82 FR 9790 - Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt Consolidated Audit Trail Compliance Rule (Rules 1701-1712) To Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 25 (February 8, 2017)
Federal Register Volume 82, Issue 25 (February 8, 2017)
| Page Range | 9790-9803 | |
| FR Document | 2017-02542 |
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)] [Notices] [Pages 9790-9803] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-02542] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79937; File No. SR-MIAX-2017-03] Self-Regulatory Organizations; Miami International Securities Exchange, LLC; Notice of Filing of a Proposed Rule Change To Adopt Consolidated Audit Trail Compliance Rule (Rules 1701-1712) To Implement the Compliance Rule Regarding the National Market System Plan Governing the Consolidated Audit Trail February 2, 2017. Pursuant to the provisions of 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 January 30, 2017, Miami International Securities Exchange, LLC (``MIAX Options'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange.\3\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ The Exchange originally filed this proposed rule change on January 17, 2017 under File No. SR-MIAX-2017-01, and the Exchange subsequently withdrew that filing on January 30, 2017 and filed this proposed rule change. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt the Rules 1701-1712 to implement the compliance rule (``Compliance Rule'') regarding the National Market System Plan Governing the Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\4\ --------------------------------------------------------------------------- \4\ Unless otherwise specified, capitalized terms used in this rule filing are defined as set forth herein or in the CAT NMS Plan. --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://www.miaxoptions.com/rule-filings, at MIAX's principal office, and at the Commission's Public Reference Room. [[Page 9791]] II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, Investors' Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Miami International Securities Exchange LLC, MIAX PEARL, LLC,\5\ 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'' or ``SROs'') filed with the Commission, pursuant to Section 11A of the Exchange Act \6\ and Rule 608 of Regulation NMS thereunder,\7\ the CAT NMS Plan.\8\ The Participants filed the Plan to comply with Rule 613 of Regulation NMS under the Exchange Act. The Plan was published for comment in the Federal Register on May 17, 2016,\9\ and approved by the Commission, as modified, on November 15, 2016.\10\ --------------------------------------------------------------------------- \5\ MIAX PEARL, LLC, became a party to the CAT NMS Plan via an Amendment to the Plan on January 12, 2017. \6\ 15 U.S.C. 78k-1. \7\ 17 CFR 242.608. \8\ See Letter from the Participants to Brent J. Fields, Secretary, Commission, dated September 30, 2014; and Letter from Participants to Brent J. Fields, Secretary, Commission, dated February 27, 2015. On December 24, 2015, the Participants submitted an amendment to the CAT NMS Plan. See Letter from Participants to Brent J. Fields, Secretary, Commission, dated December 23, 2015. \9\ See Securities Exchange Act Release No. 77724 (Apr. 27, 2016), 81 FR 30614 (May 17, 2016). \10\ See Securities Exchange Act Release No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (``Approval Order''). --------------------------------------------------------------------------- The Plan is designed to create, implement and maintain a consolidated audit trail (``CAT'') that would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution in a single consolidated data source. Each Participant is required to enforce compliance by its Industry Members, as applicable, with the provisions of the Plan, by adopting a Compliance Rule applicable to their Industry Members.\11\ As is described more fully below, the rules contained in the proposed Chapter XVII set forth the Compliance Rule to require Industry Members to comply with the provisions of the CAT NMS Plan. The proposed Rules include twelve proposed Rules covering the following areas: (1) Definitions; (2) clock synchronization; (3) Industry Member Data reporting; (4) Customer information reporting; (5) Industry Member information reporting; (6) time stamps; (7) clock synchronization rule violations; (8) connectivity and data transmission; (9) development and testing; (10) recordkeeping; (11) timely, accurate and complete data; and (12) compliance dates. Each of these proposed Rules are discussed in detail below. --------------------------------------------------------------------------- \11\ See SEC Rule 613(g)(1). --------------------------------------------------------------------------- (i) Definitions Proposed Rule 1701 (Consolidated Audit Trail Compliance Rule-- Definitions) sets forth the definitions for the terms used in the proposed Rules 1701-1712. Each of the defined terms in proposed Rule 1701 is discussed in detail in this section. (A) Account Effective Date (I) Customer Information Approach SEC Rule 613 requires that numerous data elements be reported to the CAT to ensure there is sufficient information to create the lifecycle of an order, and provide regulators with sufficient detail about an order to perform their regulatory duties. Certain required elements are intended to ensure that the regulators can identify the Customers associated with orders. For example, SEC Rule 613(c)(7)(i)(A) requires an Industry Member to report the ``Customer-IDs'' for each Customer for the original receipt or origination of an order. ``Customer-ID'' is defined in SEC Rule 613(j)(5) to mean ``with respect to a customer, a code that uniquely and consistently identifies such customer for purposes of providing data to the Central Repository.'' SEC Rule 613(c)(8) requires Industry Members to use the same Customer- ID for each Customer. The SEC granted the Participants exemptive relief to permit the use of an alternative approach to the requirement that an Industry Member report a Customer-ID for every Customer upon original receipt or origination.\12\ The alternative approach is called the Customer Information Approach. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release No. 77265 (March 1, 2016), 81 FR 11856 (March 7, 2016) (``Exemption Order''). See also Letter from Participants to Brent J. Fields, Secretary, Commission, dated January 30, 2015 at 12 (``Exemptive Request Letter''); and CAT NMS Plan at Appendix C, Section A.1(a)(iii). --------------------------------------------------------------------------- Under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. As the Firm Designated ID, Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Prior to their commencement of reporting to the CAT, Industry Members would submit an initial set of Customer information to the Central Repository, including the Firm Designated ID, Customer Identifying Information and Customer Account Information (which may include, as applicable, the Customer's name, address, date of birth, individual tax payer identifier number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with power of attorney) and LEI and/or Larger [sic] Trader ID (``LTID''). This process is referred to as the customer definition process. In accordance with the Customer Information Approach, Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Within the Central Repository, each Customer would be uniquely identified by identifiers or a combination of identifiers such as ITIN/SSN, date of birth, and as applicable, LEI and LTID. The Plan Processor would be required to use these unique identifiers to map orders to specific Customers across all Industry Members and Participants. To ensure information identifying a Customer is up to date, Industry Members would be required to submit to the Central Repository daily and periodic updates for reactivated accounts, newly established accounts, [[Page 9792]] and revised Firm Designated IDs or associated reportable Customer information. (II) Definition of Account Effective Date In connection with the Customer Information Approach, Industry Members would be required to report Customer Account Information to the Central Repository. ``Customer Account Information'' is defined in SEC Rule 613(j)(4) to ``include, but not be limited to, account number, account type, customer type, date account opened, and large trader identifier (if applicable).'' Therefore, when reporting Customer Account Information, an Industry Member is required to report the date an account was opened. The Participants requested and received an exemption to allow an ``Account Effective Date'' to be reported in lieu of an account open date in certain limited circumstances. The definition of ``Account Effective Date'' as set forth in Paragraph (a) of proposed Rule 1701 describes those limited circumstances in which an Industry Member may report an ``Account Effective Date'' rather than the account open date. The proposed definition is the same as the definition of ``Account Effective Date'' set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. Specifically, Paragraph (a)(1) defines ``Account Effective Date [sic] to mean, with regard to those circumstances in which an Industry Member has established a trading relationship with an institution but has not established an account with that institution: (1) When the trading relationship was established prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members, either (a) the date the relationship identifier was established within the Industry Member; (b) the date when trading began (i.e., the date the first order was received) using the relevant relationship identifier; or (c) if both dates are available, the earlier date will be used to the extent that the dates differ; or (2) when the trading relationship was established on or after November 15, 2018 for Industry Members other than Small Industry Members, or on or after November 15, 2019 for Small Industry Members, the date the Industry Member established the relationship identifier, which would be no later than the date the first order was received. Paragraph (a)(2) of proposed Rule 1701 states that an ``Account Effective Date'' means, where an Industry Member changes back office providers or clearing firms prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members, the date an account was established at the relevant Industry Member, either directly or via transfer. Paragraph (a)(3) states that an ``Account Effective Date'' means, where an Industry Member acquires another Industry Member prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members, the date an account was established at the relevant Industry Member, either directly or via transfer. Paragraph (a)(4) states that ``Account Effective Date'' means, where there are multiple dates associated with an account established prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members, the earliest available date. Paragraph (a)(5) states that an ``Account Effective Date'' means, with regard to Industry Member proprietary accounts established prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members: (1) The date established for the account in the Industry Member or in a system of the Industry Member or (2) the date when proprietary trading began in the account (i.e., the date on which the first orders were submitted from the account). With regard to paragraphs (a)(2)-(5), the Account Effective Date will be no later than the date trading occurs at the Industry Member or in the Industry Member's system. (B) Active Account Under the Customer Information Approach, Industry Members are required to report Customer Identifying Information and Customer Account Information for only those accounts that are active. This will alleviate the need for Industry Members to update such information for non-active accounts, but still ensure that the Central Repository will collect audit trail data for Customer accounts that have any Reportable Events. Accordingly, paragraph (b) of proposed Rule 1701 defines an ``Active Account'' as an account that has had activity in Eligible Securities within the last six months. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (C) Allocation Report (I) Allocation Report Approach SEC Rule 613(c)(7)(vi)(A) requires each Industry Member to record and report to the Central Repository ``the account number for any subaccounts to which the execution is allocated (in whole or in part).'' The SROs requested and received from the SEC exemptive relief from SEC Rule 613 for an alternative to this approach (``Allocation Report Approach''). The Allocation Report Approach would permit Industry Members to record and report to the Central Repository an Allocation Report that includes, among other things, the Firm Designated ID for any account(s) to which executed shares are allocated when an execution is allocated in whole or part in lieu of requiring the reporting of the account number for any subaccount to which an execution is allocated, as is required by SEC Rule 613.\13\ Under SEC Rule 613, regulators would be able to link the subaccount to which an allocation was made to a specific order. In contrast, under the Allocation Report Approach, regulators would only be able to link an allocation to the account to which it was made, and not to a specific order. --------------------------------------------------------------------------- \13\ Exemptive Request Letter at 26-27; and Exemption Order. --------------------------------------------------------------------------- (II) Definition of Allocation Report To assist in implementing the Allocation Report Approach, paragraph (c) of proposed Rule 1701 defines an ``Allocation Report.'' Specifically, an ``Allocation Report'' means a report made to the Central Repository by an Industry Member that identifies the Firm Designated ID for any account(s), including subaccount(s), to which executed shares are allocated and provides the security that has been allocated, the identifier of the firm reporting the allocation, the price per share of shares allocated, the side of shares allocated, the number of shares allocated to each account, and the time of the allocation; provided, for the avoidance of doubt, any such Allocation Report shall not be required to be linked to particular orders or executions. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (D) Business Clock To create the required audit trail, Industry Members are required to record the date and time of various Reportable Events to the Central Repository. Industry Members will use ``Business Clocks'' to record such dates and times. Accordingly, paragraph (d) of proposed Rule 1701 defines the term ``Business [[Page 9793]] Clock'' as a clock used to record the date and time of any Reportable Event required to be reported under the Consolidated Audit Trail Compliance Rule (Rules 1701-1712). This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. This change is intended to recognize that the Industry Members' obligations with regard to the CAT are set forth in the Consolidated Audit Trail Compliance Rule (Rules 1701-1712). (E) CAT Paragraph (e) of proposed Rule 1701 defines the term ``CAT'' to mean the consolidated audit trail contemplated by SEC Rule 613. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (F) CAT NMS Plan Paragraph (f) of proposed Rule 1701 defines the term ``CAT NMS Plan'' to mean the National Market System Plan Governing the Consolidated Audit Trail, as amended from time to time. (G) CAT-Order-ID (I) Daisy Chain Approach Under the CAT NMS Plan, the Daisy Chain Approach is used to link and reconstruct the complete lifecycle of each Reportable Event in CAT. According to this Approach, Industry Members assign their own identifiers to each order event. Within the Central Repository, the Plan Processor later replaces the identifier provided by the Industry Member for each Reportable Event with a single identifier, called the CAT Order-ID, for all order events pertaining to the same order. This CAT Order-ID is used to links the Reportable Events related to the same order. (II) Definition of CAT-Order-ID To implement the Daisy Chain Approach, Paragraph (g) of proposed Rule 1701 defines the term ``CAT-Order-ID.'' The term ``CAT-Order-ID'' is defined to mean a unique order identifier or series of unique order identifiers that allows the Central Repository to efficiently and accurately link all Reportable Events for an order, and all orders that result from the aggregation or disaggregation of such order. This is the same definition as set forth in SEC Rule 613(j)(1), and Section 1.1 of the CAT NMS Plan defines ``CAT-Order-ID'' by reference to SEC Rule 613(j)(1). (H) CAT Reporting Agent The CAT NMS Plan permits an Industry Member to use a third party, such as a vendor, to report the required data to the Central Repository on behalf of the Industry Member.