will allow the Commission to revisit the implementation of Phase Three as it evaluates future developments during this period, including progress in implementing the CAT.\55\ During that time, the Commission will consider progress in implementing the CAT as it determines implementation of Phase Three. --------------------------------------------------------------------------- \50\ This order does not affect Rule 13h-1 requirements implemented in Phases One and Two. \51\ See Rule 613(c)(7)(v)(C) (requiring, for an order executed in whole or in part, ``[t]ime of execution''). See also CAT NMS Plan, supra note 8, at Section 6.3(d)(v). \52\ See CAT NMS Plan Order, supra note 8, 81 FR at 84777 (citations omitted); and CAT NMS Plan, supra note 8, at Section 6.4(d)(ii)(A)(1) (concerning Allocation Reports). \53\ See Phase Three Extension Order at note 62 (citing Letter from Mary Lou VonKaenel, Managing Director, FIF, to Stephen Luparello, Director, Division, Commission, dated March 27, 2015, available at http://www.sec.gov/comments/s7-10-10/s71010.shtml and Letter from Theodore R. Lazo, Managing Director and Associate General Counsel, SIFMA to Stephen Luparello, Director, Division, Commission, dated April 9, 2015, available at http://www.sec.gov/comments/s7-10-10/s71010.shtml). \54\ See supra note 7 (citing to the SIFMA and FIF letters). \55\ The Commission notes that November 15, 2018 currently is the date by which large industry SRO members are required to begin reporting to the CAT central repository. See CAT NMS Plan Order, supra note 8, at Ex. A, Sec. 6.7(a)(v), 81 FR at 84963. --------------------------------------------------------------------------- Accordingly, the Commission finds that it is consistent with the purposes of the Exchange Act to extend the compliance date for Phase Three by temporarily exempting broker-dealers until November 15, 2018 from compliance with specified provisions of the Rule. Thus, the Recordkeeping and Reporting Responsibilities under Rule 13h-1 will continue to apply with respect to: (1) The clearing broker-dealer for a large trader, with respect to (a) proprietary transactions by a large trader broker-dealer; (b) transactions effected pursuant to a ``sponsored access'' arrangement; and (c) transactions effected pursuant to a ``direct market access'' arrangement; and (2) broker- dealers that carry an account for a large trader for Transaction Data other than execution time. IV. Conclusion It is hereby ordered, pursuant to Section 13(h)(6) of the Exchange Act and Rule 13h-1(g) thereunder, that broker-dealers are exempted temporarily until November 15, 2018 from the recordkeeping and reporting requirements of Rule 13h-1(d) and (e) except for: (1) Clearing broker-dealers for large traders with respect to (a) proprietary transactions by a large trader broker-dealer, (b) transactions effected pursuant to a ``sponsored access'' arrangement, and (c) transactions effected pursuant to a ``direct market access'' arrangement; and, for other types of transactions, (2) broker-dealers that carry an account for a large trader for Transaction Data other than execution time. By the Commission. Jill M. Peterson, Assistant Secretary. [FR Doc. 2017-24056 Filed 11-3-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51449
one or more major market data vendors, 10:00 a.m. and 3:00 p.m. Copies of the level specified in the Rule have been
without undue delay. Therefore, the filing also will be available for required to identify themselves to the
Commission designates the proposed inspection and copying at the principal Commission by filing Form 13H through
rule change to be operative upon office of the Exchange. All comments the Commission’s EDGAR system. The
filing.12 received will be posted without change. Commission has implemented the
At any time within 60 days of the Persons submitting comments are broker-dealer recordkeeping, reporting,
filing of such proposed rule change, the cautioned that we do not redact or edit and monitoring requirements of the
Commission summarily may personal identifying information from Rule in phases through a series of
temporarily suspend such rule change if comment submissions. You should exemptive orders establishing certain
it appears to the Commission that such submit only information that you wish delayed compliance dates.3 Currently,
action is necessary or appropriate in the to make available publicly. All certain broker-dealers are required to
public interest, for the protection of submissions should refer to File keep records of and report to the
investors, or otherwise in furtherance of Number SR–NYSEArca–2017–127 and Commission upon request transaction