\14\ Such a third party, referred to in proposed Rule 1701 as a ``CAT Reporting Agent,'' would be one type of a Data Submitter, that is, a party that submits data to the Central Repository. Paragraph (h) of proposed Rule 1701 defines the term ``CAT Reporting Agent'' to mean a Data Submitter that is a third party that enters into an agreement with-an Industry Member pursuant to which the CAT Reporting Agent agrees to fulfill such Industry Member's reporting obligations under the Consolidated Audit Trail Compliance Rule (proposed Rules 1701-1712). --------------------------------------------------------------------------- \14\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- This definition is based on FINRA's definition of a ``Reporting Agent'' as set forth in FINRA's rule related to its Order Audit Trail System (``OATS''). Specifically, FINRA Rule 7410(n) defines a ``Reporting Agent'' as a third party that enters into any agreement with a member pursuant to which the Reporting Agent agrees to fulfill such member's obligations under Rule 7450. The Reporting Agent for OATS fulfills a similar role to the CAT Reporting Agent. (I) Central Repository Paragraph (i) of proposed Rule 1701 defines the term ``Central Repository'' to mean the repository responsible for the receipt, consolidation, and retention of all information reported to the CAT pursuant to SEC Rule 613 and the CAT NMS Plan. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange uses the phrase ``CAT NMS Plan'' in place of the phrase ``this Agreement.'' (J) Compliance Threshold Paragraph (j) of proposed Rule 1701 defines the term ``Compliance Threshold'' as having the meaning set forth in proposed Rule 1711(d). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. As discussed in detail below with regard to proposed Rule 1711(d), each Industry Member is required to meet a separate compliance threshold which will be an Industry Member-specific rate that may be used as the basis for further review or investigation into the Industry Member's performance with regard to the CAT. This Industry Member-specific rate is the ``Compliance Threshold.'' (K) Customer Industry Members are required to submit to the Central Repository certain information related to their Customers, including Customer Identifying Information and Customer Account Information, as well as data related to their Customer's Reportable Events. Accordingly, Paragraph (k) of proposed Rule 1701 proposes to define the term ``Customer.'' Specifically, the term ``Customer'' would be defined to mean: (1) The account holder(s) of the account at an Industry Member originating the order; and (2) any person from whom the Industry Member is authorized to accept trading instructions for such account, if different from the account holder(s). This is the same definition as set forth in SEC Rule 613(j)(3), except the Exchange proposes to replace the references to a registered broker-dealer or broker-dealer with a reference to an Industry Member for consistency of terms used in the proposed Consolidated Audit Trail Compliance Rule (Rules 1701- 1712). The Exchange also notes that Section 1.1 of the CAT NMS Plan defines ``Customer'' by reference to SEC Rule 613(j)(3). (L) Customer Account Information As discussed above, under the Customer Information Approach, Industry Members are required to report Customer Account Information to the Central Repository as part of the customer definition process. Accordingly, the Exchange proposes to define the term ``Customer Account Information'' to clarify what customer information would need to be reported to the Central Repository. Paragraph (l) of proposed Rule 1701 defines the term ``Customer Account Information'' to include, in part, account number, account type, customer type, date account opened, and large trader identifier (if applicable). Proposed Rule 1701(l), however, provides an alternative definition of ``Customer Account Information'' in two limited circumstances. First, in those circumstances in which an Industry Member has established a trading relationship with an institution but has not established an account with that institution, the Industry Member will: (1) Provide the Account Effective Date in lieu of the ``date account opened''; (2) provide the relationship identifier in lieu of the ``account number''; and (3) identify the ``account type'' as a ``relationship.'' Second, in those circumstances in which the relevant account was established prior to November 15, 2018, for Industry Members other than Small Industry Members, or prior to November 15, 2019, for Small Industry Members, and no ``date account opened'' is available for the account, the Industry Member will provide the Account Effective Date in the following circumstances: (1) [[Page 9794]] Where an Industry Member changes back office providers or clearing firms and the date account opened is changed to the date the account was opened on the new back office/clearing firm system; (2) where an Industry Member acquires another Industry Member and the date account opened is changed to the date the account was opened on the post-merger back office/clearing firm system; (3) where there are multiple dates associated with an account in an Industry Member's system, and the parameters of each date are determined by the individual Industry Member; and (4) where the relevant account is an Industry Member proprietary account. The proposed definition is the same as the definition of ``Customer Account Information'' set forth in Section 1.1 of the CAT NMS Plan, provided, however, that specific dates have replaced the descriptions of those dates set forth in Section 1.1 of the Plan. (M) Customer Identifying Information As discussed above, under the Customer Information Approach, Industry Members are required to report Customer Identifying Information to the Central Repository as part of the customer definition process. Accordingly, the Exchange proposes to define the term ``Customer Account Information'' to clarify what Customer information would need to be reported to the Central Repository. Paragraph (m) of proposed Rule 1701 defines the term ``Customer Identifying Information'' to mean information of sufficient detail to identify a Customer. With respect to individuals, ``Customer Identifying Information'' includes, but is not limited to: Name, address, date of birth, individual tax payer identification number (``ITIN'')/social security number (``SSN''), individual's role in the account (e.g., primary holder, joint holder, guardian, trustee, person with the power of attorney). With respect to legal entities, ``Customer Identifying Information'' includes, but is not limited to, name, address, Employer Identification Number (``EIN'')/Legal Entity Identifier (``LEI'') or other comparable common entity identifier, if applicable. The definition further notes that an Industry Member that has an LEI for a Customer must submit the Customer's LEI in addition to other information of sufficient detail to identify the Customer. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (N) Data Submitter The CAT NMS Plan uses the term ``Data Submitter'' to refer to any person that reports data to the Central Repository.\15\ Such Data Submitters may include those entities that are required to submit data to the Central Repository (e.g., national securities exchanges, national securities associations and Industry Members), third-parties that may submit data to the CAT on behalf of CAT Reporters (i.e., CAT Reporting Agents), and outside parties that are not required to submit data to the CAT but from which the CAT may receive data (e.g., securities information processors (``SIPs''). To include this term in the proposed Consolidated Audit Trail Compliance Rule (Rules 1701- 1712), the Exchange proposes to define ``Data Submitter'' in paragraph (n) of proposed Rule 1701. Specifically, paragraph (n) of proposed Rule 1701 defines a ``Data Submitter'' to mean any person that reports data to the Central Repository, including national securities exchanges, national securities associations, broker-dealers, the SIPs for the CQS, CTA, UTP and Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information (``OPRA'') Plans, and certain other vendors or third parties that may submit data to the Central Repository on behalf of Industry Members. --------------------------------------------------------------------------- \15\ Appendix C, Section A.1(a) of the CAT NMS Plan. --------------------------------------------------------------------------- (O) Eligible Security The reporting requirements of the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) only apply to Reportable Events in Eligible Securities. Currently, an Eligible Security includes NMS Securities and OTC Equity Securities. Accordingly, paragraph (o) of proposed Rule 1701 defines the term ``Eligible Security'' to include: (1) All NMS Securities; and (2) all OTC Equity Securities. The terms ``NMS Securities'' and ``OTC Equity Securities'' are defined, in turn, below. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (P) Error Rate (I) Maximum Error Rate Under the CAT NMS Plan, the Operating Committee sets the maximum Error Rate that the Central Repository would tolerate from an Industry Member reporting data to the Central Repository.\16\ The Operating Committee reviews and resets the maximum Error Rate, at least annually.\17\ If an Industry Member reports CAT data to the Central Repository with errors such that their error percentage exceeds the maximum Error Rate, then such Industry Member would not be in compliance with the CAT NMS Plan or Rule 613.\18\ As such, the Exchange or the SEC ``[sic]'' may take appropriate action against an Industry Member for failing to comply with its CAT reporting obligations.\19\ The CAT NMS Plan sets the initial Error Rate at 5%.\20\ It is anticipated that the maximum Error Rate will be reviewed and lowered by the Operating Committee once Industry Members begin to report to the Central Repository.\21\ --------------------------------------------------------------------------- \16\ Section 6.5(d)(i) of the CAT NMS Plan. \17\ Appendix C, Section A.3(b) of the CAT NMS Plan. \18\ Appendix C, Section A.3(b) of the CAT NMS Plan; Rule 613(g)-(h). \19\ Appendix C, Section A.3(b) of the CAT NMS Plan. \20\ Section 6.5(d)(i) of the CAT NMS Plan. \21\ Appendix C, Section A.3(b) of the CAT NMS Plan. --------------------------------------------------------------------------- The CAT NMS Plan requires the Plan Processor to: (1) Measure and report errors every business day; (2) provide Industry Members daily statistics and error reports as they become available, including a description of such errors; (3) provide monthly reports to Industry Members that detail an Industry Member's performance and comparison statistics; (4) define educational and support programs for Industry Members to minimize Error Rates; and (5) identify, daily, all Industry Members exceeding the maximum allowable Error Rate. To timely correct data-submitted errors to the Central Repository, the CAT NMS Plan requires that the Central Repository receive and process error corrections at all times. Further, the CAT NMS Plan requires that Industry Members be able to submit error corrections to the Central Repository through a web-interface or via bulk uploads or file submissions, and that the Plan Processor, subject to the Operating Committee's approval, support the bulk replacement of records and the reprocessing of such records. The Participants, furthermore, require that the Plan Processor identify Industry Member data submission errors based on the Plan Processor's validation processes.\22\ --------------------------------------------------------------------------- \22\ Approval Order at 84718. --------------------------------------------------------------------------- (II) Definition of Error Rate To implement the requirements of the CAT NMS Plan related to the Error Rate, the Exchange proposes to define the term ``Error Rate'' in proposed Rule 1701. Paragraph (p) of proposed Rule 1701 defines the term ``Error Rate'' to mean the percentage of Reportable Events collected by the Central Repository in which the data reported does not fully and accurately reflect the order event that occurred in the market. This is the same definition as set forth [[Page 9795]] in SEC Rule 613(j)(6), and Section 1.1 of the CAT NMS Plan defines ``Error Rate'' by reference to SEC Rule 613(j)(6). (Q) Firm Designated ID As discussed above, under the Customer Information Approach, the CAT NMS Plan would require each Industry Member to assign a unique Firm Designated ID to each Customer. Industry Members would be permitted to use as the Firm Designated ID an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). Industry Members would be required to report only the Firm Designated ID for each new order submitted to the Central Repository, rather than the ``Customer-ID'' with individual order events. Accordingly, the Exchange proposes to define the term ``Firm Designated ID'' in proposed Rule 1701. Specifically, paragraph (q) of proposed Rule 1701 defines the term ``Firm Designated ID'' to mean a unique identifier for each trading account designated by Industry Members for purposes of providing data to the Central Repository, where each such identifier is unique among all identifiers from any given Industry Member for each business date. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. Industry Members would be permitted to use an account number or any other identifier defined by the firm, provided each identifier is unique across the firm for each business date (i.e., a single firm may not have multiple separate customers with the same identifier on any given date). (R) Industry Member Paragraph (r) of proposed Rule 1701 defines the term ``Industry Member'' to mean a member of a national securities exchange or a member of a national securities association.'' This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (S) Industry Member Data Paragraph (s) of proposed Rule 1701 states that the term ``Industry Member Data'' has the meaning set forth in Rule 1703(a)(2). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. The definition of ``Industry Member Data'' is discussed more fully in the discussion below regarding proposed Rule 1703(a)(2). (T) Initial Plan Processor Paragraph (t) of proposed Rule 1701 defines the term ``Initial Plan Processor'' to mean the first Plan Processor selected by the Operating Committee in accordance with SEC Rule 613, Section 6.1 of the CAT NMS Plan and the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, although the proposed definition uses the full name of the ``Selection Plan.'' (U) Listed Option or Option The CAT NMS Plan and this proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) applies to Eligible Securities, which includes NMS Securities, which, in turn, includes Listed Options. Certain requirements of the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) apply specifically to Listed Options. Accordingly, Paragraph (u) of proposed Rule 1701 defines the term ``Listed Option'' or ``Option.'' Specifically, paragraph (u) of proposed Rule 1701 states that the term ``Listed Option'' or ``Option'' has the meaning set forth in SEC Rule 600(b)(35) of Regulation NMS. SEC Rule 600(b)(35), in turn, defines a listed option as ``any option traded on a registered national securities exchange or automated facility of a national securities association.'' The Exchange notes that the proposed definition of ``Listed Option'' is the same definition as the definition set forth in Section 1.1 of the CAT NMS Plan. (V) Manual Order Event (I) Manual Order Event Approach The CAT NMS Plan sets forth clock synchronization and timestamp requirements for Industry Members which reflect exemptions for Manual Order Events granted by the Commission.\23\ Specifically, the Plan requires Industry Members to record and report the time of each Reportable Event using timestamps reflecting current industry standards (which must be at least to the millisecond) or, if an Industry Member's order handling or execution system uses timestamps in increments finer than milliseconds, such finer increments, when reporting to the Central Repository. For Manual Order Events, however, the Plan provides that such events must be recorded in increments up to and including one second, provided that Industry Members record and report the time the event is captured electronically in an order handling and execution system (``Electronic Capture Time'') in milliseconds. In addition, Industry Members are required to synchronize their respective Business Clocks (other than such Business Clocks used solely for Manual Order Events) at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards and Technology (``NIST''), and maintain such a synchronization. Each Industry Member is required to synchronize their Business Clocks used solely for Manual Order Events, however, at a minimum to within one second of the time maintained by the NIST. --------------------------------------------------------------------------- \23\ Exemption Order. --------------------------------------------------------------------------- (II) Definition of Manual Order Event In order to clarify what a Manual Order Event is for clock synchronization and time stamp purposes, the Exchange proposes to define the term ``Manual Order Event'' in proposed Rule 1701. Specifically, paragraph (v) of proposed Rule 1701 defines the term ``Manual Order Event'' to mean a non-electronic communication of order- related information for which Industry Members must record and report the time of the event. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (W) Material Terms of the Order Proposed Rule 1703 requires Industry Members to record and report to the Central Repository Material Terms of the Order with certain Reportable Events (e.g., for the original receipt or origination of an order, for the routing of an order). Accordingly, the Exchange proposes to define the term ``Material Terms of the Order'' in proposed Rule 1701. Specifically, paragraph (w) of proposed Rule 1701 defines the term ``Material Terms of the Order'' to include: The NMS Security or OTC Equity Security symbol; security type; price (if applicable); size (displayed and non-displayed); side (buy/sell); order type; if a sell order, whether the order is long, short, short exempt; open/close indicator (except on transactions in equities); time in force (if applicable); if the order is for a Listed Option, option type (put/ call), option symbol or root symbol, underlying symbol, strike price, expiration date, and open/close (except on market maker quotations); and any special handling instructions. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (X) NMS Security NMS Securities are one of the types of Eligible Securities for the CAT. Therefore, the Exchange proposes to [[Page 9796]] define the term ``NMS Security'' in proposed Rule 1701. Specifically, paragraph (x) of proposed Rule 1701 defines the term ``NMS Security'' to mean any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in Listed Options. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (Y) NMS Stock Under the CAT NMS Plan, the Operating Committee may establish different Trading Days for NMS Stocks (as defined in SEC Rule 600(b)(47)), Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. Accordingly, the Exchange proposes to define the term ``NMS Stock'' in Paragraph (y) of proposed Rule 1701 to mean any NMS Security other than an option. This is the same definition as set forth in SEC Rule 600(b)(47) of Regulation NMS. (Z) Operating Committee Paragraph (z) of proposed Rule 1701 defines the term ``Operating Committee'' to mean the governing body of the CAT NMS, LLC designated as such and described in Article IV of the CAT NMS Plan. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan, except the Exchange proposes to use the phrase ``CAT NMS LLC'' in place of the phrase ``the Company'' for clarity. (AA) Options Market Maker (I) Options Market Maker Quote Exemption SEC Rule 613(c)(7) provides that the CAT NMS Plan must require each Industry Member to record and electronically report to the Central Repository details for each order and each reportable event, including the routing and modification or cancellation of an order. SEC Rule 613(j)(8) defines ``order'' to include ``any bid or offer.'' Therefore, under SEC Rule 613, the details for each Options Market Maker quotation must be reported to the Central Repository by both the Options Market Maker and the options exchange to which it routes its quote. The SROs, however, requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit Options Market Maker quotes to be reported to the Central Repository by the relevant options exchange in lieu of requiring that such reporting be done by both the options exchange and the Options Market Maker, as is required by SEC Rule 613.\24\ In accordance with the exemptive relief, Options Market Makers would be required to report to the options exchange the time at which a quote in a Listed Option is sent to the options exchange. Such time information also will be reported to the Central Repository by the options exchange in lieu of reporting by the Options Market Maker. --------------------------------------------------------------------------- \24\ See Exemptive Request Letter at 2, and Exemption Order. --------------------------------------------------------------------------- (II) Definition of Options Market Maker To implement the requirements related to Option Market Maker quotes, the Exchange proposes to define the term ``Options Market Maker'' in proposed Rule 1701. Specifically, paragraph (aa) of proposed Rule 1701 defines the term ``Options Market Maker'' to mean a broker- dealer registered with an exchange for the purpose of making markets in options contracts traded on the exchange. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (BB) Order The proposed Consolidated Audit Trail Compliance Rule (Rules 1701- 1712) requires each Industry Member to record and electronically report to the Central Repository certain details for each order. Accordingly, the Exchange proposes to define the term ``Order'' in proposed Rule 1701. Specifically, paragraph (bb) of proposed Rule 1701 defines the term ``Order'', with respect to Eligible Securities, to include: (1) Any order received by an Industry Member from any person; (2) any order originated by an Industry Member; or (3) any bid or offer. This is the same definition as set forth in SEC Rule 613(j)(8), except the Exchange proposes to replace the phrase ``member of a national securities exchange or national securities association'' with the term ``Industry Member.'' The Exchange notes that Section 1.1 of the CAT NMS Plan defines ``Order'' by reference to SEC Rule 613(j)(8). (CC) OTC Equity Security OTC Equity Securities are one of the types of Eligible Securities for the CAT. Therefore, the Exchange proposes to define the term ``OTC Equity Security'' in proposed Rule 1701. Specifically, paragraph (cc) of proposed Rule 1701 defines the term ``OTC Equity Security'' to mean any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association's equity trade reporting facilities. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (DD) Participant Paragraph (dd) of proposed Rule 1701 defines the term ``Participant'' to mean each Person identified as such in Exhibit A of the CAT NMS Plan, as amended, in such Person's capacity as a Participant in CAT NMS, LLC. This is the same definition in substance as set forth in Section 1.1 of the CAT NMS Plan. (EE) Person Paragraph (ee) of proposed Rule 1701 defines the term ``Person'' to mean any individual, partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association and any heirs, executors, administrators, legal representatives, successors and assigns of such Person where the context so permits. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (FF) Plan Processor Paragraph (ff) of proposed Rule 1701 defines the term ``Plan Processor'' to mean the Initial Plan Processor or any other Person selected by the Operating Committee pursuant to SEC Rule 613 and Sections 4.3(b)(i) and 6.1 of the CAT NMS Plan, and with regard to the Initial Plan Processor, the National Market System Plan Governing the Process for Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail, to perform the CAT processing functions required by SEC Rule 613 and set forth in the CAT NMS Plan. (GG) Received Industry Member Data Paragraph (gg) of proposed Rule 1701 states that the term ``Received Industry Member Data'' has the meaning set forth in Rule 1703(a)(2). This definition has the same substantive meaning as the definition set forth in Section 1.1 of the CAT NMS Plan. The definition of ``Received Industry Member Data'' is discussed more fully in the discussion below regarding proposed Rule 1703(a)(2). (HH) Recorded Industry Member Data Paragraph (hh) of proposed Rule 1701 states that the term ``Recorded Industry Member Data'' has the meaning set forth in Rule 1703(a)(1). This definition has the same substantive meaning as the definition set forth in in Section 1.1 of the CAT NMS Plan. The definition of ``Recorded Industry Member Data'' is discussed more fully in the discussion [[Page 9797]] below regarding proposed Rule 1703(a)(1). (II) Reportable Event The proposed Consolidated Audit Trail Compliance Rule (Rules 1701- 1712) requires each Industry Member to record and electronically report to the Central Repository certain details for each Reportable Event. To clarify these requirements, the Exchange proposes to define the term ``Reportable Event'' in proposed Rule 1701. Specifically, paragraph (ii) of proposed Rule 1701 states that the term ``Reportable Event'' includes, but is not limited to, the original receipt or origination, modification, cancellation, routing, execution (in whole or in part) and allocation of an order, and receipt of a routed order. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (JJ) SRO Paragraph (jj) of proposed Rule 1701 defines the term ``SRO'' to mean any self-regulatory organization within the meaning of Section 3(a)(26) of the Exchange Act. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. (KK) SRO-Assigned Market Participant Identifier (I) Existing Identifier Approach The SROs requested and received exemptive relief from SEC Rule 613 so that the CAT NMS Plan may permit the Existing Identifier Approach, which would allow an Industry Member to report an existing SRO-Assigned Market Participant Identifier in lieu of requiring the reporting of a universal CAT-Reporter-ID (that is, a code that uniquely and consistently identifies an Industry Member for purposes of providing data to the Central Repository).\25\ The CAT NMS Plan reflects the ``Existing Identifier Approach'' for purposes of identifying each Industry Member associated with an order or Reportable Event. Under the Existing Identifier Approach, Industry Members are required to record and report to the Central Repository an SRO-Assigned Market Participant Identifier for orders and certain Reportable Events to be used by the Central Repository to assign a unique CAT-Reporter-ID to identify Industry Members. For the Central Repository to link the SRO-Assigned Market Participant Identifier to the CAT-Reporter-ID, each SRO will submit to the Central Repository, on a daily basis, all SRO-Assigned Market Participant Identifiers used by its Industry Members, as well as information to identify each such Industry Member, including CRD number and LEI, if the SRO has collected such LEI of the Industry Member. Additionally, each Industry Member is required to submit to the Central Repository the CRD number of the Industry Member as well as the LEI of the Industry Member (if the Industry Member has an LEI). The Plan Processor will use this information to assign a CAT-Reporter-ID to each Industry Member for internal use within the Central Repository. --------------------------------------------------------------------------- \25\ See Exemptive Request Letter at 19, and Exemption Order. --------------------------------------------------------------------------- (II) Definition of SRO-Assigned Market Participant Identifier To implement the Existing Identifier Approach, the Exchange proposes to define the term ``SRO-Assigned Market Participant'' in proposed Rule 1701. Specifically, paragraph (kk) of proposed Rule 1701 defines the term ``SRO-Assigned Market Participant Identifier'' to mean an identifier assigned to an Industry Member by an SRO or identifier used by a Participant. This is the same definition as set forth in Section 1.1 of the CAT NMS Plan. For example, an Industry Member would be permitted to use any existing SRO-Assigned Market Participant Identifier (e.g., FINRA MPID, NASDAQ MPID, NYSE Mnemonic, CBOE User Acronym and CHX Acronym) when reporting order information to the Central Repository. (LL) Small Industry Member The requirements of the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) differ to some extent for Small Industry Members versus Industry Members other than Small Industry Members. For example, the compliance dates for reporting data to the CAT are different for Small Industry Members versus other Industry Members. Accordingly, to clarify the requirements that apply to which Industry Members, the Exchange proposes to define the term ``Small Industry Member'' in proposed Rule 1701. Specifically, paragraph (ll) of proposed Rule 1701 defines the term ``Small Industry Member'' to mean an Industry Member that qualifies as a small broker-dealer as defined in Rule 0-10(c) under the Securities Exchange Act of 1934, as amended. This is the same in substance as the definition of ``Small Industry Member'' as set forth in Section 1.1 of the CAT NMS Plan. Specifically, Section 1.1 of the CAT NMS Plan defines a ``Small Industry Member'' as ``an Industry Member that qualifies as a small broker-dealer as defined in SEC Rule 613.'' The definition of a small broker-dealer under SEC Rule 613, in turn, is a small broker-dealer as defined in SEC Rule 0-10(c). (MM) Trading Day Proposed Rule 1703(b) establishes the deadlines for reporting certain data to the Central Repository using the term ``Trading Day.'' Accordingly, the Exchange proposes to define the term ``Trading Day'' in proposed Rule 1701. Specifically, Paragraph (mm) of proposed Rule 1701 states that the term ``Trading Day'' shall have the meaning as is determined by the Operating Committee. For the avoidance of doubt, the Operating Committee may establish different Trading Days for NMS Stocks (as defined in SEC Rule 600(b)(47), Listed Options, OTC Equity Securities, and any other securities that are included as Eligible Securities from time to time. (ii) Clock Synchronization SEC Rule 613(d)(1) under Regulation NMS requires Industry Members to synchronize their Business Clocks to the time maintained by NIST, consistent with industry standards. To comply with this provision, Section 6.8 of the Plan sets forth the clock synchronization requirements for Industry Members.\26\ To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 1702 (Consolidated Audit Trail Compliance Rule-Clock Synchronization) to require its Industry Members to comply with the clock synchronization requirements of the Plan. --------------------------------------------------------------------------- \26\ In addition, Section 6.7(a)(ii) of the Plan sets forth the timeline for CAT Reporters to comply with the clock synchronization requirements. --------------------------------------------------------------------------- Paragraph (a) of proposed Rule 1702 sets forth the manner in which Industry Members must synchronize their Business Clocks. Paragraph (a)(1) of proposed Rule 1702 requires each Industry Member to synchronize its Business Clocks, other than such Business Clocks used solely for Manual Order Events or used solely for the time of allocation on Allocation Reports, at a minimum to within a fifty (50) millisecond tolerance of the time maintained by the NIST atomic clock, and maintain such synchronization. This is the same requirement as set forth in Section 6.8(a)(ii)(A) of the CAT NMS Plan. Paragraph (a)(2) of proposed Rule 1702 requires each Industry Member to synchronize (1) its Business Clocks used solely for Manual Order Events and (2) its Business Clocks used solely for the [[Page 9798]] time of allocation on Allocation Reports at a minimum to within a one second tolerance of the time maintained by the NIST atomic clock, and maintain such synchronization. This is the same requirement as set forth in Section 6.8(a)(iii) and (iv) of the CAT NMS Plan. Paragraph (a)(3) of proposed Rule 1702 clarifies that the tolerance described in paragraphs (a)(1) and (2) of the proposed Rule 1702 includes all of the following: (1) The time difference between the NIST atomic clock and the Industry Member's Business Clock; (2) the transmission delay from the source; and (3) the amount of drift of the Industry Member's Business Clock. This description of the clock synchronization tolerance is the same as set forth in paragraph (b) of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (a)(4) of proposed Rule 1702 requires Industry Members to synchronize their Business Clocks every business day before market open to ensure that timestamps for Reportable Events are accurate. In addition, to maintain clock synchronization, Business Clocks must be checked against the NIST atomic clock and re-synchronized, as necessary, throughout the day. This description of the required frequency of clock synchronization is the same as set forth in paragraph (c) of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (b) of proposed Rule 1702 sets forth documentation requirements with regard to clock synchronization. Specifically, paragraph (b) requires Industry Members to document and maintain their synchronization procedures for their Business Clocks. The proposed Rule requires Industry Members to keep a log of the times when they synchronize their Business Clocks and the results of the synchronization process. This log is required to include notice of any time a Business Clock drifts more than the applicable tolerance specified in paragraph (a) of the proposed Rule. Such logs must include results for a period of not less than five years ending on the then current date, or for the entire period for which the Industry Member has been required to comply with this Rule if less than five years. These documentation requirements are the same as those set forth in the ``Sequencing Orders and Clock Synchronization'' section of Appendix C of the CAT NMS Plan. Moreover, these documentation requirements regarding clock synchronization are comparable to those set forth in Supplementary Material .01 of FINRA Rule 4590 (Synchronization of Member Business Clocks). Paragraph (c) of proposed Rule 1702 sets forth certification requirements with regard to clock synchronization. Specifically, paragraph (c) of proposed Rule 1702 requires each Industry Member to certify to the Exchange that its Business Clocks satisfy the synchronization requirements set forth in paragraph (a) of proposed Rule 1702 periodically in accordance with the certification schedule established by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(B), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the certification schedule established by the Operating Committee via Regulatory Circular. Paragraph (d) of proposed Rule 1702 establishes reporting requirements with regard to clock synchronization. Paragraph (d) of proposed Rule 1702 requires Industry Members to report to the Plan Processor and SRO violations of paragraph (a) of this Rule pursuant to the thresholds set by the Operating Committee pursuant to the CAT NMS Plan. This requirement is the same requirement as set forth in Section 6.8(a)(ii)(C), (iii) and (iv) of the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant thresholds established by the Operating Committee via Regulatory Circular. (iii) Industry Member Data Reporting SEC Rule 613(c) under Regulation NMS requires the CAT NMS Plan to set forth certain provisions requiring Industry Members to record and report data to the CAT. To comply with this provision, Section 6.4 of the CAT NMS Plan sets forth the data reporting requirements for Industry Members. To implement these provisions with regard to its Industry Members, the Exchange proposes Rule 1703 (Consolidated Audit Trail Compliance Rule--Industry Member Data Reporting) to require its Industry Members to comply with the Industry Member Data reporting requirements of the Plan. Proposed Rule 1703 has five sections covering: (1) Recording and reporting Industry Member Data, (2) timing of the recording and reporting, (3) the applicable securities covered by the recording and reporting requirements, (4) the security symbology to be used in the recording and reporting, and (5) error correction requirements, each of which is described below. (A) Recording and Reporting Industry Member Data Paragraph (a) of proposed Rule 1703 describes the recording and reporting of Industry Member Data to the Central Repository. Paragraph (a) consists of paragraphs (a)(1)-(a)(3), which cover Recorded Industry Member Data, Received Industry Member Data and Options Market Maker data, respectively. Paragraphs (a)(1)-(a)(3) of proposed Rule 1703 set forth the recording and reporting requirements required in Section 6.4(d)(i)-(iii) of the CAT NMS Plan, respectively. Paragraph (a)(1) requires, subject to paragraph (a)(3) regarding Options Market Makers, each Industry Member to record and electronically report to the Central Repository the following details for each order and each Reportable Event, as applicable (``Recorded Industry Member Data'') in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan:For original receipt or origination of an order: (1) Firm Designated ID(s) for each Customer; (2) CAT-Order-ID; (3) SRO-Assigned Market Participant Identifier of the Industry Member receiving or originating the order; (4) date of order receipt or origination; (5) time of order receipt or origination (using timestamps pursuant to proposed Rule 1706); and (6) Material Terms of the Order; for the routing of an order: (1) CAT-Order-ID; (2) date on which the order is routed; (3) time at which the order is routed (using timestamps pursuant to proposed Rule 1706); (4) SRO-Assigned Market Participant Identifier of the Industry Member routing the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Participant to which the order is being routed; (6) if routed internally at the Industry Member, the identity and nature of the department or desk to which the order is routed; and (7) Material Terms of the Order; for the receipt of an order that has been routed, the following information: (1) CAT-Order-ID; (2) date on which the order is received; (3) time at which the order is received (using timestamps pursuant to proposed Rule 1706); (4) SRO-Assigned Market Participant Identifier of the Industry Member receiving the order; (5) SRO-Assigned Market Participant Identifier of the Industry Member or Participant routing the order; and (6) Material Terms of the Order; if the order is modified or cancelled: (1) CAT-Order-ID; (2) date the modification or cancellation is received or originated; (3) time at which the [[Page 9799]] modification or cancellation is received or originated (using timestamps pursuant to proposed Rule 1706); (4) price and remaining size of the order, if modified; (5) other changes in the Material Terms of the Order, if modified; and (6) whether the modification or cancellation instruction was given by the Customer or was initiated by the Industry Member; if the order is executed, in whole or in part: (1) CAT- Order-ID; (2) date of execution; (3) time of execution (using timestamps pursuant to proposed Rule 1706; (4) execution capacity (principal, agency or riskless principal); (5) execution price and size; (6) SRO-Assigned Market Participant Identifier of the Industry Member executing the order; (7) whether the execution was reported pursuant to an effective transaction reporting plan or the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information; and other information or additional events as may be prescribed pursuant to the CAT NMS Plan. Paragraph (a)(2) of proposed Rule 1703 requires, subject to paragraph (a)(3) regarding Options Market Makers, each Industry Member to record and report to the Central Repository the following, as applicable (``Received Industry Member Data'' and collectively with the information referred to in Rule 1703(a)(1) ``Industry Member Data'') in the manner prescribed by the Operating Committee pursuant to the CAT NMS Plan: If the order is executed, in whole or in part: (1) An Allocation Report; (2) SRO-Assigned Market Participant Identifier of the clearing broker or prime broker, if applicable; and (3) CAT-Order- ID of any contra-side order(s); if the trade is cancelled, a cancelled trade indicator; and for original receipt or origination of an order, the Firm Designated ID for the relevant Customer, and in accordance with proposed Rule 1704, Customer Account Information and Customer Identifying Information for the relevant Customer. Paragraph (a)(3) of proposed Rule 1703 states that each Industry Member that is an Options Market Maker is not required to report to the Central Repository the Industry Member Data regarding the routing, modification or cancellation of its quotes in Listed Options. Each Industry Member that is an Options Market Maker, however, is required to report to the Exchange the time at which its quote in a Listed Option is sent to the Exchange (and, if applicable, any subsequent quote modification time and/or cancellation time when such modification or cancellation is originated by the Options Market Maker). This paragraph implements the Options Market Maker Quote Exemption, as discussed above. (B) Timing of Recording and Reporting Paragraph (b) of proposed Rule 1703 describes the requirements related to the timing of recording and reporting of Industry Member Data. Paragraphs (b)(1)-(b)(3) of proposed Rule 1703 set forth the requirements related to the timing of the recording and reporting requirements required in Section 6.4(b)(i)-(ii) of the CAT NMS Plan. Paragraph (b)(1) of proposed Rule 1703 requires each Industry Member to record Recorded Industry Member Data contemporaneously with the applicable Reportable Event. Paragraph (b)(2) of proposed Rule 1703 requires each Industry Member to report: (1) Recorded Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the Industry Member records such Recorded Industry Member Data; and (2) Received Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on the Trading Day following the day the-Industry Member receives such Received Industry Member Data. Paragraph (b)(3) states that Industry Members may, but are not required to, voluntarily report Industry Member Data prior to the applicable 8:00 a.m. Eastern Time deadline. (C) Applicable Securities Paragraph (c) of proposed Rule 1703 describes the securities to which the recording and reporting requirements of proposed Rule 1703 apply. Paragraphs (c)(1) and (c)(2) of proposed Rule 1703 set forth the description of applicable securities as set forth in Section 6.4(c)(i) and (ii) of the CAT NMS Plan, respectively. Paragraph (c)(1) of proposed Rule 1703 requires each Industry Member to record and report to the Central Repository the Industry Member Data as set forth in paragraph (a) of proposed Rule 1703 for each NMS Security registered or listed for trading on such exchange or admitted to unlisted trading privileges on such exchange. Paragraph (c)(2) of proposed Rule 1703 requires each Industry Member to record and report to the Central Repository the Industry Member Data as set forth in paragraph (a) of this proposed Rule 1703 for each Eligible Security for which transaction reports are required to be submitted to FINRA. (D) Security Symbology Paragraph (d) of proposed Rule 1703 describes the security symbology that Industry Members are required to use when reporting Industry Member Data to the Central Repository. Paragraph (d)(1) of proposed Rule 1703 requires, for each exchange-listed Eligible Security, each Industry Member to report Industry Member Data to the Central Repository using the symbology format of the exchange listing the security. This requirement implements the requirement set forth in Section 2 of Appendix D of the CAT NMS Plan to use the listing exchange symbology when reporting data to the Central Repository for exchange- listed Eligible Securities. For each Eligible Security that is not exchange-listed, however, there is no listing exchange to provide the symbology format. Moreover, to date, the requisite symbology format has not been determined. Therefore, Paragraph (d)(2) of proposed Rule 1703 requires, for each Eligible Security that is not exchange-listed, each Industry Member to report Industry Member Data to the Central Repository using such symbology format as approved by the Operating Committee pursuant to the CAT NMS Plan. The Exchange intends to announce to its Industry Members the relevant symbology formats established by the Operating Committee via Regulatory Circular. (E) Error Correction To ensure that the CAT contains accurate data, the CAT NMS Plan requires Industry Members to correct erroneous data submitted to the Central Repository. Therefore, the Exchange proposes to adopt paragraph (e) of proposed Rule 1703, which addresses the correction of erroneous data reported to the Central Repository. Paragraph (e) of proposed Rule 1703 requires, for each Industry Member for which errors in Industry Member Data submitted to the Central Repository have been identified by the Plan Processor or otherwise, that such Industry Member submit corrected Industry Member Data to the Central Repository by 8:00 a.m. Eastern Time on T+3. This requirement implements the error correction requirement set forth in Section 6 of Appendix D of the CAT NMS Plan. (iv) Customer Information Reporting Section 6.4(d)(iv) of the CAT NMS Plan requires Industry Members to submit to the Central Repository certain information related to their Customers in accordance with the Customer Information Approach discussed above. The Exchange proposes Rule 1704 (Consolidated Audit Trail Compliance Rule--Customer Information Reporting) [[Page 9800]] to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, paragraph (a) of proposed Rule 1704 requires each Industry Member to submit to the Central Repository the Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account prior to such Industry Member's commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 1709. Paragraph (b) of proposed Rule 1704 requires each Industry Member to submit to the Central Repository any updates, additions or other changes to the Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account on a daily basis. Paragraph (c) of proposed Rule 1704 requires each Industry Member, on a periodic basis as designated by the Plan Processor and approved by the Operating Committee, to submit to the Central Repository a complete set of Firm Designated IDs, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account. This periodic refresh is intended to ensure that the Central Repository has the most current information identifying a Customer. The Exchange intends to announce to its Industry Members when such a periodic refresh is required by the Plan Processor and the Operating Committee via Regulatory Circular. Finally, paragraph (d) of proposed Rule 1704 addresses the correction of erroneous Customer data reported to the Central Repository to ensure an accurate audit trail. Paragraph (d) requires, for each Industry Member for which errors in Firm Designated ID, Customer Account Information and Customer Identifying Information for each of its Customers with an Active Account submitted to the Central Repository have been identified by the Plan Processor or otherwise, such Member to submit corrected data to the Central Repository by 5:00 p.m. Eastern Time on T+3. This requirement implements the error correction requirement set forth in Appendix C of the CAT NMS Plan. (v) Industry Member Information Reporting Section 6.4(d)(vi) of the CAT NMS Plan requires Industry Members to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained, in accordance with the Existing Identifier Approach discussed above. The Exchange proposes Rule 1705 (Consolidated Audit Trail Compliance Rule--Industry Member Information Reporting) to implement this provision of the CAT NMS Plan with regard to its Industry Members. Specifically, proposed Rule 1705 requires each Industry Member to submit to the Central Repository information sufficient to identify such Industry Member, including CRD number and LEI, if such LEI has been obtained, prior to such Industry Member's commencement of reporting to the Central Repository and in accordance with the deadlines set forth in Rule 1709, and keep such information up to date as necessary. (vi) Time Stamps SEC Rule 613(d)(3) under Regulation NMS sets forth requirements for time stamps used by CAT Reporters in recording and reporting data to the CAT.\27\ To comply with this provision, Section 6.8(b) of the Plan sets forth time stamp requirements for Industry Members. To implement this provision with regard to its Industry Members, the Exchange proposes new Rule 1706 (Consolidated Audit Trail Compliance Rule--Time Stamps) to require its Industry Members to comply with the time stamp requirements of the Plan. --------------------------------------------------------------------------- \27\ 17 CFR 242.613(d)(3). --------------------------------------------------------------------------- Paragraph (a) of proposed Rule 1706 sets forth the time stamp increments to be used by Industry Members in their CAT reporting. Paragraph (a)(1) of proposed Rule 1706 requires each Industry Member to record and report Industry Member Data to the Central Repository with time stamps in milliseconds, subject to paragraphs (a)(2) and (b) of proposed Rule 1706. To the extent that any Industry Member's order handling or execution systems utilize time stamps in increments finer than milliseconds, paragraph (a)(2) of proposed Rule 1706 requires such Industry Member to record and report Industry Member Data to the Central Repository with time stamps in such finer increment, subject to paragraph (b) of proposed Rule 1706 regarding Manual Order Events and Allocation Reports. Paragraph (b) of proposed Rule 1706 sets forth the permissible time stamp increments for Manual Order Events and Allocation Reports. Specifically, paragraph (b)(1) of proposed Rule 1706 permits each Industry Member to record and report Manual Order Events to the Central Repository in increments up to and including one second, provided that each Industry Member is required to record and report the time when a Manual Order Event has been captured electronically in an order handling and execution system of such Member (``Electronic Capture Time'') in milliseconds. In addition, paragraph (b)(2) of proposed Rule 1706 permits each Industry Member to record and report the time of Allocation Reports in increments up to and including one second. (vii) Clock Synchronization Rule Violations Proposed Rule 1707 (Consolidated Audit Trail Compliance Rule--Clock Synchronization Rule Violation) describes potential violations of the clock synchronization time period requirements set forth in the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). Proposed Rule 1707 states that an Industry Member that engages in a pattern or practice of reporting Reportable Events outside of the required clock synchronization time period as set forth in the Consolidated Audit Trail Compliance Rule (Rules 1701-1712) without reasonable justification or exceptional circumstances may be considered in violation of this Rule. This provision implements the requirements of Section 6.8 of the CAT NMS Plan which requires the Compliance Rule to provide that a pattern or practice of reporting events outside of the required clock synchronization time period without reasonable justification or exceptional circumstances may be considered a violation of SEC Rule 613 