the purposes of the Act. should be submitted on or before data for certain of their customers that
November 27, 2017. are either a large trader or an
IV. Solicitation of Comments
For the Commission, by the Division of Unidentified Large Trader.4 Most
Interested persons are invited to Trading and Markets, pursuant to delegated recently, the Commission provided a
submit written data, views, and authority.13 temporary exemption from specified
arguments concerning the foregoing, Eduardo A. Aleman, provisions of the Rule for certain broker-
including whether the proposed rule Assistant Secretary. dealers (‘‘Phase Three’’)—provisions
change is consistent with the Act. [FR Doc. 2017–24045 Filed 11–3–17; 8:45 am] which otherwise would have fully
Comments may be submitted by any of BILLING CODE 8011–01–P implemented the entirety of the
the following methods: recordkeeping and reporting
Electronic Comments responsibilities of Rule 13h–1 by, in
SECURITIES AND EXCHANGE particular, requiring the capture and
• Use the Commission’s Internet COMMISSION reporting of execution time on trades of
comment form (http://www.sec.gov/ all large traders—until November 1,
rules/sro.shtml); or [Release No. 34–81993]
2017.5
• Send an email to rule-comments@ The Financial Information Forum
Order Temporarily Exempting Certain
sec.gov. Please include File Number SR– (‘‘FIF’’) and Securities Industry and
Broker-Dealers From Specified
NYSEArca–2017–127 on the subject Provisions of the Recordkeeping, Financial Markets Association
line. Reporting, and Monitoring (‘‘SIFMA,’’ and, together with FIF, the
Paper Comments Responsibilities of Rule 13h–1 Under ‘‘Industry Organizations’’) have asked
the Securities Exchange Act of 1934 the Commission to eliminate Phase
• Send paper comments in triplicate Three of the Rule, which would impose
to Secretary, Securities and Exchange October 31, 2017. the remaining requirements on all
Commission, 100 F Street NE., broker-dealers and all large trader
Washington, DC 20549–1090. I. Introduction
customers.6 Alternatively, the Industry
All submissions should refer to File On July 27, 2011, the Securities and
Number SR–NYSEArca–2017–127. This Exchange Commission (‘‘Commission’’) 3 See Securities Exchange Act Release Nos. 66839
file number should be included on the adopted Rule 13h–1 (‘‘Rule 13h–1’’ or (April 20, 2012), 77 FR 25007 (April 26, 2012)
subject line if email is used. To help the the ‘‘Rule’’) under the Securities (‘‘Phase One Order’’) (establishing Phase One);
Exchange Act of 1934 (‘‘Exchange 69281 (April 3, 2013), 78 FR 20960 (April 8, 2013)
Commission process and review your (‘‘Phase Two Extension Order’’) (extending the
comments more efficiently, please use Act’’) 1 to assist the Commission in both compliance date for Phase Two to November 1,
only one method. The Commission will identifying and obtaining information 2013); 70150 (August 8, 2013), 78 FR 49556 (August
post all comments on the Commission’s on market participants that conduct a 14, 2013) (‘‘Phases Two and Three Order’’)
substantial amount of trading activity, (modifying Phase Two and providing for Phase
Internet Web site (http://www.sec.gov/ Three); and 76322 (October 30, 2015), 80 FR 68590
rules/sro.shtml). Copies of the as measured by volume or market value, (November 5, 2015) (‘‘Phase Three Extension
submission, all subsequent in national market system (‘‘NMS’’) Order’’) (extension of compliance date for Phase
amendments, all written statements securities (such persons are referred to Three until November 1, 2017).
with respect to the proposed rule as ‘‘large traders’’).2 The Rule requires 4 Rule 13h–1(a)(9) defines ‘‘Unidentified Large
certain large traders to identify Trader’’ as ‘‘each person who has not complied
change that are filed with the with the [large trader identification requirements of
Commission, and all written themselves to the Commission on Form the Rule] that a registered broker-dealer knows or
communications relating to the 13H. The Rule also requires, among has reason to know is a large trader.’’ The Rule
proposed rule change between the other things, certain broker-dealers to provides that, for purposes of determining whether
maintain records of large trader a registered broker-dealer has reason to know that
Commission and any person, other than a person is a large trader, ‘‘a registered broker-dealer
those that may be withheld from the transaction information and to report need take into account only transactions in NMS
public in accordance with the such information to the Commission securities effected by or through such broker-
provisions of 5 U.S.C. 552, will be upon request. Since December 1, 2011, dealer.’’ Rule 13h–1(a)(9).
5 See Phase Three Extension Order, supra note 3
available for Web site viewing and persons whose trading activity reached
(extending the Phase Three compliance date until
printing in the Commission’s Public or exceeded the identifying activity
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November 1, 2017). See also Phases Two and Three
Reference Room, 100 F Street NE., Order, supra note 3, 78 FR at 49560.
13 17 CFR 200.30–3(a)(12). 6 See Undated letter from William H. Herbert,
Washington, DC 20549 on official 1 17 CFR 240.13h–1. Managing Director, FIF, to Heather Seidel, Acting
business days between the hours of 2 See Securities Exchange Act Release No. 64976 Director, Division of Trading and Markets
(July 27, 2011), 76 FR 46960 (August 3, 2011) (‘‘Division’’), Commission (‘‘FIF I’’), available at
12 For purposes only of waiving the 30-day (‘‘Large Trader Adopting Release’’). The effective https://www.sec.gov/comments/s7-10-10/s71010-
operative delay, the Commission has considered the date of Rule 13h–1 was October 3, 2011. See also 1558852-131535.pdf; Letter from Thomas F. Price,
proposed rule’s impact on efficiency, competition, Exchange Act Rule 600(b)(46) of Regulation NMS Managing Director, Operations, Technology, and
and capital formation. See 15 U.S.C. 78c(f). (defining ‘‘NMS security’’). Continued
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![Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51451
collectively as the ‘‘Recordkeeping C. Phased Implementation of Rule effected pursuant to a ‘‘direct market
Responsibilities.’’ 13h–1 access’’ arrangement; and (2) a broker-
The Rule also requires that, upon When the Commission adopted the dealer that carries an account for a large
Commission request, every registered Rule, it characterized the large trader trader, with respect to transactions other
reporting requirements as ‘‘relatively than those set forth above, and for
broker-dealer that is itself a large trader
modest steps’’ to ‘‘address the Transaction Data other than the
or carries an account for a large trader
Commission’s near-term need for access execution time.27 In other words, the
or an Unidentified Large Trader must Recordkeeping and Reporting
electronically report Transaction Data to to more information about large traders
and their trading activities. . . .’’ 22 Responsibilities under Phase Two
the Commission through the Electronic require capture and reporting of LTID
Blue Sheets (‘‘EBS’’) system for all After the Commission adopted the Rule,
industry commenters began to identify numbers for all large traders, but require
transactions effected directly or capture and reporting of execution time
indirectly by or through accounts specific implementation challenges and
offered more detailed estimates of the only for the three specific categories of
carried by such broker-dealer for large large trader activity outlined above.
cost of compliance for broker-dealers
traders or Unidentified Large Traders Phase Three, scheduled to commence
with the Recordkeeping and Reporting
equal to or greater than the reporting on November 1, 2017, would require
Responsibilities.23 Such concerns led
activity level.18 Additionally, where a the Commission to implement the compliance with the entirety of the
non-broker-dealer carries an account for Recordkeeping and Reporting Recordkeeping and Reporting
a large trader or an Unidentified Large Responsibilities in phases.24 Responsibilities for all broker-dealers,
Trader, the broker-dealer effecting such In Phase One, which began on covering the remaining types of large
transactions directly or indirectly for the November 30, 2012, the Commission traders and transactions not covered by
large trader or Unidentified Large temporarily exempted from the Phases One and Two.28 Notably,
Trader must electronically report Recordkeeping and Reporting implementation of Phase Three would
Transaction Data to the Commission Responsibilities all broker-dealers, require the capture and reporting of
through the EBS system for such except clearing brokers for large traders execution time for all large trader
transactions equal to or greater than the (including the large trader itself if it is transactions, not just for the three
reporting activity level.19 The Rule a self-clearing broker-dealer), with specific categories of large trader
requires that reporting broker-dealers respect to large trader transactions that activity already implemented through
submit the requested Transaction Data were either (1) proprietary trades by a Phases One and Two.