or the CAT NMS Plan. (viii) Connectivity and Data Transmission Proposed Rule 1708 (Consolidated Audit Trail Compliance Rule-- Connectivity and Data Transmission) addresses connectivity and data transmission requirements related to the CAT. Paragraph (a) of proposed Rule 1708 describes the format(s) for reporting Industry Member Data to the Central Repository, thereby implementing the formatting requirements as set forth in Section 6.4(a) of the CAT NMS Plan. Specifically, paragraph (a) of proposed Rule 1708 requires each Industry Member to transmit data as required under the CAT NMS Plan to the Central Repository utilizing such format(s) as may be provided by the Plan Processor and approved by the Operating Committee. Paragraph (b) of proposed Rule 1708 addresses connectivity requirements related to the CAT. Paragraph (b) of proposed Rule 1708 requires each Industry Member to connect to the [[Page 9801]] Central Repository using a secure method(s), including, but not limited to, private line(s) and virtual private network connection(s). This provision implements the connectivity requirements set forth in Section 4 of Appendix D to the CAT NMS Plan. Paragraph (c) permits Industry Members to use CAT Reporting Agents to fulfill their data reporting obligations related to the CAT. Paragraph (c) is based on FINRA Rule 7450(c), which permits OATS Reporting Members to enter into agreements with Reporting Agents to fulfill the OATS obligations of the OATS Reporting Member. Specifically, Paragraph (c)(1) of proposed Rule 1708 states that any Industry Member may enter into an agreement with a CAT Reporting Agent pursuant to which the CAT Reporting Agent agrees to fulfill the obligations of such Industry Member under the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). Any such agreement must be evidenced in writing, which specifies the respective functions and responsibilities of each party to the agreement that are required to effect full compliance with the requirements of the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). The Exchange notes that, currently, no standardized form agreement for CAT Reporting Agent arrangements has been adopted. Paragraph (c)(2) of proposed Rule 1708 requires that all written documents evidencing an agreement with a CAT Reporting Agent be maintained by each party to the agreement. Paragraph (c)(3) states that each Industry Member remains primarily responsible for compliance with the requirements of the proposed Consolidate Audit Trail Compliance Rule (Rules 1701-1712), notwithstanding the existence of an agreement described in paragraph (c) of proposed Rule 1708. (ix) Development and Testing The Exchange proposes Rule 1709 (Consolidated Audit Trail Compliance Rule--Development and Testing) to address requirements for Industry Members related to CAT development and testing. Paragraph (a) of proposed Rule 1709 sets forth the testing requirements and deadlines for Industry Members to develop and commence reporting to the Central Repository. These requirements are set forth in Appendix C to the CAT NMS Plan. Paragraph (a)(1) sets forth the deadlines related to connectivity and acceptance testing. Industry Members (other than Small Industry Members) are required to begin connectivity and acceptance testing with the Central Repository no later than August 15, 2018, and Small Industry Members are required to begin connectivity and acceptance testing with the Central Repository no later than August 15, 2019. Paragraph (a)(2) sets forth the deadlines related to reporting Customer and Industry Member information. Paragraph (a)(2)(i) requires Industry Members (other than Small Industry Members) to begin reporting Customer and Industry Member information, as required by Rules 1704(a) and 1705, respectively, to the Central Repository for processing no later than October 15, 2018. Paragraph (a)(2)(ii) requires Small Industry Members to begin reporting Customer and Industry Member information, as required by Rules 1704(a) and 1705, respectively, to the Central Repository for processing no later than October 15, 2019. Paragraph (a)(3) sets forth the deadlines related to the submission of order data. Under paragraph (a)(3)(i), Industry Members (other than Small Industry Members) are permitted, but not required, to submit order data for testing purposes beginning no later than May 15, 2018. In addition, Industry Members (other than Small Industry Members) are required to participate in the coordinated and structured testing of order submission, which will begin no later than August 15, 2018. Under paragraph (a)(3)(ii), Small Industry Members are permitted, but not required, to submit order data for testing purposes beginning no later than May 15, 2019. In addition, Small Industry Members are required to participate in the coordinated and structured testing of order submission, which will begin no later than August 15, 2019. Paragraph (a)(4) states that Industry Members are permitted, but not required to, submit Quote Sent Times on Options Market Maker quotes, beginning no later than October 15, 2018. Paragraph (b) of proposed Rule 1709 implements the requirement under the CAT NMS Plan that Industry Members participate in required industry testing with the Central Repository.\28\ Specifically, proposed Rule 1709 requires that each Industry Member participate in testing related to the Central Repository, including any industry-wide disaster recovery testing, pursuant to the schedule established pursuant to the CAT NMS Plan. The Exchange intends to announce to its Industry Members the schedule established pursuant to the CAT NMS Plan via Regulatory Circular. --------------------------------------------------------------------------- \28\ Adopting Release [sic] at 84725. --------------------------------------------------------------------------- (x) Recordkeeping Proposed Rule 1710 (Consolidated Audit Trail Compliance Rule-- Recordkeeping) sets forth the recordkeeping obligations related to the CAT for Industry Members. Proposed Rule 1710 requires each Industry Member to maintain and preserve records of the information required to be recorded under the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) for the period of time and accessibility specified in SEC Rule 17a-4(b). The records required to be maintained and preserved under the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) may be immediately produced or reproduced on ``micrographic media'' as defined in SEC Rule 17a-4(f)(1)(i) or by means of ``electronic storage media'' as defined in SEC Rule 17a-4(f)(1)(ii) that meet the conditions set forth in SEC Rule 17a-4(f) and be maintained and preserved for the required time in that form. Proposed Rule 1710 is based on FINRA Rule 7440(a)(5), which sets forth the recordkeeping requirements related to OATS. (xi) Timely, Accurate and Complete Data SEC Rule 613 and the CAT NMS Plan emphasize the importance of the timeliness, accuracy, completeness and integrity of the data submitted to the CAT.\29\ Accordingly, proposed Rule 1711 (Consolidated Audit Trail Compliance Rule--Timely, Accurate and Complete Data) implements this requirement with regard to Industry Members. Paragraph (a) of proposed Rule 1711 requires that Industry Members record and report data to the Central Repository as required by the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) in a manner that ensures the timeliness, accuracy, integrity and completeness of such data. --------------------------------------------------------------------------- \29\ See SEC Rule 613(e)(4)(i)(D)(ii); and Section 6.5(d) of the CAT NMS Plan. --------------------------------------------------------------------------- In addition, without limiting the general requirement as set forth in paragraph (a), paragraph (b) of proposed Rule 1711 requires Industry Members to accurately provide the LEIs in their records as required by the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712) and states that Industry Members may not knowingly submit inaccurate LEIs to the Central Repository. Paragraph (b) notes, however, that this requirement does not impose any additional due diligence obligations on Industry Members with regard to LEIs for CAT purposes. Accordingly, this provision does not [[Page 9802]] impose any due diligence obligations beyond those that may exist today with respect to information associated with an LEI. Although Industry Members will not be required to perform additional due diligence with regard to the LEIs for CAT purposes, Industry Members will be required to accurately provide the LEIs in their records and may not knowingly submit inaccurate LEIs to the CAT. Paragraph (b) is consistent with the SEC's statements in the Approval Order for the CAT NMS Plan regarding an Industry Member's obligations regarding LEIs.\30\ --------------------------------------------------------------------------- \30\ Approval Order at 84745. --------------------------------------------------------------------------- Paragraph (c) states that, if an Industry Member reports data to the Central Repository with errors such that its error percentage exceeds the maximum Error Rate established by the Operating Committee pursuant to the CAT NMS Plan, then such Industry Member would not be in compliance with the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). As discussed above, the initial maximum Error Rate is 5%, although the Error Rate is expected to be reduced over time. The Exchange intends to announce to its Industry Members changes to the Error Rate established pursuant to the CAT NMS Plan via Regulatory Circular. Furthermore, paragraph (d) of proposed Rule 1711 addresses Compliance Thresholds related to reporting data to the CAT. Proposed Rule 1711 states that each Industry Member is required to meet a separate compliance threshold which will be an Industry Member-specific rate that may be used as the basis for further review or investigation into the Industry Member's performance with regard to the CAT (the ``Compliance Thresholds''). Compliance Thresholds will compare an Industry Member's error rate to the aggregate Error Rate over a period of time to be defined by the Operating Committee. Compliance Thresholds will be set by the Operating Committee, and will be calculated at intervals to be set by the Operating Committee.\31\ Compliance Thresholds will include compliance with the data reporting and clock synchronization requirements. Proposed Rule 1711 states that an Industry Member's performance with respect to its Compliance Threshold will not signify, as a matter of law, that such Industry Member has violated the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). --------------------------------------------------------------------------- \31\ Appendix C of the CAT NMS Plan. --------------------------------------------------------------------------- (xii) Compliance Dates Proposed Rule 1712 (Consolidated Audi [sic] Trail Compliance Rule-- Compliance Dates) sets forth the compliance dates for the various provisions of the proposed Consolidated Audit Trail Compliance Rule (Rules 1701-1712). Paragraph (a) of proposed Rule 1712 states that paragraphs (b) and (c) of this Rule set forth the additional details with respect to the compliance date for the Consolidated Audit Trail Compliance Rule (Rules 1701-1712). It further states that, unless otherwise noted, Rules 1701-1712 are fully effective and Members must comply with their terms. Paragraph (b) of proposed Rule 1712 establishes the compliance dates for the clock synchronization requirements as set forth in proposed Rule 1702. Paragraph (b)(1) states that each Industry Member shall comply with Rule 1702 with regard to Business Clocks that capture time in milliseconds commencing on or before March 15, 2017. Paragraph (b)(2) states that each Industry Member shall comply with Rule 1702 with regard to Business Clocks that do not capture time in milliseconds commencing on or before February 19, 2018. The compliance date set forth in paragraph (b)(1) reflects the exemptive relief requested by the Participants with regard to the clock synchronization requirements related to Business Clocks that do not capture time in milliseconds. Paragraph (c) of proposed Rule 1712 establishes the compliance dates for the data recording and reporting requirements for Industry Members. Paragraph (c)(1) requires each Industry Member (other than Small Industry Members) to record and report the Industry Member Data to the Central Repository by November 15, 2018. Paragraph (c)(2) requires that each Industry Member that is a Small Industry Member to record and report the Industry Member Data to the Central Repository by November 15, 2019. Such compliance dates are consistent with the compliance dates set forth in SEC Rule 613(a)(3)(v) and (vi), and Section 6.7(a)(v) and (vi) of the CAT NMS Plan. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act \32\ which requires, among other things, that the Exchange's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest, and Section 6(b)(8) of the Act \33\ which requires that the Exchange's rules not impose any burden on competition that is not necessary or appropriate. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78f(b)(6) [sic]. \33\ 15 U.S.C. 78f(b)(8) --------------------------------------------------------------------------- The Exchange believes that this proposal is consistent with the Act because it implements, interprets or clarifies the provisions of the Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan ``is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.'' \34\ To the extent that this proposal implements, interprets or clarifies the Plan and applies specific requirements to Industry Members, the Exchange believes that this proposal furthers the objectives of the Plan, as identified by the SEC, and is therefore consistent with the Act. --------------------------------------------------------------------------- \34\ Approval Order at 84697. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change implements provisions of the CAT NMS Plan, and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. The Exchange also notes that the proposed Consolidated Audit Trail Compliance Rule (Rules 1701- 1712) implementing provisions of the CAT NMS Plan will apply equally to all firms that trade NMS Securities and OTC Equity Securities. In addition, all national securities exchanges and FINRA are proposing this Consolidated Audit Trail Compliance Rule (Rules 1701-1712). Therefore, this is not a competitive rule filing, and, therefore, it does not impose a burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. [[Page 9803]] 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the 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-MIAX-2017-03 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-MIAX-2017-03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-MIAX-2017-03 and should be submitted on or before March 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\35\ --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2017-02542 Filed 2-7-17; 8:45 am] BILLING CODE 8011-01-P
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appropriate in the public interest, for IV. Solicitation of Comments For the Commission, by the Division of
the protection of investors and the Trading and Markets, pursuant to delegated
maintenance of fair and orderly markets, Interested persons are invited to authority.35
to remove impediments to, and perfect submit written data, views, and Robert W. Errett,
the mechanism of a national market arguments concerning the foregoing, Deputy Secretary.
system, or is otherwise in furtherance of including whether the proposed rule [FR Doc. 2017–02550 Filed 2–7–17; 8:45 am]
the purposes of the Act.’’ 34 To the change is consistent with the Act. BILLING CODE 8011–01–P
extent that this proposal implements, Comments may be submitted by any of
interprets or clarifies the Plan and the following methods:
applies specific requirements to Electronic Comments SECURITIES AND EXCHANGE
Industry Members, the Exchange COMMISSION
believes that this proposal furthers the • Use the Commission’s Internet
objectives of the Plan, as identified by comment form (http://www.sec.gov/ [Release No. 34–79937; File No. SR–MIAX–
the SEC, and is therefore consistent with rules/sro.shtml); or 2017–03]
the Act. • Send an email to rule-comments@
Self-Regulatory Organizations; Miami
B. Self-Regulatory Organization’s sec.gov. Please include File Number SR– International Securities Exchange,
Statement on Burden on Competition Phlx–2017–07 on the subject line. LLC; Notice of Filing of a Proposed
Paper Comments Rule Change To Adopt Consolidated
The Exchange does not believe that Audit Trail Compliance Rule (Rules
the proposed rule change will result in • Send paper comments in triplicate 1701–1712) To Implement the
any burden on competition that is not to Brent J. Fields, Secretary, Securities Compliance Rule Regarding the
necessary or appropriate in furtherance and Exchange Commission, 100 F Street National Market System Plan
of the purposes of the Act. The NE., Washington, DC 20549–1090. Governing the Consolidated Audit Trail
Exchange notes that the proposed rule
change implements provisions of the All submissions should refer to File February 2, 2017.