no later than the day and time specified U.S. registered broker-dealer, or (2) D. Adoption of Rule 613 and
in the Commission’s request.20 These effected through a ‘‘sponsored access’’ Implementation of the CAT
reporting obligations are referred to arrangement.25 In Phase Two, which
The Commission adopted Rule 613 to
collectively as the ‘‘Reporting began on November 1, 2013, the
create a CAT that would allow
Responsibilities.’’ Commission further implemented the
regulators to more efficiently and
Rule by subjecting transactions effected
Rule 13h–1(f) provides a safe harbor accurately track activity in NMS
pursuant to ‘‘direct market access’’
that is designed to reduce broker- securities.29 Rule 613 requires the SROs
arrangements to the Recordkeeping and
dealers’ recordkeeping and reporting to jointly submit an NMS plan to create,
Reporting Responsibilities.26
burdens with respect to Unidentified implement and maintain a consolidated
Specifically, Phase Two temporarily
Large Traders by, among other things, audit trail.30 In November 2016, the
exempted broker-dealers, until
providing relief for when a broker- Commission approved the SROs’
November 1, 2015, from the
dealer shall be deemed to know or have proposed CAT NMS Plan.31
Recordkeeping and Reporting When the Commission adopted Rule
reason to know that a person is a large Responsibilities, except for: (1) The
trader and thus subject to reporting 613 it stated that, while certain aspects
clearing broker-dealer for a large trader, of Rule 13h–1 are not addressed by Rule
obligations related to Unidentified Large with respect to (a) proprietary
Traders under Rule 3h-1. Under the safe 613, Rule 613 may supersede certain of
transactions by the large trader broker- the broker-dealer Recordkeeping and
harbor, a registered broker-dealer is dealer; (b) transactions effected Reporting Responsibilities of Rule
deemed not to know or have reason to pursuant to a ‘‘sponsored access’’ 13h–1.32 Specifically, the Commission
know that a person is a large trader if arrangement; and (c) transactions stated ‘‘[t]o the extent that . . . data
the broker-dealer does not have actual reported to the central repository under
knowledge that a person is a large trader 22 See Large Trader Adopting Release, supra note
Rule 613 obviates the need for the EBS
and it establishes policies and 2, 76 FR at 46963.
23 See, e.g., Phase Three Extension Order, supra system, the Commission expects that the
procedures reasonably designed to note 3, 80 FR at 68594. separate [trade] reporting requirements
identify customers whose transactions 24 See id. See also supra note 3 (citing to the
of Rule 13h–1 related to the EBS system
effected through an account or group of applicable releases). would be eliminated.’’ 33 Further, when
accounts carried by such broker-dealer 25 See Phase One Order, supra note 3, 77 FR at
it approved the CAT NMS Plan, the
or through which such broker-dealer 25008–9. A ‘‘sponsored access’’ arrangement is an
arrangement where a broker-dealer permits a Commission noted that ‘‘CAT will
executes transactions, as applicable, customer to enter orders into a trading center provide Commission Staff with much of
equal or exceed the identifying activity without using the broker-dealer’s trading system
level and, if so, to treat such persons as (i.e., using the customer’s own technology or that 27 See Phases Two and Three Order, supra note
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of a third party provider).
Unidentified Large Traders and notify 26 See Phases Two and Three Order, supra note
3, 78 FR at 49558–9.
28 See id. at 78 FR at 49560; and Phase Three
them of their potential reporting 3, 78 FR at 49559–60. See also Securities Exchange Extension Order, supra note 3.
obligations under this Rule.21 Act Release No. 63241 (November 3, 2010), 75 FR 29 See Rule 613 Adopting Release, supra note 9.
69792, 69793 (November 15, 2010) (File No. S7–03– 30 See Rule 613(a)(1).
18 See
10) (‘‘Generally, direct market access refers to an
Rule 13h–1(e). arrangement whereby a broker-dealer permits
31 See CAT NMS Plan Order, supra note 8.
19 See id. 32 See Rule 613 Adopting Release, supra note 9,
customers to enter orders into a trading center but
20 See id. 77 FR at 45734.
such orders flow through the broker-dealer’s trading
21 See Rule 13h–1(f). systems prior to reaching the trading center.’’). 33 Id. at text accompanying n.95.
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![51452 Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices
the equity and option data that is months.’’ 42 FIF stated that the adopted rules requiring member
currently obtained through equity and implementation of Phase Three would compliance with relevant portions of
option cleared reports and EBS, represent ‘‘significant duplicative costs the CAT NMS Plan,48 and they have
including the additional transaction to the broker-dealer community because filed proposed rule changes that are
data captured in connection with Rule [the Phase Three] recordkeeping and designed to eliminate systems that are
13h–1 concerning large traders.’’ 34 reporting obligations are already duplicative of the CAT.49
included in the CAT.’’ 43 In light of the fact that the CAT NMS
III. Exemptive Relief The Commission notes that there has Plan has now been approved and the
Pursuant to Section 13(h)(6) of the been significant progress on the CAT is being built and implemented,
Exchange Act and Rule 13h–1(g) implementation of the CAT since it the Commission believes that it is
thereunder,35 the Commission, by order, issued the Phase Three Extension Order appropriate to issue this temporary
may exempt from the provisions of Rule on October 30, 2015. As noted above, exemption so that broker-dealer
13h–1, upon specified terms and the Commission approved the CAT resources can be focused on CAT.50
conditions or for stated periods, any NMS Plan submitted by the SROs on Reporting pursuant to the CAT NMS
person or class of persons or any November 15, 2016,44 and to date the Plan will provide the Commission with
transaction or class of transactions from SROs have taken a series of steps to information concerning the trading in
the provisions of Rule 13h–1 to the implement the CAT in accordance with equity and listed options transactions of
extent that such exemption is consistent the CAT NMS Plan. Among other all types of large traders that would
with the purposes of the Exchange Act. things, the Plan Processor for the CAT otherwise be reported pursuant to Rule
As noted above, the Industry NMS Plan has been selected,45 draft 13h–1. In particular, the CAT will
Organizations have requested that the technical specifications for the SROs’ capture detailed information on each
Commission eliminate Phase Three of submission of order and quote data to order, including the time of execution
the implementation of the Rule.36 In the the CAT have been developed,46 and for orders executed in whole or in
alternative, FIF recommends postponing compliance rules requiring SRO part 51 as well as information concerning
the compliance date for Phase Three for members to synchronize their business allocation to subaccounts.52
five years 37 or until November 1, clocks used to report information Accordingly, because the CAT will
2020,38 and SIFMA requested an required under the CAT NMS Plan to capture the order execution information
extension of the compliance date until within 50 milliseconds of the time that would be covered in Phase Three,
the earlier of full implementation of the maintained by the National Institute of the Commission believes that a
CAT or November 1, 2022.39 The Standards and Technology have been temporary exemption is appropriate to
Industry Organizations both expressed adopted.47 In addition, the SROs have defer the burdens that would be
the view that granting exemptive relief imposed on the industry to implement
would allow the industry to focus 42 SIFMA Letter, supra note 6, at 2. SIFMA stated Phase Three and instead focus finite
resources on implementing the CAT.40 that it had previously described the significant broker-dealer resources on completing
In addition, SIFMA asserted that ‘‘the implementation challenges that would need to be
resolved to meet the compliance requirements of
and implementing the CAT in the near
reporting structure that would Phase Three. Id. at 1. Quoting its February 13, 2013, term. The Commission notes that, prior
ultimately be developed and letter to the Commission, SIFMA stated that ‘‘‘it
implemented under Phase III would would require a massive restructuring of most of the to have synchronized their business clocks on or
become redundant when the current execution and clearing flows and systems before March 15, 2017. The compliance rules
at considerable cost to aggregate all of [the relevant require members that did not capture time in
Consolidated Audit Trail (CAT) is reporting] information at one broker-dealer’ and milliseconds on March 8, 2017, to synchronize their
instituted.’’ 41 SIFMA further stated that that ‘individual broker-dealers must make business clocks on or before February 19, 2018. See
‘‘[c]ertain aspects of Phase III significant internal changes to their systems, the Securities Exchange Act Release No. 80142 (March
implementation continue to be fundamental restructuring of certain industry 2, 2017), 82 FR 13034 (March 8, 2017) (Order
standard clearing processes may be required, and Granting Limited Exemptive Relief from the CAT
infeasible except at a prohibitive cost concerted and coordinated development activities NMS Plan requirement that members synchronize
and involving significant industry will be required throughout the broker-dealer their business clocks no later than March 15, 2017).