CAT NMS Plan, and is designed to Number SR–Phlx–2017–07. This file Pursuant to the provisions of Section
assist the Exchange in meeting its number should be included on the 19(b)(1) of the Securities Exchange Act
regulatory obligations pursuant to the subject line if email is used. To help the of 1934 (‘‘Act’’) 1 and Rule 19b–4
Plan. The Exchange also notes that the Commission process and review your thereunder,2 notice is hereby given that
Proposed Rule Series implementing comments more efficiently, please use on January 30, 2017, Miami
provisions of the CAT NMS Plan will only one method. The Commission will International Securities Exchange, LLC
apply equally to all firms that trade post all comments on the Commission’s (‘‘MIAX Options’’ or ‘‘Exchange’’) filed
NMS Securities and OTC Equity Internet Web site (http://www.sec.gov/ with the Securities and Exchange
Securities. In addition, all national rules/sro.shtml). Commission (‘‘Commission’’) a
securities exchanges and FINRA are Copies of the submission, all proposed rule change as described in
proposing this Proposed Rule 900A subsequent amendments, all written Items I and II below, which Items have
Series. Therefore, this is not a statements with respect to the proposed been prepared by the Exchange.3 The
competitive rule filing, and, therefore, it rule change that are filed with the Commission is publishing this notice to
does not impose a burden on Commission, and all written solicit comments on the proposed rule
competition. communications relating to the change from interested persons.
C. Self-Regulatory Organization’s proposed rule change between the I. Self-Regulatory Organization’s
Statement on Comments on the Commission and any person, other than Statement of the Terms of Substance of
Proposed Rule Change Received From those that may be withheld from the the Proposed Rule Change
Members, Participants, or Others public in accordance with the
provisions of 5 U.S.C. 552, will be The Exchange proposes to adopt the
No written comments were either available for Web site viewing and Rules 1701–1712 to implement the
solicited or received. compliance rule (‘‘Compliance Rule’’)
printing in the Commission’s Public
regarding the National Market System
III. Date of Effectiveness of the Reference Room, 100 F Street NE.,
Plan Governing the Consolidated Audit
Proposed Rule Change and Timing for Washington, DC 20549, on official
Trail (the ‘‘CAT NMS Plan’’ or ‘‘Plan’’).4
Commission Action business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the The text of the proposed rule change
Within 45 days of the date of filing also will be available for is available on the Exchange’s Web site
publication of this notice in the Federal inspection and copying at the principal at http://www.miaxoptions.com/rule-
Register or within such longer period (i) office of the Exchange. All comments filings, at MIAX’s principal office, and
as the Commission may designate up to at the Commission’s Public Reference
received will be posted without change;
90 days of such date if it finds such Room.
the Commission does not edit personal
longer period to be appropriate and identifying information from 35 17 CFR 200.30–3(a)(12).
publishes its reasons for so finding or
asabaliauskas on DSK3SPTVN1PROD with NOTICES
submissions. You should submit only 1 15 U.S.C. 78s(b)(1).
(ii) as to which the Exchange consents, information that you wish to make 2 17 CFR 240.19b–4.
the Commission shall: (a) By order available publicly. 3 The Exchange originally filed this proposed rule
approve or disapprove such proposed change on January 17, 2017 under File No. SR–
rule change, or (b) institute proceedings All submissions should refer to File MIAX–2017–01, and the Exchange subsequently
to determine whether the proposed rule Number SR–Phlx–2017–07 and should withdrew that filing on January 30, 2017 and filed
change should be disapproved. be submitted on or before March 1, this proposed rule change.
4 Unless otherwise specified, capitalized terms
2017.
used in this rule filing are defined as set forth
34 Approval Order at 84697. herein or in the CAT NMS Plan.
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II. Self-Regulatory Organization’s The Plan is designed to create, requires Industry Members to use the
Statement of the Purpose of, and implement and maintain a consolidated same Customer-ID for each Customer.
Statutory Basis for, the Proposed Rule audit trail (‘‘CAT’’) that would capture The SEC granted the Participants
Change customer and order event information exemptive relief to permit the use of an
In its filing with the Commission, the for orders in NMS Securities and OTC alternative approach to the requirement
Exchange included statements Equity Securities, across all markets, that an Industry Member report a
concerning the purpose of and basis for from the time of order inception through Customer-ID for every Customer upon
the proposed rule change and discussed routing, cancellation, modification, or original receipt or origination.12 The
any comments it received on the execution in a single consolidated data alternative approach is called the
proposed rule change. The text of these source. Each Participant is required to Customer Information Approach.
statements may be examined at the enforce compliance by its Industry Under the Customer Information
places specified in Item IV below. The Members, as applicable, with the Approach, the CAT NMS Plan would
Exchange has prepared summaries, set provisions of the Plan, by adopting a require each Industry Member to assign
forth in sections A, B, and C below, of Compliance Rule applicable to their a unique Firm Designated ID to each
the most significant aspects of such Industry Members.11 As is described Customer. As the Firm Designated ID,
statements. more fully below, the rules contained in Industry Members would be permitted
the proposed Chapter XVII set forth the to use an account number or any other
A. Self-Regulatory Organization’s Compliance Rule to require Industry identifier defined by the firm, provided
Statement of the Purpose of, and Members to comply with the provisions each identifier is unique across the firm
Statutory Basis for, the Proposed Rule of the CAT NMS Plan. The proposed for each business date (i.e., a single firm
Change Rules include twelve proposed Rules may not have multiple separate
1. Purpose covering the following areas: (1) customers with the same identifier on
Definitions; (2) clock synchronization; any given date). Prior to their
Bats BYX Exchange, Inc., Bats BZX commencement of reporting to the CAT,
Exchange, Inc., Bats EDGA Exchange, (3) Industry Member Data reporting; (4)
Customer information reporting; (5) Industry Members would submit an
Inc., Bats EDGX Exchange, Inc., BOX initial set of Customer information to
Options Exchange LLC, C2 Options Industry Member information reporting;
(6) time stamps; (7) clock the Central Repository, including the
Exchange, Incorporated, Chicago Board Firm Designated ID, Customer
Options Exchange, Incorporated, synchronization rule violations; (8)
connectivity and data transmission; (9) Identifying Information and Customer
Chicago Stock Exchange, Inc., Financial Account Information (which may
Industry Regulatory Authority, Inc., development and testing; (10)
recordkeeping; (11) timely, accurate and include, as applicable, the Customer’s
International Securities Exchange, LLC, name, address, date of birth, individual
Investors’ Exchange LLC, ISE Gemini, complete data; and (12) compliance
dates. Each of these proposed Rules are tax payer identifier number (‘‘ITIN’’)/
LLC, ISE Mercury, LLC, Miami social security number (‘‘SSN’’),
International Securities Exchange LLC, discussed in detail below.
individual’s role in the account (e.g.,
MIAX PEARL, LLC,5 NASDAQ BX, Inc., (i) Definitions primary holder, joint holder, guardian,
NASDAQ PHLX LLC, The NASDAQ trustee, person with power of attorney)
Stock Market LLC, National Stock Proposed Rule 1701 (Consolidated
Audit Trail Compliance Rule— and LEI and/or Larger [sic] Trader ID
Exchange, Inc., New York Stock (‘‘LTID’’). This process is referred to as
Exchange LLC, NYSE MKT LLC, and Definitions) sets forth the definitions for
the terms used in the proposed Rules the customer definition process.
NYSE Arca, Inc. (collectively, the In accordance with the Customer
‘‘Participants’’ or ‘‘SROs’’) filed with the 1701–1712. Each of the defined terms in
proposed Rule 1701 is discussed in Information Approach, Industry
Commission, pursuant to Section 11A of Members would be required to report
the Exchange Act 6 and Rule 608 of detail in this section.
only the Firm Designated ID for each
Regulation NMS thereunder,7 the CAT (A) Account Effective Date new order submitted to the Central
NMS Plan.8 The Participants filed the Repository, rather than the ‘‘Customer-
Plan to comply with Rule 613 of (I) Customer Information Approach
ID’’ with individual order events.
Regulation NMS under the Exchange SEC Rule 613 requires that numerous Within the Central Repository, each
Act. The Plan was published for data elements be reported to the CAT to Customer would be uniquely identified
comment in the Federal Register on ensure there is sufficient information to by identifiers or a combination of
May 17, 2016,9 and approved by the create the lifecycle of an order, and identifiers such as ITIN/SSN, date of
Commission, as modified, on November provide regulators with sufficient detail birth, and as applicable, LEI and LTID.
15, 2016.10 about an order to perform their The Plan Processor would be required to
regulatory duties. Certain required use these unique identifiers to map
5 MIAX PEARL, LLC, became a party to the CAT
elements are intended to ensure that the orders to specific Customers across all
NMS Plan via an Amendment to the Plan on regulators can identify the Customers
January 12, 2017. Industry Members and Participants. To
6 15 U.S.C. 78k–1. associated with orders. For example, ensure information identifying a
7 17 CFR 242.608. SEC Rule 613(c)(7)(i)(A) requires an Customer is up to date, Industry
8 See Letter from the Participants to Brent J. Industry Member to report the Members would be required to submit
Fields, Secretary, Commission, dated September 30, ‘‘Customer-IDs’’ for each Customer for to the Central Repository daily and
2014; and Letter from Participants to Brent J. Fields, the original receipt or origination of an
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Secretary, Commission, dated February 27, 2015. periodic updates for reactivated
On December 24, 2015, the Participants submitted
order. ‘‘Customer-ID’’ is defined in SEC accounts, newly established accounts,
an amendment to the CAT NMS Plan. See Letter Rule 613(j)(5) to mean ‘‘with respect to
from Participants to Brent J. Fields, Secretary, a customer, a code that uniquely and 12 See Securities Exchange Act Release No. 77265
Commission, dated December 23, 2015. consistently identifies such customer for (March 1, 2016), 81 FR 11856 (March 7, 2016)
9 See Securities Exchange Act Release No. 77724
purposes of providing data to the (‘‘Exemption Order’’). See also Letter from
(Apr. 27, 2016), 81 FR 30614 (May 17, 2016). Participants to Brent J. Fields, Secretary,
10 See Securities Exchange Act Release No. 79318 Central Repository.’’ SEC Rule 613(c)(8) Commission, dated January 30, 2015 at 12
(Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016) (‘‘Exemptive Request Letter’’); and CAT NMS Plan
(‘‘Approval Order’’). 11 See SEC Rule 613(g)(1). at Appendix C, Section A.1(a)(iii).
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and revised Firm Designated IDs or Member changes back office providers (C) Allocation Report
associated reportable Customer or clearing firms prior to November 15, (I) Allocation Report Approach
information. 2018, for Industry Members other than
Small Industry Members, or prior to SEC Rule 613(c)(7)(vi)(A) requires
(II) Definition of Account Effective Date each Industry Member to record and
November 15, 2019, for Small Industry
In connection with the Customer Members, the date an account was report to the Central Repository ‘‘the
Information Approach, Industry established at the relevant Industry account number for any subaccounts to
Members would be required to report Member, either directly or via transfer. which the execution is allocated (in
Customer Account Information to the whole or in part).’’ The SROs requested
Central Repository. ‘‘Customer Account Paragraph (a)(3) states that an and received from the SEC exemptive
Information’’ is defined in SEC Rule ‘‘Account Effective Date’’ means, where relief from SEC Rule 613 for an
613(j)(4) to ‘‘include, but not be limited an Industry Member acquires another alternative to this approach (‘‘Allocation
to, account number, account type, Industry Member prior to November 15, Report Approach’’). The Allocation
customer type, date account opened, 2018, for Industry Members other than Report Approach would permit Industry
and large trader identifier (if Small Industry Members, or prior to Members to record and report to the
applicable).’’ Therefore, when reporting November 15, 2019, for Small Industry Central Repository an Allocation Report
Customer Account Information, an Members, the date an account was that includes, among other things, the
Industry Member is required to report established at the relevant Industry Firm Designated ID for any account(s) to
the date an account was opened. The Member, either directly or via transfer. which executed shares are allocated
Participants requested and received an Paragraph (a)(4) states that ‘‘Account when an execution is allocated in whole
exemption to allow an ‘‘Account Effective Date’’ means, where there are or part in lieu of requiring the reporting
Effective Date’’ to be reported in lieu of multiple dates associated with an of the account number for any
an account open date in certain limited account established prior to November subaccount to which an execution is
circumstances. The definition of 15, 2018, for Industry Members other allocated, as is required by SEC Rule
‘‘Account Effective Date’’ as set forth in 613.13 Under SEC Rule 613, regulators
than Small Industry Members, or prior
Paragraph (a) of proposed Rule 1701 would be able to link the subaccount to
to November 15, 2019, for Small
describes those limited circumstances in which an allocation was made to a
Industry Members, the earliest available
which an Industry Member may report specific order. In contrast, under the
an ‘‘Account Effective Date’’ rather than date.
Allocation Report Approach, regulators
the account open date. The proposed Paragraph (a)(5) states that an would only be able to link an allocation
definition is the same as the definition ‘‘Account Effective Date’’ means, with to the account to which it was made,
of ‘‘Account Effective Date’’ set forth in regard to Industry Member proprietary and not to a specific order.
Section 1.1 of the CAT NMS Plan, accounts established prior to November
provided, however, that specific dates 15, 2018, for Industry Members other (II) Definition of Allocation Report
have replaced the descriptions of those than Small Industry Members, or prior To assist in implementing the
dates set forth in Section 1.1 of the Plan. to November 15, 2019, for Small Allocation Report Approach, paragraph
Specifically, Paragraph (a)(1) defines Industry Members: (1) The date (c) of proposed Rule 1701 defines an
‘‘Account Effective Date [sic] to mean, established for the account in the ‘‘Allocation Report.’’ Specifically, an
with regard to those circumstances in Industry Member or in a system of the ‘‘Allocation Report’’ means a report
which an Industry Member has Industry Member or (2) the date when made to the Central Repository by an
established a trading relationship with proprietary trading began in the account Industry Member that identifies the
an institution but has not established an (i.e., the date on which the first orders Firm Designated ID for any account(s),
account with that institution: (1) When were submitted from the account). With including subaccount(s), to which
the trading relationship was established regard to paragraphs (a)(2)–(5), the executed shares are allocated and
prior to November 15, 2018, for Industry Account Effective Date will be no later provides the security that has been
Members other than Small Industry than the date trading occurs at the allocated, the identifier of the firm
Members, or prior to November 15, Industry Member or in the Industry reporting the allocation, the price per
2019, for Small Industry Members, Member’s system. share of shares allocated, the side of
either (a) the date the relationship shares allocated, the number of shares
identifier was established within the (B) Active Account allocated to each account, and the time
Industry Member; (b) the date when of the allocation; provided, for the
trading began (i.e., the date the first Under the Customer Information
Approach, Industry Members are avoidance of doubt, any such Allocation
order was received) using the relevant Report shall not be required to be linked
relationship identifier; or (c) if both required to report Customer Identifying
Information and Customer Account to particular orders or executions. This
dates are available, the earlier date will is the same definition as set forth in
be used to the extent that the dates Information for only those accounts that
Section 1.1 of the CAT NMS Plan.
differ; or (2) when the trading are active. This will alleviate the need
relationship was established on or after for Industry Members to update such (D) Business Clock
November 15, 2018 for Industry information for non-active accounts, but To create the required audit trail,
Members other than Small Industry still ensure that the Central Repository Industry Members are required to record
Members, or on or after November 15, will collect audit trail data for Customer
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the date and time of various Reportable
2019 for Small Industry Members, the accounts that have any Reportable Events to the Central Repository.
date the Industry Member established Events. Accordingly, paragraph (b) of Industry Members will use ‘‘Business
the relationship identifier, which would proposed Rule 1701 defines an ‘‘Active Clocks’’ to record such dates and times.
be no later than the date the first order Account’’ as an account that has had Accordingly, paragraph (d) of proposed
was received. activity in Eligible Securities within the Rule 1701 defines the term ‘‘Business
Paragraph (a)(2) of proposed Rule last six months. This is the same
1701 states that an ‘‘Account Effective definition as set forth in Section 1.1 of 13 Exemptive Request Letter at 26–27; and
Date’’ means, where an Industry the CAT NMS Plan. Exemption Order.
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Where an Industry Member changes Repository.15 Such Data Submitters may Error Rate, then such Industry Member
back office providers or clearing firms include those entities that are required would not be in compliance with the
and the date account opened is changed to submit data to the Central Repository CAT NMS Plan or Rule 613.18 As such,
to the date the account was opened on (e.g., national securities exchanges, the Exchange or the SEC ‘‘[sic]’’ may
the new back office/clearing firm national securities associations and take appropriate action against an
system; (2) where an Industry Member Industry Members), third-parties that Industry Member for failing to comply
acquires another Industry Member and may submit data to the CAT on behalf with its CAT reporting obligations.19
the date account opened is changed to of CAT Reporters (i.e., CAT Reporting The CAT NMS Plan sets the initial Error
the date the account was opened on the Agents), and outside parties that are not Rate at 5%.20 It is anticipated that the
post-merger back office/clearing firm required to submit data to the CAT but maximum Error Rate will be reviewed
system; (3) where there are multiple from which the CAT may receive data and lowered by the Operating
dates associated with an account in an (e.g., securities information processors Committee once Industry Members
Industry Member’s system, and the (‘‘SIPs’’). To include this term in the begin to report to the Central
parameters of each date are determined proposed Consolidated Audit Trail Repository.21
by the individual Industry Member; and Compliance Rule (Rules 1701–1712), the The CAT NMS Plan requires the Plan
(4) where the relevant account is an Exchange proposes to define ‘‘Data Processor to: (1) Measure and report
Industry Member proprietary account. Submitter’’ in paragraph (n) of proposed errors every business day; (2) provide
The proposed definition is the same as Rule 1701. Specifically, paragraph (n) of Industry Members daily statistics and
the definition of ‘‘Customer Account proposed Rule 1701 defines a ‘‘Data error reports as they become available,
Information’’ set forth in Section 1.1 of Submitter’’ to mean any person that including a description of such errors;
the CAT NMS Plan, provided, however, reports data to the Central Repository, (3) provide monthly reports to Industry
that specific dates have replaced the including national securities exchanges, Members that detail an Industry
descriptions of those dates set forth in national securities associations, broker- Member’s performance and comparison
Section 1.1 of the Plan. dealers, the SIPs for the CQS, CTA, UTP statistics; (4) define educational and
and Plan for Reporting of Consolidated support programs for Industry Members
(M) Customer Identifying Information to minimize Error Rates; and (5)
Options Last Sale Reports and
As discussed above, under the Quotation Information (‘‘OPRA’’) Plans, identify, daily, all Industry Members
Customer Information Approach, and certain other vendors or third exceeding the maximum allowable Error
Industry Members are required to report parties that may submit data to the Rate. To timely correct data-submitted
Customer Identifying Information to the Central Repository on behalf of Industry errors to the Central Repository, the
Central Repository as part of the Members. CAT NMS Plan requires that the Central
customer definition process. Repository receive and process error
Accordingly, the Exchange proposes to (O) Eligible Security corrections at all times. Further, the
define the term ‘‘Customer Account The reporting requirements of the CAT NMS Plan requires that Industry
Information’’ to clarify what Customer proposed Consolidated Audit Trail Members be able to submit error
information would need to be reported Compliance Rule (Rules 1701–1712) corrections to the Central Repository
to the Central Repository. only apply to Reportable Events in through a web-interface or via bulk
Paragraph (m) of proposed Rule 1701 Eligible Securities. Currently, an uploads or file submissions, and that the
defines the term ‘‘Customer Identifying Eligible Security includes NMS Plan Processor, subject to the Operating
Information’’ to mean information of Securities and OTC Equity Securities. Committee’s approval, support the bulk
sufficient detail to identify a Customer. Accordingly, paragraph (o) of proposed replacement of records and the
With respect to individuals, ‘‘Customer Rule 1701 defines the term ‘‘Eligible reprocessing of such records. The
Identifying Information’’ includes, but is Security’’ to include: (1) All NMS Participants, furthermore, require that
not limited to: Name, address, date of Securities; and (2) all OTC Equity the Plan Processor identify Industry
birth, individual tax payer identification Securities. The terms ‘‘NMS Securities’’ Member data submission errors based
number (‘‘ITIN’’)/social security number and ‘‘OTC Equity Securities’’ are on the Plan Processor’s validation
(‘‘SSN’’), individual’s role in the defined, in turn, below. This is the same processes.22
account (e.g., primary holder, joint definition as set forth in Section 1.1 of
holder, guardian, trustee, person with (II) Definition of Error Rate
the CAT NMS Plan.
the power of attorney). With respect to To implement the requirements of the
legal entities, ‘‘Customer Identifying (P) Error Rate CAT NMS Plan related to the Error Rate,
Information’’ includes, but is not (I) Maximum Error Rate the Exchange proposes to define the
limited to, name, address, Employer term ‘‘Error Rate’’ in proposed Rule
Under the CAT NMS Plan, the 1701. Paragraph (p) of proposed Rule
Identification Number (‘‘EIN’’)/Legal Operating Committee sets the maximum
Entity Identifier (‘‘LEI’’) or other 1701 defines the term ‘‘Error Rate’’ to
Error Rate that the Central Repository mean the percentage of Reportable
comparable common entity identifier, if would tolerate from an Industry
applicable. The definition further notes Events collected by the Central
Member reporting data to the Central Repository in which the data reported
that an Industry Member that has an LEI Repository.16 The Operating Committee
for a Customer must submit the does not fully and accurately reflect the
reviews and resets the maximum Error order event that occurred in the market.
Customer’s LEI in addition to other
Rate, at least annually.17 If an Industry This is the same definition as set forth
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information of sufficient detail to
Member reports CAT data to the Central
identify the Customer. This is the same
Repository with errors such that their 18 Appendix C, Section A.3(b) of the CAT NMS
definition as set forth in Section 1.1 of
error percentage exceeds the maximum Plan; Rule 613(g)–(h).
the CAT NMS Plan. 19 Appendix C, Section A.3(b) of the CAT NMS
(N) Data Submitter 15 Appendix C, Section A.1(a) of the CAT NMS Plan.
Plan. 20 Section 6.5(d)(i) of the CAT NMS Plan.
The CAT NMS Plan uses the term 16 Section 6.5(d)(i) of the CAT NMS Plan. 21 Appendix C, Section A.3(b) of the CAT NMS
‘‘Data Submitter’’ to refer to any person 17 Appendix C, Section A.3(b) of the CAT NMS Plan.
that reports data to the Central Plan. 22 Approval Order at 84718.
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Central Repository using a secure Repository no later than August 15, (x) Recordkeeping
method(s), including, but not limited to, 2018, and Small Industry Members are Proposed Rule 1710 (Consolidated
private line(s) and virtual private required to begin connectivity and Audit Trail Compliance Rule—
network connection(s). This provision acceptance testing with the Central Recordkeeping) sets forth the
implements the connectivity Repository no later than August 15, recordkeeping obligations related to the
requirements set forth in Section 4 of 2019. CAT for Industry Members. Proposed
Appendix D to the CAT NMS Plan. Paragraph (a)(2) sets forth the Rule 1710 requires each Industry
Paragraph (c) permits Industry deadlines related to reporting Customer Member to maintain and preserve
Members to use CAT Reporting Agents and Industry Member information. records of the information required to be
to fulfill their data reporting obligations Paragraph (a)(2)(i) requires Industry recorded under the proposed
related to the CAT. Paragraph (c) is Members (other than Small Industry Consolidated Audit Trail Compliance
based on FINRA Rule 7450(c), which Members) to begin reporting Customer Rule (Rules 1701–1712) for the period of
permits OATS Reporting Members to and Industry Member information, as time and accessibility specified in SEC
enter into agreements with Reporting required by Rules 1704(a) and 1705, Rule 17a–4(b). The records required to
Agents to fulfill the OATS obligations of respectively, to the Central Repository be maintained and preserved under the
the OATS Reporting Member. for processing no later than October 15, proposed Consolidated Audit Trail
Specifically, Paragraph (c)(1) of 2018. Paragraph (a)(2)(ii) requires Small Compliance Rule (Rules 1701–1712)
proposed Rule 1708 states that any Industry Members to begin reporting may be immediately produced or
Industry Member may enter into an Customer and Industry Member reproduced on ‘‘micrographic media’’ as
agreement with a CAT Reporting Agent information, as required by Rules defined in SEC Rule 17a–4(f)(1)(i) or by
pursuant to which the CAT Reporting 1704(a) and 1705, respectively, to the means of ‘‘electronic storage media’’ as
Agent agrees to fulfill the obligations of Central Repository for processing no defined in SEC Rule 17a–4(f)(1)(ii) that
such Industry Member under the later than October 15, 2019. meet the conditions set forth in SEC
proposed Consolidated Audit Trail Paragraph (a)(3) sets forth the Rule 17a–4(f) and be maintained and
Compliance Rule (Rules 1701–1712). deadlines related to the submission of preserved for the required time in that
Any such agreement must be evidenced order data. Under paragraph (a)(3)(i), form. Proposed Rule 1710 is based on
in writing, which specifies the Industry Members (other than Small FINRA Rule 7440(a)(5), which sets forth
respective functions and responsibilities Industry Members) are permitted, but the recordkeeping requirements related
of each party to the agreement that are not required, to submit order data for to OATS.
required to effect full compliance with testing purposes beginning no later than
the requirements of the proposed (xi) Timely, Accurate and Complete
May 15, 2018. In addition, Industry
Consolidated Audit Trail Compliance Data
Members (other than Small Industry
Rule (Rules 1701–1712). The Exchange Members) are required to participate in SEC Rule 613 and the CAT NMS Plan
notes that, currently, no standardized emphasize the importance of the
the coordinated and structured testing
form agreement for CAT Reporting timeliness, accuracy, completeness and
of order submission, which will begin
Agent arrangements has been adopted. integrity of the data submitted to the
no later than August 15, 2018. Under
Paragraph (c)(2) of proposed Rule 1708 CAT.29 Accordingly, proposed Rule
paragraph (a)(3)(ii), Small Industry
requires that all written documents 1711 (Consolidated Audit Trail
Members are permitted, but not
evidencing an agreement with a CAT Compliance Rule—Timely, Accurate
required, to submit order data for testing
Reporting Agent be maintained by each and Complete Data) implements this
purposes beginning no later than May
party to the agreement. Paragraph (c)(3) requirement with regard to Industry
15, 2019. In addition, Small Industry
states that each Industry Member Members. Paragraph (a) of proposed
Members are required to participate in
remains primarily responsible for Rule 1711 requires that Industry
compliance with the requirements of the the coordinated and structured testing
of order submission, which will begin Members record and report data to the
proposed Consolidate Audit Trail Central Repository as required by the
Compliance Rule (Rules 1701–1712), no later than August 15, 2019.
Paragraph (a)(4) states that Industry proposed Consolidated Audit Trail
notwithstanding the existence of an Compliance Rule (Rules 1701–1712) in
agreement described in paragraph (c) of Members are permitted, but not required
to, submit Quote Sent Times on Options a manner that ensures the timeliness,
proposed Rule 1708. accuracy, integrity and completeness of
Market Maker quotes, beginning no later
(ix) Development and Testing than October 15, 2018. such data.