coordination for the development of industry.’ ’’ Id. at 1–2, citing Letter from Theodore 48 See Securities Exchange Act Release No. 80256
new operational flows and processing R. Lazo, Managing Director and Associate General (March 15, 2017), 82 FR 14526 (March 21, 2017)
Counsel, SIFMA, to David S. Shillman, Associate (order approving File Nos. SR–BatsBYX–2017–02;
standards that is disproportionate to the Director, Division, Commission, dated February 13, SR–BatsBZX–2017–08; SR–BatsEDGA–2017–03;
anticipated relatively short-lived 2013, available at https://www.sec.gov/comments/ SR–BatsEDGX–2017–08; SR–BOX–2017–07; SR–
corresponding benefit. Specifically, s7-10-10/s71010-102.pdf. SIFMA stated that C2–2017–007; SR–CBOE–2017–012; SR–CHX–
with the progress on CAT . . . the ‘‘[t]hese challenges continue to persist and are no 2017–03; SR–ISE–2017–08; SR–IEX–2017–04; SR–
less burdensome today,’’ and asserted that the ISEGemini–2017–04; SR–ISEMercury–2017–03;
useful life of a costly and specialized reporting structure that would be developed and SR–MIAX–2017–03; SR–PEARL–2017–04; SR–
Phase III solution is now described in implemented under Phase Three would become NASDAQ–2017–008; SRBX–2017–007; SR–PHLX–
redundant when the CAT is instituted. SIFMA 2017–07; SR–NYSE–2017–01; SR–NYSEArca–
34 See CAT NMS Plan Order, supra note 8, 81 FR Letter, supra note 6, at 2. See also FIF II, supra note 2017–03; SR–NYSEArca–2017–04; SR–NYSEMKT–
at 84777 (citations omitted). 6, at 2 (referencing FIF’s previous descriptions of 2017–02; and SR–NSX–2017–03).
35 See 15 U.S.C. 78m and Rule 13h–1(g), the implementation challenges associated with 49 See, e.g., Securities Exchange Act Release Nos.
respectively. Phase Three). 80783 (May 26, 2017), 82 FR 2542 (June 1, 2017)
43 See FIF II, supra note 6, at 2.
36 See FIF I, supra note 6, at 2; and SIFMA Letter, (SR–FINRA–2017–13); 80789 (May 26, 2017), 82 FR
supra note 6, at 3. 44 See CAT NMS Plan Order, supra note 8. 25492 (June 1, 2017) (SR–BOX–2017–17); 80813
37 See FIF I, supra note 6, at 2. 45 See Letter from the Selection Committee of the (May 30, 2017), 82 FR 25820 (June 5, 2017) (SR–
38 See FIF II, supra note 6, at 3. CAT NMS Plan to Brent J. Fields, Secretary, Nasdaq–2017–055).
Commission, dated January 18, 2017, available at 50 This order does not affect Rule 13h–1
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39 See SIFMA Letter, supra note 6, at 3.
40 See FIF I, supra note 6, at 1–2; and SIFMA https://www.sec.gov/divisions/marketreg/rule613- requirements implemented in Phases One and Two.
Letter, supra note 6, at 2. See also FIF II, supra note info-notice-of-plan-processor-selection.pdf. 51 See Rule 613(c)(7)(v)(C) (requiring, for an order
46 See CAT NMS Plan, Appendix C, Section 10(b). executed in whole or in part, ‘‘[t]ime of execution’’).
6, at 1 (stating that mandating implementation of
Phase Three would ‘‘divert scarce resources from 47 See, e.g., NYSE Rules 6820(a) and 6895(b), See also CAT NMS Plan, supra note 8, at Section
the [i]mplementation of CAT’’). CBOE Rules 6.86(a) and 6.96(b), and Nasdaq Rules 6.3(d)(v).
41 SIFMA Letter, supra note 6, at 2. See also FIF 6820(a) and 6895(b). In accordance with an 52 See CAT NMS Plan Order, supra note 8, 81 FR
II at 2 (expressing the view that the implementation exemption to the CAT NMS Plan, the SROs’ at 84777 (citations omitted); and CAT NMS Plan,
of Phase Three ‘‘would be redundant of the CAT compliance rules require members that were supra note 8, at Section 6.4(d)(ii)(A)(1) (concerning
initiative’’). capturing time in milliseconds on March 8, 2017, Allocation Reports).
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![Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51453
to the Commission’s issuance of the trader for Transaction Data other than Section 19(b)(2) of the Act 4 provides
Phase Three Extension Order, FIF and execution time. that, within 45 days of the publication
SIFMA requested a permanent of notice of the filing of a proposed rule
IV. Conclusion
exemption or alternatively a five year change, or within such longer period up
deferment of the compliance date for It is hereby ordered, pursuant to to 90 days as the Commission may
Phase Three.53 In the Phase Three Section 13(h)(6) of the Exchange Act designate if it finds such longer period
Extension Order, the Commission and Rule 13h–1(g) thereunder, that to be appropriate and publishes its
provided a two year exemption, until broker-dealers are exempted temporarily reasons for so finding or as to which the
November 1, 2017. At that time, the until November 15, 2018 from the self-regulatory organization consents,
Commission stated its belief that ‘‘two recordkeeping and reporting the Commission shall either approve the
years will give the Commission enough requirements of Rule 13h–1(d) and (e) proposed rule change, disapprove the
time to evaluate future developments, except for: (1) Clearing broker-dealers proposed rule change, or institute
including any investment in or progress for large traders with respect to (a) proceedings to determine whether the
on a CAT.’’ Further, FIF and SIFMA proprietary transactions by a large trader proposed rule change should be
now have requested a permanent broker-dealer, (b) transactions effected disapproved. The 45th day after
exemption, or alternatively a three or pursuant to a ‘‘sponsored access’’ publication of the notice for this
five year deferment of the compliance arrangement, and (c) transactions proposed rule change is November 2,
date for Phase Three.54 The Commission effected pursuant to a ‘‘direct market 2017. The Commission is extending this
believes at this time that an extension to access’’ arrangement; and, for other 45-day time period.
November 15, 2018 responds to requests types of transactions, (2) broker-dealers The Commission finds that it is
from FIF and SIFMA to extend the that carry an account for a large trader appropriate to designate a longer period
Phase Three compliance date, but for Transaction Data other than within which to take action on the
having a short exemption instead will execution time. proposed rule change so that it has
allow broker-dealers to focus on sufficient time to consider the proposed
implementing the CAT in the near term By the Commission. rule change. Accordingly, the
and will allow the Commission to Jill M. Peterson, Commission, pursuant to Section
revisit the implementation of Phase Assistant Secretary. 19(b)(2) of the Act,5 designates
Three as it evaluates future [FR Doc. 2017–24056 Filed 11–3–17; 8:45 am] December 17, 2017, as the date by
developments during this period, BILLING CODE 8011–01–P which the Commission shall either
including progress in implementing the approve or disapprove or institute
CAT.55 During that time, the proceedings to determine whether to
Commission will consider progress in SECURITIES AND EXCHANGE disapprove the proposed rule change
implementing the CAT as it determines COMMISSION (File Number SR–NASDAQ–2017–088).