In addition, without limiting the
The Exchange proposes Rule 1709 Paragraph (b) of proposed Rule 1709
general requirement as set forth in
(Consolidated Audit Trail Compliance implements the requirement under the
paragraph (a), paragraph (b) of proposed
Rule—Development and Testing) to CAT NMS Plan that Industry Members
Rule 1711 requires Industry Members to
address requirements for Industry participate in required industry testing
accurately provide the LEIs in their
Members related to CAT development with the Central Repository.28 records as required by the proposed
and testing. Paragraph (a) of proposed Specifically, proposed Rule 1709 Consolidated Audit Trail Compliance
Rule 1709 sets forth the testing requires that each Industry Member Rule (Rules 1701–1712) and states that
requirements and deadlines for Industry participate in testing related to the Industry Members may not knowingly
Members to develop and commence Central Repository, including any submit inaccurate LEIs to the Central
reporting to the Central Repository. industry-wide disaster recovery testing,
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Repository. Paragraph (b) notes,
These requirements are set forth in pursuant to the schedule established however, that this requirement does not
Appendix C to the CAT NMS Plan. pursuant to the CAT NMS Plan. The impose any additional due diligence
Paragraph (a)(1) sets forth the Exchange intends to announce to its obligations on Industry Members with
deadlines related to connectivity and Industry Members the schedule regard to LEIs for CAT purposes.
acceptance testing. Industry Members established pursuant to the CAT NMS Accordingly, this provision does not
(other than Small Industry Members) are Plan via Regulatory Circular.
required to begin connectivity and 29 See SEC Rule 613(e)(4)(i)(D)(ii); and Section
acceptance testing with the Central 28 Adopting Release [sic] at 84725. 6.5(d) of the CAT NMS Plan.
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impose any due diligence obligations (xii) Compliance Dates trade, and, in general, to protect
beyond those that may exist today with Proposed Rule 1712 (Consolidated investors and the public interest, and
respect to information associated with Audi [sic] Trail Compliance Rule— Section 6(b)(8) of the Act 33 which
an LEI. Although Industry Members will Compliance Dates) sets forth the requires that the Exchange’s rules not
not be required to perform additional compliance dates for the various impose any burden on competition that
due diligence with regard to the LEIs for provisions of the proposed Consolidated is not necessary or appropriate.
CAT purposes, Industry Members will Audit Trail Compliance Rule (Rules The Exchange believes that this
be required to accurately provide the 1701–1712). Paragraph (a) of proposed proposal is consistent with the Act
LEIs in their records and may not Rule 1712 states that paragraphs (b) and because it implements, interprets or
knowingly submit inaccurate LEIs to the (c) of this Rule set forth the additional clarifies the provisions of the Plan, and
CAT. Paragraph (b) is consistent with details with respect to the compliance is designed to assist the Exchange and
the SEC’s statements in the Approval date for the Consolidated Audit Trail its Industry Members in meeting
Order for the CAT NMS Plan regarding Compliance Rule (Rules 1701–1712). It regulatory obligations pursuant to the
an Industry Member’s obligations further states that, unless otherwise Plan. In approving the Plan, the SEC
regarding LEIs.30 noted, Rules 1701–1712 are fully noted that the Plan ‘‘is necessary and
Paragraph (c) states that, if an effective and Members must comply appropriate in the public interest, for
Industry Member reports data to the with their terms. the protection of investors and the
Central Repository with errors such that Paragraph (b) of proposed Rule 1712 maintenance of fair and orderly markets,
its error percentage exceeds the establishes the compliance dates for the to remove impediments to, and perfect
maximum Error Rate established by the clock synchronization requirements as the mechanism of a national market
Operating Committee pursuant to the set forth in proposed Rule 1702. system, or is otherwise in furtherance of
CAT NMS Plan, then such Industry Paragraph (b)(1) states that each the purposes of the Act.’’ 34 To the
Member would not be in compliance Industry Member shall comply with extent that this proposal implements,
with the proposed Consolidated Audit Rule 1702 with regard to Business interprets or clarifies the Plan and
Trail Compliance Rule (Rules 1701– Clocks that capture time in milliseconds applies specific requirements to
1712). As discussed above, the initial commencing on or before March 15, Industry Members, the Exchange
maximum Error Rate is 5%, although 2017. Paragraph (b)(2) states that each believes that this proposal furthers the
the Error Rate is expected to be reduced Industry Member shall comply with objectives of the Plan, as identified by
over time. The Exchange intends to Rule 1702 with regard to Business the SEC, and is therefore consistent with
announce to its Industry Members Clocks that do not capture time in the Act.
changes to the Error Rate established milliseconds commencing on or before
pursuant to the CAT NMS Plan via February 19, 2018. The compliance date B. Self-Regulatory Organization’s
Regulatory Circular. set forth in paragraph (b)(1) reflects the Statement on Burden on Competition
exemptive relief requested by the
Furthermore, paragraph (d) of The Exchange does not believe that
Participants with regard to the clock
proposed Rule 1711 addresses the proposed rule change will result in
synchronization requirements related to
Compliance Thresholds related to any burden on competition that is not
Business Clocks that do not capture
reporting data to the CAT. Proposed necessary or appropriate in furtherance
time in milliseconds.
Rule 1711 states that each Industry of the purposes of the Act. The
Paragraph (c) of proposed Rule 1712
Member is required to meet a separate Exchange notes that the proposed rule
establishes the compliance dates for the
compliance threshold which will be an change implements provisions of the
data recording and reporting
Industry Member-specific rate that may CAT NMS Plan, and is designed to
requirements for Industry Members.
be used as the basis for further review assist the Exchange in meeting its
Paragraph (c)(1) requires each Industry
or investigation into the Industry regulatory obligations pursuant to the
Member (other than Small Industry
Member’s performance with regard to Plan. The Exchange also notes that the
Members) to record and report the
the CAT (the ‘‘Compliance proposed Consolidated Audit Trail
Industry Member Data to the Central
Thresholds’’). Compliance Thresholds Compliance Rule (Rules 1701–1712)
Repository by November 15, 2018.
will compare an Industry Member’s implementing provisions of the CAT
Paragraph (c)(2) requires that each
error rate to the aggregate Error Rate NMS Plan will apply equally to all firms
Industry Member that is a Small
over a period of time to be defined by that trade NMS Securities and OTC
Industry Member to record and report
the Operating Committee. Compliance Equity Securities. In addition, all
the Industry Member Data to the Central
Thresholds will be set by the Operating national securities exchanges and
Repository by November 15, 2019. Such
Committee, and will be calculated at FINRA are proposing this Consolidated
compliance dates are consistent with
intervals to be set by the Operating Audit Trail Compliance Rule (Rules
the compliance dates set forth in SEC
Committee.31 Compliance Thresholds 1701–1712). Therefore, this is not a
Rule 613(a)(3)(v) and (vi), and Section
will include compliance with the data competitive rule filing, and, therefore, it
6.7(a)(v) and (vi) of the CAT NMS Plan.
reporting and clock synchronization does not impose a burden on
requirements. Proposed Rule 1711 states 2. Statutory Basis competition.
that an Industry Member’s performance The Exchange believes that the C. Self-Regulatory Organization’s
with respect to its Compliance
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proposed rule change is consistent with Statement on Comments on the
Threshold will not signify, as a matter the provisions of Section 6(b)(5) of the Proposed Rule Change Received From
of law, that such Industry Member has Act 32 which requires, among other Members, Participants, or Others
violated the proposed Consolidated things, that the Exchange’s rules must
Audit Trail Compliance Rule (Rules be designed to prevent fraudulent and Written comments were neither
1701–1712). manipulative acts and practices, to solicited nor received.
promote just and equitable principles of
30 Approval Order at 84745. 33 15 U.S.C. 78f(b)(8)
31 Appendix C of the CAT NMS Plan. 32 15 U.S.C. 78f(b)(6) [sic]. 34 Approval Order at 84697.
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![Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices 9803
III. Date of Effectiveness of the inspection and copying at the principal as Exhibit 4 to the filing but is not
Proposed Rule Change and Timing for office of the Exchange. All comments attached to the publication of this
Commission Action received will be posted without change; notice.
Within 45 days of the date of the Commission does not edit personal
identifying information from II. Self-Regulatory Organization’s
publication of this notice in the Federal Statement of the Purpose of, and
Register or within such longer period submissions. You should submit only
information that you wish to make Statutory Basis for, the Proposed Rule
up to 90 days (i) as the Commission may Change
available publicly. All submissions
designate if it finds such longer period
should refer to File Number SR–MIAX– In its filing with the Commission, CFE
to be appropriate and publishes its
2017–03 and should be submitted on or
reasons for so finding or (ii) as to which included statements concerning the
before March 1, 2017.
the self-regulatory organization purpose of and basis for the proposed
consents, the Commission will: For the Commission, by the Division of rule change and discussed any
(A) By order approve or disapprove Trading and Markets, pursuant to delegated comments it received on the proposed
authority.35
the proposed rule change, or rule change. The text of these statements
(B) institute proceedings to determine Robert W. Errett, may be examined at the places specified
whether the proposed rule change Deputy Secretary. in Item IV below. CFE has prepared
should be disapproved. [FR Doc. 2017–02542 Filed 2–7–17; 8:45 am] summaries, set forth in Sections A, B,
IV. Solicitation of Comments
BILLING CODE 8011–01–P and C below, of the most significant
aspects of such statements.
Interested persons are invited to
submit written data, views, and SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s
arguments concerning the foregoing, COMMISSION Statement of the Purpose of, and
including whether the proposed rule Statutory Basis for, the Proposed Rule
[Release No. 34–79931; File No. SR–CFE–
change is consistent with the Act. 2017–001] Change
Comments may be submitted by any of 1. Purpose
the following methods: Self-Regulatory Organizations; CBOE
Futures Exchange, LLC; Notice of CFE Rule 415 sets forth requirements
Electronic Comments Filing of a Proposed Rule Change relating to Block Trades. The proposed
• Use the Commission’s Internet Regarding Block Trades rule change adds paragraph (l) to Rule
comment form (http://www.sec.gov/ 415 which relates to the front running
rules/sro.shtml); or February 2, 2017.
Pursuant to Section 19(b)(7) of the of Block Trades. Proposed Rule 415(l)
• Send an email to rule-comments@ makes clear that no person may engage
sec.gov. Please include File Number SR– Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on in the front running of a Block Trade
MIAX–2017–03 on the subject line. when acting on material non-public
January 19, 2017 CBOE Futures
Paper Comments Exchange, LLC (‘‘CFE’’ or ‘‘Exchange’’) information regarding an impending
filed with the Securities and Exchange transaction by another person, acting on
• Send paper comments in triplicate non-public information obtained
to Secretary, Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change described in through a confidential employee/
Commission, 100 F Street NE., employer relationship, broker/customer
Washington, DC 20549–1090. Items I, II, and III below, which Items
have been prepared by CFE. The relationship, or in breach of a pre-
All submissions should refer to File existing duty. Proposed Rule 415(l)
Commission is publishing this notice to
Number SR–MIAX–2017–03. This file would apply to all products traded on
solicit comments on the proposed rule
number should be included on the CFE, including both non-security
change from interested persons. CFE
subject line if email is used. To help the futures and security futures.
also has filed this proposed rule change
Commission process and review your
with the Commodity Futures Trading The proposed rule change is being
comments more efficiently, please use
Commission (‘‘CFTC’’). CFE filed a made in connection with other
only one method. The Commission will
written certification with the CFTC proposed amendments to Rule 415
post all comments on the Commission’s
under Section 5c(c) of the Commodity which are not included as part of this
Internet Web site (http://www.sec.gov/
Exchange Act (‘‘CEA’’) 2 on January 19, proposed rule change. Those proposed
rules/sro.shtml). Copies of the
2017. amendments are to be included in new
submission, all subsequent
I. Self-Regulatory Organization’s paragraph (k) of Rule 415.3 The
amendments, all written statements
Description of the Proposed Rule provisions of proposed Rule 415(k) are
with respect to the proposed rule
Change intended to clarify certain restrictions
change that are filed with the
relating to disclosure and use of non-
Commission, and all written The Exchange proposes to amend CFE public information regarding Block
communications relating to the Rule 415 related to Block Trades. The Trades and the extent to which
proposed rule change between the scope of this filing is limited solely to counterparties to a Block Trade may
Commission and any person, other than the application of the proposed rule enter into pre-hedging or anticipatory
those that may be withheld from the amendments to security futures that hedging transactions in connection with
public in accordance with the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
may be traded on CFE. Although no Block Trades. Proposed Rule 415(k)
provisions of 5 U.S.C. 552, will be security futures are currently listed for would only apply to non-security
available for Web site viewing and trading on CFE, CFE may list security futures, and the Exchange is including
printing in the Commission’s Public futures for trading in the future. The text a sentence in proposed Rule 415(k) to
Reference Room, 100 F Street NE., of the proposed rule change is attached
Washington, DC 20549, on official 3 Paragraph (k) will be filed simultaneously with
business days between the hours of 35 17 CFR 200.30–3(a)(12). paragraph (l) with CFTC which is why the
10:00 a.m. and 3:00 p.m. Copies of such 1 15 U.S.C. 78s(b)(7).
provisions of paragraph (l) are marked as existing
filing will also be available for 2 7 U.S.C. 7a–2(c). rule text in Exhibit 4.
VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 E:\FR\FM\08FEN1.SGM 08FEN1](https://thefederalregister.org/doc/82_FR_9815/page/14.svg)
Document Created: 2017-02-08 02:58:56
Document Modified: 2017-02-08 02:58:56
| 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 9790 |
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