implementation of Phase Three. For the Commission, by the Division of
Accordingly, the Commission finds [Release No. 34–81986; File No. SR– Trading and Markets, pursuant to delegated
that it is consistent with the purposes of NASDAQ–2017–088] authority.6
the Exchange Act to extend the Eduardo A. Aleman,
compliance date for Phase Three by Self-Regulatory Organizations; The Assistant Secretary.
temporarily exempting broker-dealers Nasdaq Stock Market LLC; Notice of
[FR Doc. 2017–24046 Filed 11–3–17; 8:45 am]
until November 15, 2018 from Designation of a Longer Period for
BILLING CODE 8011–01–P
compliance with specified provisions of Commission Action on a Proposed
the Rule. Thus, the Recordkeeping and Rule Change To Amend Rule 4703(a)
Reporting Responsibilities under Rule To Allow Members To Designate When SECURITIES AND EXCHANGE
13h–1 will continue to apply with an Order With a RTFY or SCAN COMMISSION
respect to: (1) The clearing broker-dealer Routing Order Attribute Will Be
for a large trader, with respect to (a) Activated [Release No. 34–81991; File No. SR–ISE–
proprietary transactions by a large trader 2017–96]
broker-dealer; (b) transactions effected October 31, 2017.
pursuant to a ‘‘sponsored access’’ On August 30, 2017, The Nasdaq Self-Regulatory Organizations; Nasdaq
arrangement; and (c) transactions Stock Market LLC (‘‘Nasdaq’’) filed with ISE, LLC; Notice of Filing and
effected pursuant to a ‘‘direct market the Securities and Exchange Immediate Effectiveness of Proposed
access’’ arrangement; and (2) broker- Commission (‘‘Commission’’), pursuant Rule Change To Amend Rule 1614
dealers that carry an account for a large to Section 19(b)(1) of the Securities October 31, 2017.
Exchange Act of 1934 (‘‘Act’’) 1 and Rule Pursuant to Section 19(b)(1) of the
53 See Phase Three Extension Order at note 62 19b–4 thereunder,2 a proposed rule Securities Exchange Act of 1934
(citing Letter from Mary Lou VonKaenel, Managing change to amend Nasdaq Rule 4703(a) to
Director, FIF, to Stephen Luparello, Director, (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Division, Commission, dated March 27, 2015, allow members to designate when an notice is hereby given that on October
available at http://www.sec.gov/comments/s7-10- Order with a RTFY or SCAN routing 27, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or
10/s71010.shtml and Letter from Theodore R. Lazo, Order Attribute will be activated. The ‘‘Exchange’’) filed with the Securities
Managing Director and Associate General Counsel, proposed rule change was published for
SIFMA to Stephen Luparello, Director, Division, and Exchange Commission (‘‘SEC’’ or
Commission, dated April 9, 2015, available at comment in the Federal Register on ‘‘Commission’’) the proposed rule
Pmangrum on DSK3GDR082PROD with NOTICES
http://www.sec.gov/comments/s7-10-10/ September 18, 2017.3 The Commission change as described in Items I and II
s71010.shtml). has received no comment letters on the below, which Items have been prepared
54 See supra note 7 (citing to the SIFMA and FIF
proposed rule change.
letters). 4 15
55 The Commission notes that November 15, 2018 U.S.C. 78s(b)(2).
1 15 5 15 U.S.C. 78s(b)(2).
currently is the date by which large industry SRO U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4. 6 17 CFR 200.30–3(a)(31).
members are required to begin reporting to the CAT
1 15 U.S.C. 78s(b)(1).
central repository. See CAT NMS Plan Order, supra 3 See Securities Exchange Act Release No. 81579
note 8, at Ex. A, Sec. 6.7(a)(v), 81 FR at 84963. (September 12, 2017), 82 FR 43584. 2 17 CFR 240.19b–4.
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Document Created: 2017-11-07 10:30:41
Document Modified: 2017-11-07 10:30:41
| 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 51449 |
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